There's a shortage of luxury apartments in Manhattan, and it's driving up prices

Guests attend a pool party in the penthouse apartment at the 50 United Nations Plaza building in New York.

Michael Nagle | Bloomberg | Getty Images

A shortage of luxury apartments in Manhattan is causing a surge in prices at the top of the market, even as broader apartment sales and prices come under pressure from rising mortgage rates.

Manhattan apartment sales fell 23% in the third quarter as rising interest rates squeezed potential buyers, according to new data from Douglas Elliman and Miller Samuel. Median and average sales prices remained flat, with the average price of a Manhattan apartment stalled at $1.96 million and the median price at $1.15 million.

The high end of the market, however, has seen a big drop in supply and stronger prices.

The supply of luxury apartments — defined as the top 10% of the market by price — has plunged 24% compared to pre-pandemic levels, according to Miller Samuel. The inventory of luxury apartments for sale marked their lowest third quarter in five years.

Jonathan Miller, CEO of Miller Samuel, said high-end buyers are typically less sensitive to mortgage rates, since they often pay in cash. As a result, the wealthy have continued buying and taking advantage of more attractive prices.

At the same time, newly built condo towers have been the main driver of high-end sales since the pandemic. Now, most of those new, high-priced condos have been sold — and few new projects are being launched due to a lack of bank lending.

“A lot of that new development inventory sold off during the pandemic boom,” Miller said. “The higher end of the market is seeing much less of a contribution from new development sales.”

With fewer new luxury condo towers now under construction, prices at the high end could continue to rise or remain strong, brokers say.

According to Serhant, there were nine sales of Manhattan apartments priced at $20 million or more in the third quarter, compared to just two in the same period last year.

Median prices for luxury apartments have increased in three of the past four quarters, according to Miller Samuel. By contrast, overall median prices in Manhattan have been down for four quarters in a row.

“There is clearly more strength at the higher end than the overall market,” Miller said.