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Manhattan's luxury market softened in the fourth quarter, and it isn't likely to pick up anytime soon

Manhattan real estate sputtered in the fourth quarter, as inflated prices and rising inventories continued to weigh on the high-end market.

The number of residential real estate sales in the borough fell 4 percent year over year in the quarter, to 2,864, according to Douglas Elliman Real Estate and Miller Samuel. While that dip was substantially better than the steep drop in the third quarter, when sales plunged 19 percent on the year, it showed continued softness in the Manhattan market.

Average sale prices notched up 8 percent, to $2.1 million. Median sale prices fell 9 percent, to $1.1 million. Yet even as prices in the luxury market continued to march higher, the number of sales for those properties dipped 3 percent over last year, to 289.

"What we're seeing is much more negotiability," said Jonathan Miller, CEO of Miller Samuel. "There was such a big gap between some of the sellers' prices and the buyers that now we're seeing some of those hyper-priced properties coming off the market."

The high-end market continues to appear stronger than it is, as newly built apartments that went into contract one or two years ago are just now closing. Yet these new condo towers are adding to the supply, with inventory of new development up 34 percent over last year.

Because of the overhang of new units and the continued correction in pricing, Manhattan's luxury real estate market is not likely to strengthen measurably in the first half of 2017, Miller said.

"I think we'll see a continuation of the trend," Miller said.

He noted, however, that sales could be front loaded in the first quarter, as the potential for a lower capital gains tax rate this year caused some sellers to hold off doing deals in the fourth quarter.

In total, Manhattan apartments sat on the market for 94 days compared with 82 last year. Listing inventory rose 7 percent to 5,393 properties, or about a 5 ½ months' supply.