Manhattan’s real estate market ended 2024 on a high note. After two and a half years of sluggish activity on the back of higher mortgage rates, deal activity resurrected as buyers returned on the heels of lower rates.
However, like a gripping thriller, the closing scene had a plot twist. Mortgage rates resumed their upward trajectory, and supply plummeted, creating a tightrope walk for buyers and sellers. If last fall’s return to seasonality was characterized by low supply/high demand, early 2025 is shaping into lower supply/higher stakes.
Supply Crunch
During winter, activity tends to slow down. As illustrated below, the market generally enters a lull after Thanksgiving, and by late December, it is almost at a standstill. As expected, the number of homes for sale usually drops off. The cycle restarts in late February, with supply building through the spring until it dips again into summer.
However, the active inventory of Manhattan homes dropped 17% from December 2024 to January 2025 – the largest drop in over ten years. As a result, supply has fallen to levels not seen since 2016.
The trend is also noticeable across the main Manhattan neighborhoods, with all areas seeing inventory drops exceeding 15% from December into January.
Déjà Vu?
When supply reached these low levels in 2016, it coincided with a market surge following a prolonged recovery from the Great Recession. Tight inventory often coincides with macroeconomic uncertainty or market cycles that make sellers hesitant to list. Manhattan’s past supply levels suggest these moments are often inflection points, either launching the market into a price frenzy (2016) or holding it in a cautious standstill (2023).
Low Supply + High Rates = Price Pressures
Here’s the twist: while low supply might suggest existing sellers have the market to themselves, it’s not that simple. High interest rates and cautious, price-sensitive buyers mean overpriced properties continue to linger, and they age like bananas, not wine.
For buyers, the math isn’t easy either. With higher mortgage rates, competition for well-priced, turnkey properties is fierce. As a result, both sides feel the squeeze.
How to Play It
If you’re buying or selling today and hope to close before the spring season kicks off, you may need to tweak your market strategy to accomplish your goals.
Buyers:
Now isn’t the time to wait for the perfect deal. Focus on opportunities from realistic sellers, such as those that have been on the market for a while or recently had price reductions.
Sellers:
If you’ve put your property on the market or are considering listing, do a reality check. Overpricing is the easiest way to end up with a stale listing, so market pricing is essential. If your property isn’t turnkey, consider upgrades to attract attention, as the market still rewards value and instant livability.
A Question Mark On The Spring Season
Manhattan’s real estate market ended 2024 on a high note, with contract activity rising above the seasonal average for three consecutive months. Still, higher rates and lower supply are putting a question mark on the spring season, meaning buyers and sellers will have to adapt appropriately. For buyers, the challenge in early 2025 will be navigating limited options without overspending. For sellers, success will depend on meeting the market where it’s at.
With the busy spring season still a few months away, the question is: will the recovery in Manhattan maintain its momentum, or are we in for another period of scarcity and caution? Either way, adaptability, and timing remain your most valuable assets.
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