Brooklyn Market Update: Will Brooklyn Demand Post a 6th Straight Spike in Spring?
During H2–2022, demand for Brooklyn was sky high. However, that subsided around the turn of the year with contract count heading back to parity with its pre-pandemic* average. That cooling-off period was created primarily by an anemic new development market, which underperformed by nearly 30%.
However, demand during the last week in January was strong yet again and Brooklyn may be headed for a sixth straight spike in demand. Within last month’s report, we described this phenomena as “a pendulum stuck on the hide side,” in the sense that demand for Brooklyn cannot seem to break through its support level, which happens to be the pre-pandemic average. This, of course, is great news for Brooklyn sellers and developers.
* the period January 5, 2015 to March 1, 2020
Brooklyn Supply
We learn from the chart directly below that, like the previous two months, January’s total supply is low compared to the two previous years. However, we have to keep in mind that 2021 and 2022 were atypical years where sellers seized the opportunity to meet pent-up COVID demand. New supply, too, is lower than this time last year, for the same reason we believe.
Note: “Total Supply” refers to inventory on the market at a given time. “New Supply” refers to new inventory listed during a specific period.
Data Courtesy of UrbanDigs
Data Courtesy of UrbanDigs
Brooklyn Buyer Activity
Since mid-2020, demand for Brooklyn — as measured by weekly contracts — has remained above its pre-pandemic average. It’s incredible that the historical norm has become the new support level. Whenever demand trends towards that support level, it bounces off to another high, such as it did at the turn of the year. Whether buyers can create a 6th straight demand spike remains to be seen.
Brooklyn Market Pulse
Elegran’s Leverage Indicator informs us whether the current market 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 trendlines. Our indicator also informs us regarding the relative strength of that leverage, indicated by the slope of the trendlines. Per below, Brooklyn is in the grips of a buyer’s market, but we potentially see a change in trend direction building as the slope of the line continues to flatten, suggesting that a transition to a seller’s market could be on the horizon.
Data Courtesy of UrbanDigs
Price/SF & Discounts
Closed sales data is still rolling in and will be for the next few months. However, barring any significant changes, the chart below informs us that price/sf in Brooklyn is receding rather quickly, yet is still average for the past 6-years.
Chart Courtesy of UrbanDigs
After a brief reversal last month, listing discounts in Brooklyn are once again on the rise, lending credibility to our Leverage Indicator’s suggestion that a buyer’s market is still in place within the borough.
Chart Courtesy of UrbanDigs
What This Means for:
Buyers:
- Brooklyn continues to be a buyer’s market, meaning buyers should be rewarded for their patience.
- We see signs of a weakening buyer’s market; however, further decreases in mortgage rates should bolster demand and force the transition to a seller’s market.
Sellers:
- A buyer’s market suggests that sellers should move forward with haste, but hope is on the horizon with a weakening buyer’s market, mortgage rates off their highs, and the Fed beginning to tap the brakes on rate hikes.
- Sellers, who are betting that prices will strengthen shortly, should consider leasing during the interim as rents have slipped a bit, but are still historically very high.
Renters:
- A resistance level was reached over the summer that forced rents to cool. That being said, they’re still very high. But, so too are asking prices and 6.2% mortgage rates still tipping the rent-versus-buy scale for many towards leasing.
Investors:
- Mortgage rates have let the air out of leveraged cap rates, but cash buyers can still source opportunities on account of near-record rents.
- On the sell-side, a relatively strong USD affords foreign investors, depending on their native currency, the opportunity to realize significant capital gains upon the sale of their asset.
- On the buy-side, the weakening dollar creates opportunities for foreigners to purchase Brooklyn real estate and lock in its notorious stability and potential for price appreciation.
