Demand Holds Steady as Inventory Rises and Sellers Gain a Slight Advantage

In the face of rising interest rates, stock market fluctuations, geopolitical concerns, an upcoming election, and uncertainty about Federal Reserve rate cuts, Brooklyn's real estate market has maintained stable demand. This is reflected by a 1% increase in contracts signed year-over-year and a slight 1% decrease from the previous month. In part, Brooklyn's market resilience is attributed to its lesser dependence on discretionary buyers than Manhattan's. Additionally, a welcome 10% increase in inventory has been observed over the last month, although it is still 4% lower than the previous year.

Financially, the median sales price in Brooklyn has climbed 3% over the last month, reaching $982K, with the median price per square foot (PPSF) also up by 3% from last month, maintaining the same level as last year at $952. Properties are also moving faster, with the median days on market dropping 11% from last month and 6% from last year, now at 64 days.

This month, the Elegran | Forbes Global Properties Brooklyn Leverage Index points to a neutral market overall, with a slight tilt towards sellers gaining leverage.

SALES

– “Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage.

–  At times (e.g., more than 1 year already), there’s no clear winner as buyers & sellers reach equilibrium.¹

– Based on the data, it’s a neutral market, and sellers gained a small advantage in April as: 

– Median PPSF (Price Per Square Foot) increased in the seller’s favor.

– Median days on the market decreased in the seller's favor.

– Median sales price increased in the seller's favor. 

– Supply increased in the buyer's favor. 

– Demand (measured by contracts signed) remained stable in neither party’s favor.

RENTALS

– March saw a stable rental market, with a negligible decrease of 0.1%³ compared to February. However, year-over-year, rents edged up slightly by 0.1%. There is an upward pressure on rents heading into the summer. 

– Additionally, total inventory has seen a notable year-over-year increase of 3.3%.

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 more than a year, there has been a stalemate between buyers and sellers in a relatively balanced market. The Brooklyn market is currently in a state of equilibrium; however, sellers have been gaining leverage this spring.

Brooklyn Supply

Inventory in Brooklyn significantly increased in April, rising 6% from March. However, despite this seasonal boost, overall supply remains 4% lower than it was at the same time last year.

What does this mean for:

- BUYERS:  The recent increase in supply offers some relief for buyers facing a scarcity of new inventory. Despite the uptick, the market remains competitive, with inventory still relatively scarce. Buyers will find more options available but should remain prepared for competition.

- SELLERS:  While the inventory has risen, sellers setting realistic prices are seeing their properties sell swiftly. The median days on market have dropped by 11% from last month and 6% from last year, now standing at 64 days, indicating that well-priced properties are quickly moving off the market.

As the traditionally active spring season continues through the first half of June, sellers have an opportunity to enter the market, and buyers have additional time to explore the expanded inventory.

Brooklyn Demand

April witnessed a modest 1% decline in contracts signed compared to March, yet there was a 1% increase compared to last year.

What does this mean for:

- BUYERS: Brooklyn continues to be a desirable and competitive market. The recent boost in inventory provides some opportunities, although the market remains active. Buyers may find a few more options but should be prepared for competition.

- SELLERS: The year-over-year increase in contract signings indicates a sustained demand for Brooklyn properties. With the inventory rising, it's crucial for sellers to stay informed about comparable sales in the area. Properties priced correctly are likely to sell quickly.

Given the current trends and the recent increase in supply, contract volume is expected to maintain a similar trajectory over the next two months.

Brooklyn Median PPSF

The median sales price per square foot (PPSF) in Brooklyn's residential market increased modestly by 3% in April compared to March 2024. This increase reflects transactions closed in April, likely from contracts signed in January and February, when interest rates were comparatively lower and supply was tighter. Importantly, the median PPSF has remained steady year over year at $952.

What does this mean for:

- BUYERS: Although prices have recently risen, the increase in inventory may offer some (temporary) relief. Buyers should stay alert for bidding wars on well-priced properties but might find better deals on homes that have been on the market for over 60 days or have had price reductions.

- SELLERS: Last month's price increase is positive and might encourage some sellers to aim for higher prices. However, the Brooklyn market can be unforgiving to those who overprice their properties. It remains crucial to set realistic prices to facilitate quick sales.

This dynamic suggests that while competition remains for properties priced correctly, there could be negotiating opportunities on listings that have lingered or reduced prices.

Brooklyn Median Listing Discount

The median listing discount in Brooklyn's residential market decreased slightly by 0.5% in April compared to March 2024, and a decrease of 0.8% compared to last year. The current median listing discount stands at 3.5%. This data indicates a potential tilt toward a seller's market in Brooklyn, as decreasing listing discounts suggest sellers might soon set higher initial asking prices.

What does this mean for:

- BUYERS: The reduction in listing discounts indicates there may be less room for negotiation than in previous months. Nonetheless, the prevailing discount rate of 3.5% still offers some leverage for negotiation.

- SELLERS: The decreasing trend in listing discounts suggests a more favorable environment for sellers. However, maintaining realistic pricing remains crucial to attract serious buyers and facilitate sales.

Overall, these trends suggest that the Brooklyn market may be increasingly favoring sellers, emphasizing the importance of strategic pricing for buyers and sellers.

Rental Remarks

March⁴ saw a flat rental market, with a negligible decrease of 0.1% compared to February. However, year-over-year, rents edged up negligibly by 0.1%. This suggests a stable market overall, with a hint of potential upward movement in the long term. Additionally, total inventory has seen a notable year-over-year increase of 3.3%. The 30-Year Fixed Rate JUMBO Mortgage Index is trending at 7.4%⁵, and the average JUMBO APR is 7.11%. 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 7.11%⁶.  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 UrbanDigs

3. Data courtesy of Miller Samuel, Inc.

4. Data courtesy of Miller Samuel, Inc.

5. Data courtesy of Federal Reserve Bank of St. Louis

6. 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.

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