Elegran Brooklyn Market Update: August 2024
Elegran | Forbes Global Properties August 6, 2024
Elegran | Forbes Global Properties August 6, 2024
In July 2024, the Elegran | Forbes Global Properties Brooklyn Leverage Index returned to equilibrium, with neither buyers nor sellers having a distinct upper hand. The number of signed contracts remained unchanged from the previous month, reflecting consistent demand. However, the median price per square foot (PPSF) rose, indicating a slight advantage for sellers. Conversely, the median days on the market increased, favoring buyers. The median sales price also saw an uptick both year-over-year and month-over-month, further benefiting sellers. Meanwhile, the supply of available listings decreased, tightening the market in sellers’ favor.
The Brooklyn market presents a complex picture with both opportunities and challenges for buyers and sellers. The slight reduction in the median listing discount, now at 2.3%, suggests that sellers are less willing to reduce prices, indicating a tightening market. Buyers may still have opportunities to negotiate, particularly for properties that have been on the market for several months. Sellers can be more confident in their pricing, though competitive pricing remains crucial, especially in a high-interest-rate environment.
As the market continues to balance supply and demand, decreasing interest rates could spur a surge in demand, shifting leverage back to sellers. Interest rates began August at their lowest level in a year, with the Fed poised to start cutting rates next month. Buyers should be prepared for quicker decision-making and potentially higher offers to secure desirable properties. Sellers might benefit from timing their listings to coincide with lower inventory levels, taking advantage of reduced competition for better offers and quicker sales.
– “Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage.
– In July, there’s no clear winner as buyers & sellers reach equilibrium, although there was a slight shift favoring sellers.¹
– Based on the data, the Brooklyn market has returned to equilibrium:
- Demand (measured by contracts signed) stayed neutral with no change from the previous month.
- Median PPSF (Price Per Square Foot) increased in the seller's favor.
- Median days on the market increased in the buyer's favor.
- The median sales price increased, benefiting sellers both year-over-year and compared to the previous month
- Supply decreased in the seller's favor.
– In June³, the median rent reached new highs. The median rental price was $3,695, a 2.6% increase from the previous month.
– New lease signings increased to their second-highest level on record.
The Elegran | Forbes Global Properties Brooklyn Leverage Index is powered by four indicators: supply, demand, median price per square foot (PPSF), and median listing discount.
It informs us whether the current is a buyer’s or a seller’s market, i.e., which party possesses transactional leverage. Looking at the graph below, this is indicated by the direction of the curve, where:
- An increasing trend from left to right indicates a seller’s market
- A decreasing trend from left to right indicates a buyer’s market
Our indicator also informs us regarding the relative strength of that leverage, indicated by the slope of the curve, where:
- A gentle slope indicates a weak advantage by one party over the other
- A sharp slope indicates a strong advantage
The precise numbers aren’t what matters most—it’s the direction and slope of the trend. After a brief seller’s market this spring, the Brooklyn market returns to Equilibrium with an ever-so-slight favor to sellers.
At the end of July 2024, there were 3,211 residential listings for sale in Brooklyn, marking a 3.5% decrease from June and a 2.2% increase year-over-year. The month-over-month decrease suggests a tightening in the supply of available apartments. Supply is expected to continue decreasing in August before increasing after Labor Day when new listings come to market.
What does this mean for:
- BUYERS: With supply expected to continue declining, competition among buyers is likely to increase, particularly for well-priced and desirable properties. This could lead to quicker decision-making and potentially higher offers to secure a purchase.
- SELLERS: With supply anticipated to decline before rebounding after Labor Day, sellers might consider timing their listings to coincide with lower inventory levels. This strategic timing can reduce competition, leading to better offers and quicker sales.
For buyers, the current Brooklyn market suggests a need for decisive action and preparation to navigate limited options. Sellers can benefit from a strategic approach to timing their listings and negotiations. The slight year-over-year increase in inventory offers a bit more choice compared to last year, but the overall dynamics still favor a balanced market with a slight edge toward sellers as supply tightens.
In July 2024, Brooklyn saw a total of 557 signed contracts, remaining steady compared to June 2024 but reflecting a 2.1% decrease compared to July 2023. High interest rates and ongoing uncertainty are dampening demand in the borough. However, as interest rates decrease and uncertainty lessens, buyers should be prepared for a surge in demand and a shift of leverage back to sellers.
What does this mean for:
- BUYERS: Currently, buyers have some leverage due to reduced demand. They may find sellers, especially those whose properties have been on the market for three or more months, more willing to negotiate on price or offer concessions. This presents an opportunity to secure favorable deals.
- SELLERS: Sellers should be aware that a decrease in interest rates is likely to boost demand, shifting leverage back in their favor. This could lead to quicker sales and potentially higher selling prices. Timing the market by listing properties when demand increases could be advantageous.
The Brooklyn residential apartment market is currently balanced but poised for a potential shift when interest rates decrease. Buyers may have a window of opportunity to negotiate favorable terms, while sellers might benefit from waiting for a market rebound. Staying informed and strategically timing market actions will be key for both buyers and sellers in the coming months.
In July 2024, the median price per square foot (PPSF) for residential apartments in Brooklyn was $1,060. This represents a slight increase of 2.3% from June 2024 and a robust increase of 9.1% year-over-year. The rise in PPSF indicates that property prices are trending upward. However, there are signs that the Brooklyn market may be reaching a temporary upward limit as demand retreats. Sellers should be cautious not to overprice their properties.
What does this mean for:
- BUYERS: Buyers may need to be more flexible with their budget or preferences to find suitable properties. As prices rise, being prepared to adjust expectations can help in securing a desirable home.
- SELLERS: The rising PPSF indicates a favorable market for sellers, allowing them to command higher prices compared to previous periods. This is particularly advantageous for those who purchased properties before the price increase and are now looking to sell at a profit. However, sellers should be careful not to overprice their properties, as this could deter potential buyers.
While the Brooklyn market shows strong price growth, there are indications of a temporary limit being reached as demand retreats. Buyers should remain adaptable in their search, and sellers should price their properties competitively to attract interest and secure sales.
In July 2024, the median listing discount for residential apartments in Brooklyn was 2.3%, reflecting a 0.2% decrease from June 2024 and a 0.3% decrease year-over-year. This decrease suggests that sellers are less willing to reduce prices, indicating a tightening market where buyers are purchasing properties slightly below the asking price.
What does this mean for:
- BUYERS: Buyers may still have opportunities to negotiate but should be prepared for smaller discounts compared to the recent past. Properties that have been on the market for several months are more likely to offer larger discounts. Being strategic and flexible will be key to securing the best deals.
- SELLERS: Sellers can be more confident in their pricing, as the data indicates buyers are not receiving as significant discounts as before. However, it’s still crucial to price properties competitively to attract buyers, especially in a market where high interest rates could affect affordability.
The slight reduction in the median listing discount in Brooklyn suggests a market gradually favoring sellers, with buyers facing a more challenging environment for negotiating discounts. For sellers, this is a positive indicator, suggesting they can be more confident in their pricing strategies.
In June, the median rent reached new highs. The median rental price was $3,695, a 2.6% increase from the previous month. New lease signings increased to their second-highest level on record.
For Renters: The record highs in median and net effective median rent indicate a competitive market. Renters might face higher costs and should be prepared for fewer rental concessions.
For Landlords: The surge in new lease signings combined with record-high rents suggests a strong demand for rental properties. This could be an ideal time to capitalize on the market and potentially secure higher rental incomes.
Mortgage Rates: The 30-Year Fixed Rate JUMBO Mortgage Index is trending at 6.9%⁴, and the average JUMBO APR is 6.4%⁵. So, it’s a “catch-22” for renters, as the rent versus buy scale may feel equally punitive on both sides.
The total return is driven by net rental income and capital appreciation. Brooklyn's cap rate is approximately 3.0 - 3.4% for all-cash investors. Unfortunately, there is no net income potential for those investors using a large percentage of leverage, with the average JUMBO mortgage APR at 6.4%. As the chart below illustrates, there was neither a discernable drop in median PPSF nor a rebound due to COVID-19. So, future price inflation will generate any potential for future capital appreciation. Timing and a strong USD may afford foreign investors, depending on their native currency, the opportunity to realize significant capital gains upon selling their assets.
1. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index
2. Data courtesy of UrbanDigs
3. Data courtesy of Miller Samuel, Inc.
4. Data courtesy of Federal Reserve Bank of St. Louis
5. JUMBO mortgage rate APR data courtesy of Bank of America, Chase, and Wells Fargo
Her experience, expertise, and engaging personality make Sonal the perfect combination of advisor, advocate, and strategist. She is the proud owner of several NYC properties and a skilled negotiator with a deep understanding of people and sharp instincts about market trends.