The Wall Street Journal

Market was dormant for months after many New Yorkers fled near start of Covid-19 pandemic.

The defaulted mortgage on the luxury condominium tower at 125 Greenwich St. in lower Manhattan was bought by Fortress Investment Group LLC for $230 million earlier this year.

Manhattan’s residential real-estate market, dormant for months after many New Yorkers fled near the start of the Covid-19 pandemic, closed the first quarter by posting its strongest sales in years.

In March, around 1,500 Manhattan residences were in contract for sale. That marked the highest number of deals for any one month in 14 years, according to real-estate analytics firm UrbanDigs.

The surge in sales reflects pent-up demand following a severe slowdown during the early months of the pandemic, when New York City was at a standstill as the virus surged, said Noah Rosenblatt, co-founder of UrbanDigs. Buyers are now jumping back into the market as the vaccine rollout accelerates and confidence grows that New York City is safe following a pandemic that has killed more than 31,000 residents.

“We have a rubber-band effect going on in Manhattan,” Mr. Rosenblatt said. “We pulled the rubber band one way, in a bad direction, during 2020, and now it’s kind of shooting back the other way.”

Buyers have been taking advantage of low mortgage rates and seized on the chance to pick up prime Manhattan real estate at lower prices. The median sales price for Manhattan co-ops was $780,000 in the first quarter, down 3.8% year-over-year, according to brokerage Douglas Elliman. Condos, meanwhile, sold for a median price of $1.55 million, down 4.7%.

Mr. Rosenblatt said the “fear discount” that some buyers received last spring is no longer in play, and he expects increasing prices to start being reflected by the end of this year.

Manhattan residential prices started to tumble in March 2020 as fear of Covid-19 intensified. By May, values were down nearly 11% from the start of the year, according to UrbanDigs. But they started to recover not long after that, and in some cases sale prices now appear to be well ahead of January 2020 levels.

One reason any price gains have been modest, compared to much of the rest of the country, is the excess amount of supply in Manhattan. But inventory has fallen 22.5% since the third quarter and is now only about 6.9% above the 20-year quarterly average, said Jonathan Miller, chief executive of appraisal firm Miller Samuel Inc.

“Inventory is not bloated like it was during the summer,” he said. “Inventory is getting leaner.”

Still, Mr. Miller said that while Manhattan’s housing market is recovering, he wouldn’t describe it as booming just yet. He believes the next big step will be when companies start calling workers back into the office.

A survey of major employers by the business group Partnership for New York City found that 10% of Manhattan office employees had returned to their desks by early March. Survey respondents said they expected 45% of workers to be back in the office by September, but Mr. Miller said he believes many will accelerate that timeline given the quickening pace of the vaccine rollout.

“When corporate America comes back, and those buildings, instead of being 80-90% empty, are 15-20% empty, that will go a long way in the housing market,” he said.

Signed contracts in Manhattan in the first quarter surged to 3,700, up 58% from the same quarter in 2020. It was the highest total for the first quarter since 2007, according to real-estate brokerage Corcoran Group. Sales were strongest on the borough’s west and east sides and downtown, while upper Manhattan and Midtown saw lower sales, compared with last year.

Buyers included renters taking advantage of lower prices and low mortgage rates, as well as people trading up for bigger spaces with more room for home offices and outdoor amenities like terraces and courtyards, analysts said.

The real-estate market’s recovery is key to New York City’s overall economy, with declining housing values already expected to lower property-tax revenue by about $1 billion next year, according to estimates by the New York City Independent Budget Office. Mr. Rosenblatt of UrbanDigs said he expects the market’s recovery to steadily ramp up in the next one to three years.

“You’re going to have the ground-floor retail come back, you’re going to have the office workers come back, you’re going to have the students come back,” he said.

While some worried that the pandemic would permanently drive people out of the city, the rising home sales show that families are returning as schools and some office buildings reopen.