Overall Brooklyn Market Update: July 2024
Contract Activity Decreased More than Supply, Shifting Leverage Away from Sellers for the Summer Months
Brooklyn’s real estate market experienced a slowdown in June compared to May, with the slight seller’s market from this spring dissipating and the market moving back to equilibrium. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index, while the median sales price and price per square foot increased year-over-year, and median listing discounts continued to decline, these figures reflect properties largely contracted between February and April (which was a more favorable market for sellers) and that closed in June.
The disparity between supply and demand is the most significant factor shifting leverage away from sellers. Last month, nearly 13% fewer contracts were signed, while supply remained virtually unchanged. Compared to last year, there was a nearly 17% drop in contracts signed versus a 0.5% increase in supply.
Looking ahead, June’s larger decrease in demand (measured by contracts signed) compared to supply has shifted leverage toward buyers. This shift provides buyers with a window of opportunity to potentially negotiate more favorable deals with less competition through Labor Day.
With interest rate cuts by the Fed looming on the horizon, some buyers are holding back, anticipating more affordable rates. However, these buyers risk missing out. Once interest rates start to drop, the market is expected to see a surge in demand that will likely outpace the increase in supply, leading to bidding wars and a swift shift in leverage back to sellers.
This summer presents a unique opportunity for buyers to transact in a less competitive market, negotiate better terms, and lock in appreciation. With the potential to refinance when rates eventually decrease, the market can remain fairly active, as savvy buyers aim to capitalize on the first-mover advantage.
SALES
- “Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage.
- After two months of the seller market, in June, there’s no clear winner as buyers & sellers reach equilibrium.
- Based on the data, the Brooklyn market has returned to equilibrium:
- Demand (measured by contracts signed) decreased in the buyer's favor.
- Median PPSF (Price Per Square Foot) decreased in the buyer's favor.
- Median days on the market decreased in the seller's favor.
- Median sales price didn't change from May and remained in the seller's favor YoY.
- Supply decreased in the seller's favor.
RENTALS
- In May, the median rent and net effective median rent reached their highest level on record. The median rental price was $3,600.
- The number of new lease signings reached their highest level on record.
Elegran | Forbes Global Properties Brooklyn Leverage Index
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. Starting in April and continuing into May, Brooklyn became a [slight] seller's market. With demand decreasing more than supply recently, the market has returned to equilibrium and buyers now have a brief window of opportunity to secure deals with less competition through Labor Day.
Brooklyn Supply
At the end of June 2024, 3,320 residential listings were for sale, marking a slight decrease of 0.3% from May and a slight increase of 0.4% year-over-year. Supply has peaked for the season and is expected to decline during the summer months before an anticipated rebound after Labor Day.
What does this mean for:
- BUYERS: The number of listings will likely decrease over the summer, meaning buying opportunities might be more limited. Sellers who remain on the market and have reduced their prices are signaling motivation to sell. This can provide negotiation leverage for buyers.
- SELLERS: Demand is expected to drop over the summer months, so evaluating your target buyer is crucial. Decide whether to keep your home on the market or withdraw and relist in the fall. If you choose to stay on the market, consider adjusting your asking price based on recent sales, withdrawals, or price reductions to ensure competitive positioning.
Supply will continue to decline through the summer as properties are sold or withdrawn, with few new listings during this slower season. Keep an eye on Federal Reserve signals regarding interest rates. If an interest rate shift is imminent, it might be advantageous to list properties priced under $2.5M, as buyers in this range are typically more sensitive to interest rate changes.
Brooklyn Demand
In June 2024, Brooklyn saw a total of 562 signed contracts, reflecting a 12.7% decline from May 2024 and a 16.6% decrease compared to June 2023. High interest rates are currently dampening demand in the borough. However, once interest rates decrease, buyers should be prepared for a surge in demand and a swift shift of leverage back to sellers.
What does this mean for:
- BUYERS: Those who can tolerate temporarily higher interest rates have the chance to secure properties with better terms and less competition. This strategy can position buyers to benefit from appreciation as the market rebounds when interest rates eventually decrease.
- SELLERS: If a quick sale is necessary, be prepared to adjust pricing strategies and enhance the home’s presentation to attract potential buyers.
Leverage has temporarily shifted away from sellers as demand has decreased faster than supply. This market dynamic presents unique opportunities and challenges for both buyers and sellers, requiring strategic approaches to maximize benefits.
Brooklyn Median PPSF
The median price per square foot (PPSF) for residential apartments in Brooklyn was $1,021 in June 2024. This represents a slight decrease of 1.2% from May 2024 but a robust increase of 6.1% year-over-year.
What does this mean for:
- BUYERS: The slight month-over-month decrease suggests a potential opportunity to enter the market with slightly more negotiating power, while the overall yearly increase indicates long-term value growth, making Brooklyn an attractive investment destination.
- SELLERS: The significant yearly rise in PPSF highlights strong demand and appreciating property values in Brooklyn. Despite the minor dip from last month, the market remains strong. Nevertheless, sellers should remain realistic with their asking prices to attract buyers.
Year-over-year stability suggests that this growth is controlled and not part of a volatile spike. Brooklyn’s market fundamentals remain sound, and the market is poised to continue appreciating when interest rates decrease.
Brooklyn Median Listing Discount
In June 2024, the median listing discount for residential apartments in Brooklyn was 2.5%, reflecting a 0.6% decrease from May 2024 and a 0.8% decrease year-over-year.
What does this mean for:
- BUYERS: The slight decrease in median listing discounts suggests a more competitive market based on properties contracted between February and March when the market was more competitive. Looking ahead, discounts may rise in the coming months due to the current larger decrease in demand than supply, offering buyers more negotiability temporarily.
- SELLERS: The shrinking discount indicates a favorable market for sellers. However, sellers have temporarily lost some leverage, so they need to price appropriately and avoid overpricing.
As interest rates drop, expect negotiability to decrease further, which often precedes price appreciation.
RENTAL REMARKS
In May, the median rent and net effective median rent reached their highest level on record. The median rental price was $3,600. The number of new lease signings reached their 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.
The 30-Year Fixed Rate JUMBO Mortgage Index is trending at 7.2%⁴, and the average JUMBO APR is 6.85%⁵. So, it’s a “catch-22” for renters, as the rent versus buy scale may feel equally punitive on both sides.
INVESTOR INSIGHTS
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 6.85%. As the chart below illustrates, there was neither a discernable drop in median PPSF nor a rebound due to COVID. 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.
References
1. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index
