Elegran Brooklyn Market Update: March 2024
Overall Brooklyn Market Update: March 2024
Supply-Demand Disparity Tilts Market Balance in Favor of Sellers
Despite persistent challenges posed by fluctuating interest rates, demand for Brooklyn properties remained robust in February. Contract activity surged 18% compared to January, surpassing last year's figures by 12% for the same period. However, the market's supply side did not witness a proportional increase typical for February, with only a negligible rise of 1% compared to January, and the total supply was 6% lower than the previous year.
As demand outpaces supply, leverage is gradually shifting from buyers to sellers. This supply-demand imbalance has resulted in reduced negotiability for buyers, signaling a potential upward pressure on prices in the near future.
The Elegran | Forbes Global Properties Brooklyn Leverage Index indicates that sellers gained some traction last month and are likely to maintain this advantage through the spring season. This suggests a more favorable environment for sellers in the coming months.
SALES
- “Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage.
- At times (e.g., the past 11 months), there’s no clear winner as buyers & sellers reach equilibrium.¹
- Based on the data, sellers gained an advantage in February.
- Demand (measured by contracts signed) increased in the seller’s favor.
- Median listing discount decreased in the seller’s favor.
- Supply increased negligibly in February and was lower YoY
- Median PPSF (Price Per Square Foot) decreased slightly in February and was higher YoY.
RENTALS
– From July’s record of $3,950, median rent has cooled to $3,500², yet is still high for the borough and slightly higher than in January.
– While rents are lower than recent highs, rents are likely to continue moving higher heading into the peak rental season this summer.³
INVESTMENTS
– Total return is generated by net rental income & price appreciation.
– All-cash buyers can expect a cap rate approaching 3%.
– Since the average JUMBO mortgage rate APR is 6.9%, there is no net rental income on leveraged purchases.
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.
But the numbers are not important. What is important is the direction and slope of the curve. For the last few months, it’s been a stalemate between buyers and sellers with a relatively balanced market. In the last month, sellers gained an edge as demand rose while supply remained limited. In the coming months, expect this trend to continue, with leverage increasingly favoring sellers as demand intensifies and supply remains constrained compared to the prior year.
Brooklyn Supply
The chart above depicts a steady pattern in Brooklyn's supply over the last three years. Yet, despite this consistency, there hasn't been a substantial increase in supply thus far this year. Instead, it has remained relatively flat compared to the previous three years, with only a slight increase. In February, supply saw a mere 1% uptick and is 6% lower than the previous year.
What does this mean for:
- BUYERS: When supply increases, there's more inventory to choose from. Supply is slowly increasing as the spring season approaches, but supply is lower than last year's period.
- SELLERS: The more inventory on the market, the more competition a seller faces. Supply remains lower than last year, and how much new inventory comes on the market remains to be seen.
While supply should increase in the coming months, supply in Brooklyn may be anchored to the low end, giving sellers more pricing power and leverage while increasing the competition in the market for buyers.
Brooklyn Demand
Demand continued to rise in February, increasing by 18% compared to January and depicting a more significant increase rate than in previous months. Contract activity was 12% higher in February 2024 than in February 2023.
What does this mean for:
- BUYERS: More competition.
- SELLERS: More activity.
Expect a sustained uptick in contract activity in the upcoming months, as spring typically marks the peak season for Brooklyn’s real estate market. This surge in contract activity is poised to more than offset any rise in supply, creating a more competitive market environment where leverage tilts increasingly in favor of sellers, with buyers facing heightened competition.
Brooklyn Median PPSF
Although the median price per square foot experienced a -2% decrease compared to the previous month, it remains 11% higher than last year.
What does this mean for:
- BUYERS: Prices decreased in the short term, giving a momentary window of opportunity, but prices remain higher than last year.
- SELLERS: Prices moved against their favor in the short term but in their favor compared to last year.
Anticipate price increases in the coming months as leverage transitions from buyers to sellers. Sellers have more pricing power largely due to the strong demand and limited supply. Buyers should be prepared for a competitive market and bidding wars on accurately priced properties.
Brooklyn Median Listing Discount
The median listing discount in February stayed the same as in January, at 3.9%, but was 13% lower than last year, signaling a trend favoring sellers.
What does this mean for:
- BUYERS: Buyers negotiating power, measured by listing discount, decreased substantially over the last year and was unchanged over the last month.
- SELLERS: Sellers have slight leverage over buyers this month.
Declining discounts are a precursor to rising prices.
RENTAL REMARKS
In January⁵, the median rent increased slightly from December and will likely rise heading into peak rental season this summer. The 30-Year Fixed Rate JUMBO Mortgage Index⁶ is trending at 7.3%, and the average JUMBO APR is 6.9%⁷. 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 6.9%. 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
2. Data courtesy of Miller Samuel, Inc.
3. Data courtesy of Miller Samuel, Inc.
4. Data courtesy of UrbanDigs
5. Data courtesy of Miller Samuel, Inc.
6. Data courtesy of Federal Reserve Bank of St. Louis
7. JUMBO mortgage rate APR data courtesy of Bank of America, Chase, and Wells Fargo
If you would like to chat about the most recent market activity, feel free to contact us at info@elegran.com or connect with one of our Advisors.
About Us
Welcome to Elegran | Forbes Global Properties, where our mission is to revolutionize the world of real estate. Founded in 2008 by Michael Rossi, our journey began with an unwavering drive for motivation, innovation, and a genuine care for our clients.
As an independently owned brokerage, we pride ourselves on our elite team of "advisors," offering a personalized touch that goes above and beyond the traditional real estate experience. Armed with robust data insights, we empower our clients to make informed decisions that lead to success.
Distinguished as the exclusive member of the invitation-only Forbes Global Properties network in NYC, Elegran proudly stands at the forefront of excellence. This exclusive partnership broadens our horizons, enabling us to connect buyers, sellers, and investors with extraordinary luxury properties not only in New York City but across the globe.
Our passion lies in turning your real estate dreams into reality, and we are committed to providing exceptional service at every step of the journey.
Are you ready to experience the Elegran difference? Dive into the possibilities at www.elegran.com and embark on an unforgettable real estate adventure with us.
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