The Manhattan sales market has slowed down. Compared to last year, contracts signed in May, June, and July are down an average of 25%.

The prime reasons for this: rising mortgage rates, increasing inflation, and recessionary fears. No matter the cause, the drop in volume has forced sellers to compete on price. As a result, over the same period, there were 25% more price cuts, with an additional 7% reduced versus last year. With volume leading prices, today’s price action will likely be evident in upcoming quarterly reports. At this point, it is only a matter of time before the slowdown becomes a part of the permanent sales record.

While this seems dramatic, however, the data suggest that the market is not crashing, but simply returning to normal, seasonal volume. In other words, the slowdown appears to be more of an issue of comparison, and less of a macroeconomic shift. It’s not a crash, it’s a reversion to the mean.

Zooming In: The Slowdown is Real

By the numbers, 2022 started strong. During the first quarter of 2022, there were 3,675 contracts signed, the highest quarterly number in 15 years, and nearly 4% higher than the first quarter of 2021. The rising volume trend looked to continue into the second quarter, but by mid-April, the level of demand had begun to fall, with April, May, June, and now July showing larger shortfalls compared to their year-ago periods.

Throughout 2021 and early 2022, buyers had to contend with increased competition as quality inventory grew scarce, culminating in a median original listing discount of just 1.9% for deals signed in April 2022. In other words, half of the sellers who signed a deal walked away with 98.1% of their original asking price.

As the market slowed, however, units began to linger on the market longer, forcing more and more sellers to compete with one another by cutting prices. In January, for example, there were roughly 600 price cuts, representing about 15% of the actively listed inventory. By June, that number had more than doubled to more than 1,500, representing nearly one-quarter of actively listed inventory. As such, the slowdown is broad-based, real, and impactful.

Zooming Out: The Summer is Usually Slow

Stepping back from Manhattan’s day-to-day sales minutiae, and looking at its historical patterns, shows that the third quarter’s summer market is almost always the slowest. So far, the pace of third-quarter-signed contracts suggests the trend is nearly the same as the 2007-2019 average.

The exception that proves the rule was 2021 when deal volume for the summer exceeded the 2007-2019 average every quarter. This blowout performance naturally set the stage for hand-wringing declines, simply because the comparison was to above-average highs and not normal levels.

Placing June 2022 in context with other months, the level of deal volume seems somewhat normal. With mostly peak seasonal months above and typically quiet summer months below. Indeed, a comparison of historical June performance shows that June 2022 falls in the middle of the road. While the year-over-year and percentage change figures paint a picture of a market in free fall, the wide-angle view suggests that the market is simply back to normal. Buyers are still looking, and deals are still happening.

What This Means for Sellers

The inventory advantage sellers enjoyed for the last two years is mostly gone. Certainly, exceptional units will continue to garner attention and premiums, but just listing a property is no longer enough.

This means that sellers today need to adjust their expectations and focus on pricing at the market. With deal levels essentially back to normal, pricing success can be measured by buyer traffic first and days on market second. A price at or near the market should result in seasonally-appropriate buyer traffic within the first two weeks of listing, leading to a signed deal ahead of the local area’s typical days on market.

This is where it gets tricky.

Sellers tend to focus on recent sales prices, while buyers are more interested in current listing prices. When the market is running hot with high activity and low inventory, as it was throughout 2021 and early 2022, interests are aligned. As the market slows, though, buyers have more choices and less urgency, so, current listings are evaluated against each other and the expectation of future listings coming on, offering even more selection.

Sellers who ignore this dynamic and choose to list with a price based on recent closed sales, which are more of a reflection of the market six months ago, will find it frustrating. There is little to no traffic, and longer-than-average days on market. Sellers today need to close the gap between lagging sales prices and real-time listing prices if they want to get a deal done.

What This Means for Buyers

With the media reporting on the headline-worthy year-over-year drops, there is a fair amount of what crypto folks call FUD: fear, uncertainty, and doubt.

For intrepid buyers, the current slowdown represents a break from supply-constrained bidding wars and intense competition. With more sellers cutting prices, a window of opportunity for negotiation has opened. However, just as the market seemed unstoppable over the winter, the slowdown may prove transient. Sellers tend to react to volatile markets by taking their listings off the market, so the increased choice that buyers have today may not last.

For buyers, the return to seasonality coinciding with the end of the post-pandemic run may offer both selection and negotiation, especially for those buyers who are less rate-sensitive.