Elegran Brooklyn Market Update: October 2024
Elegran | Forbes Global Properties October 4, 2024
Elegran | Forbes Global Properties October 4, 2024
In September, leverage in Brooklyn’s real estate markets shifted toward buyers. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index, a nearly 10% increase in supply compared to last year and softened demand have tipped the scales in favor of buyers after a brief seller’s market this past spring. However, this may be a short-term adjustment, as the Federal Reserve’s recent 50 basis point interest rate cut and declining mortgage rates are expected to bring buyers off the sidelines in the coming months.
Brooklyn’s housing supply saw a marked increase in September, contrasting with Manhattan, where inventory has remained tighter. This 10% rise in available homes offers much-needed relief for buyers who endured limited options in recent years. Despite the growing supply, Brooklyn remains a competitive market, with properties priced accurately continuing to sell quickly and offering little room for negotiation. Buyers now have more choices but must be ready to act decisively on desirable homes.
The decline in signed contracts, down 12.8% month-over-month in September 2024, is typical for this time of year. However, the total of 448 contracts signed still represents a 10.6% increase from September 2023, making it one of the few months this year to outperform last year’s contract volume. The recent drop in interest rates is expected to further stimulate buyer activity, and the increased supply should give these buyers more options, likely leading to a rise in contract volume in the coming months.
Brooklyn’s median price per square foot (PPSF) in September 2024 fell by 10.6% from August but was still 2.8% higher than the previous year, signaling the borough’s overall market resilience. With rising supply and softening demand, the market may experience a temporary plateau this fall. However, as interest rates continue to decline and more buyers re-enter the market, this slight breather in prices is likely to reverse, and Brooklyn’s long-term upward trajectory is expected to resume.
Additionally, with declining interest rates and more homes for sale, the rent vs. buy equation is beginning to shift in favor of purchasing. This changing dynamic may encourage more renters to transition into homeownership, boosting demand in the sales market while easing some of the pressure on the rental market.
– “Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage.
– In September, the market shifted in favor of buyers².
- Demand (measured by contracts signed) decreased MoM in the buyer's favor and increased YoY in the seller’s favor.
- The median PPSF (Price Per Square Foot) decreased in the buyer's favor last month but increased in the seller’s favor over the last year.
- Median days on the market increased in the buyer's favor.
- The median sales price remained unchanged from the previous month but increased year over year, favoring sellers in the long term.
- In August, the median rental price increased month-over-month by 1.4% to $3,650.
- The median rent slipped by 5.2% year over year for the second time as listing inventory rose for the seventh time³.
– Meanwhile, the average days on market was the second fastest 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
It’s not the exact numbers that matter most—it’s the direction and slope of the trend. After experiencing a brief seller’s market this spring, the Brooklyn market has now shifted in favor of buyers over the past two months, driven by a nearly 10% increase in supply compared to last year and softening buyer demand. However, this tilt toward buyers may be short-lived, as recent interest rate cuts by the Fed and declining mortgage rates are beginning to pull buyers off the sidelines.
Brooklyn’s housing supply increased in September as the fall market brought the usual influx of new listings. Unlike Manhattan, Brooklyn’s inventory is up nearly 10% compared to last year, which has shifted leverage toward buyers. This aligns with the national trend of rising supply and offers welcome relief for buyers who have faced very low inventory in recent years. Despite the increase in supply, the market remains competitive, with little room for discounts on accurately priced properties.
What does this mean for:
- BUYERS: With more listings available, buyers now have a broader selection of properties, increasing their chance of finding a home that better matches their needs and preferences.
- SELLERS: The market may require sellers to be more responsive to buyer demands and price their homes competitively. Properties priced too high often linger on the market and may need price reductions to attract buyers.
Overall, the rise in Brooklyn’s housing supply is a positive development for buyers, offering more options and potentially more negotiating power. However, the market remains competitive, and buyers should be ready to act swiftly and pay a premium for highly desirable homes.
While September typically sees an uptick in new listings and buyer activity, it tends to be slower for signed contracts. In September 2024, Brooklyn saw a 12.8% drop in signed contracts compared to the previous month, totaling 448 contracts. Despite this, it represents a 10.6% increase year-over-year from September 2023. Although most months this year have trailed behind last year’s activity, September surpassed 2023 levels. With the recent drop in interest rates, more buyers are expected to enter the market, and the increase in inventory should provide them with more options, likely boosting contract volumes in the months ahead.
What does this mean for:
- BUYERS: Although contract activity dipped month-over-month, the decline was smaller than last year’s, and recent interest rate cuts are already attracting more buyers. Expect increased competition as rates continue to drop and buyer demand grows.
- SELLERS: The market remains relatively liquid, but the rising supply highlights the importance of accurate pricing to take full advantage of current market momentum.
The recent interest rate reductions are just beginning to impact the local market. Early signs of growing buyer interest suggest that contract activity will likely increase in the coming months, supported by the rise in inventory, which is a welcome development for prospective buyers.
In September 2024, the median price per square foot (PPSF) for residential homes in Brooklyn was $958, marking a notable 10.6% decrease from August but a 2.8% increase year-over-year. The annual rise in PPSF underscores the steady long-term growth of Brooklyn property values, reinforcing the borough’s market strength. However, the month-over-month decline suggests a temporary plateau, with demand softening for the third consecutive month and leverage momentarily shifting in favor of buyers.
What does this mean for:
- BUYERS: The increase in supply offers opportunities for buyers to negotiate better deals and find an entry point into the market.
- SELLERS: In this more competitive environment, sellers may need to be flexible with their pricing to attract buyers.
Brooklyn’s upward pricing trend has paused slightly, driven by seasonal factors and rising inventory. As supply grows and buyer demand remains more subdued than in previous years, the market may experience a brief lull this fall, in terms of price. However, as interest rates continue to drop and buyers re-enter the market, absorbing the available inventory, prices are expected to return to their upward trajectory.
In September 2024, the median listing discount for residential homes in Brooklyn increased to 3.1%, up from 2.7% in August, though unchanged from September 2023. This increase suggests that sellers are becoming more flexible in their pricing as demand softens and supply rises.
What does this mean for:
- BUYERS: The market shift offers a temporary advantage for buyers, who may now have more leverage in negotiations.
- SELLERS: The rise in the listing discount signals that sellers need to be more open to negotiations. To stand out in a competitive market, sellers may also need to invest more in marketing and staging to attract potential buyers.
How much further listing discounts will rise depends on the balance between supply and demand in the coming months. This trend is expected to reverse as buyer demand picks up and absorbs the seasonal inventory, especially as the peak wave of new listings for the fall has passed and inventory growth begins to slow.
In August, the median rental price increased month-over-month by 1.4% to $3,650. The median rent slipped by 5.2% year over year for the second time as listing inventory rose for the seventh time. With interest rates declining, the rent vs. buy equation is beginning to tilt in favor of buying. As a result, more renters may transition into buyers, increasing demand in the sales market while easing pressure on the rental market.
Meanwhile, the average days on the market were the second fastest on record. Mortgage Rates: The 30-Year Fixed Rate JUMBO Mortgage Index is trending at 6.49%⁴, and the average JUMBO APR is 6.05%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 6.05%. 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.
1. Data courtesy of UrbanDigs
2. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index
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.
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