Buying a townhouse in the West Village is going to trigger a higher mansion tax after July 1. (Getty Images)
A looming hike in the New York City mansion tax is putting intense pressure on buyers and sellers to strike deals on high-priced units before the new rates take effect.
New York state passed an increase in the so-called “mansion tax” on all homes above $1 million earlier this year. Instead of a simple 1 percent levy, the new tax will be more progressive, rising up to 3.9 percent on homes that sell for $25 million or more.
The new rates take effect July 1. As that deadline nears, sellers are responding to the new rates by changing their pricing strategies, reshaping the market in interesting ways.
Keeping It Under $1M
One of the clearest effects of the new mansion tax is actually an old one. Even though the tax rates won’t change for homes priced between $1 and 2 million, sellers are pricing more homes just below $1 million anyway.
Sellers have long priced NYC homes just below the mansion tax threshold, of course, but the practice has become more common this year.
As of May 31, 2019, a total of 459 homes listed on StreetEasy were priced between $975,000 and $999,999, more than 18 times the number priced between $1,000,000 and $1,024,999. The comparable ratios for the end of May 2018 and 2017 were just 15 times and 10 times, respectively.
Again, the mansion tax rates aren’t changing for homes priced between $1 and $2 million. But perhaps, with so much talk in the press about the mansion tax this year, sellers want to keep prospective buyers from even having to think about it.
This avoidance strategy has become much more apparent in homes priced around $2 million, which will be affected by the upcoming tax hike.
A total of 252 homes between $1,975,000 and $1,999,999 were listed on StreetEasy as of May 31 — 6.3 times the number priced between $2,000,000 and $2,024,999.
That’s a notable increase from the ratios of 4.6 times in 2018 and 3.8 times in 2017, and a clear indication that sellers are positioning homes in response to the new tax rates.
Homes listed at even higher prices will pay larger taxes under the new law. But the smaller number of properties available at these levels makes their pricing strategies harder to discern.
No Rush of New Listings
Somewhat surprisingly, few new sellers have rushed to the market to sell their homes before the tax hike takes effect.
The volume of new listings on StreetEasy rose slightly in spring 2019 from the heights of 2018, though the largest increases in new listings were at lower price points, not the higher ones facing the sharpest increases in taxes.
A Flurry of Sales and Discounts in June?
As of May 31, 4,200 homes were listed on StreetEasy at $2 million or more. More than a quarter of those have been listed for at least six months. And as the weeks pass until July 1, it’s likely their sellers are feeling increasing pressure to cut a deal.
This pressure will likely make itself apparent in the number of sales transactions recorded in late June. Expect to see sharp discounts off asking prices on higher-end homes, as sellers are forced to choose between cutting a deal or waiting to find a buyer willing to absorb the tax at the current asking price.
Either way, as the tax hike approaches, we’ll be waiting to see just how badly these sellers want to strike a deal.
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