Data Courtesy of UrbanDigs
December, a typically quieter month for contract activity in Brooklyn, was busier than expected, thanks to a declining interest rate, which motivated some buyers to get off the sidelines. Contract activity was nearly 6% higher in December 2023 compared to December 2022 in the borough.
Look for a continued increase in sales activity heading into and through the spring, especially if mortgage interest rates continue their recent decline.
Sales
“Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage. At times (e.g., the past 10 months), there’s no clear winner as buyers & sellers reach equilibrium.1
- Last month, buyers had a small advantage.
- This month, based on the data, it’s a stalemate between buyers and sellers, although the market reality is that buyers have the upper hand in terms of negotiability for properties on the market longer than 90 days or that have had price reductions.
- Demand (measured by contracts signed) was down, in the buyer’s favor.
- Median Listing Discount was unchanged
- Median PPSF (Price Per Square Foot) was unchanged
- Median Sale Price was up, in the seller’s favor.
- Median Days on Market was down, in the seller’s favor.
- Demand (measured by contracts signed) was down, in the buyer’s favor.
Rentals
- From July’s record of $3,950, median rent has cooled to $3,4952, yet is still high for the borough.
- Rents have retreated from recent all-time highs, and the rental market is experiencing a seasonal softening, with rental asking prices decreasing slightly and some apartments offering concessions.
- The rent versus buy scale may feel equally punitive on both sides, with rents near all-time highs and mortgage rates near their decades-long high as well.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 6.51%4, there is no net rental income on leveraged purchases.
- Depending on when they purchased and their national currency, foreign investors may experience robust returns upon sale.
Elegran | Forbes Global Properties Brooklyn Leverage Index
The Elegran | Forbes Global Properties Brooklyn Leverage Index is powered by the four indicators on the following four pages. 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 graph shows that leverage in December is ever so slightly higher than where it was in February 2023. But the curve between has been anything but flat, as there has been an intense leverage tug-of-war between buyers and sellers. Last month, buyers pulled the metaphorical rope in their direction. This month, it’s a stalemate.
Brooklyn Supply
Brooklyn supply has followed a similar cadence for the past three years, as the chart above clarifies. The metric declined this December, as it has in the past.
What Does This Mean for?
- BUYERS? Supply continues to decrease.
- SELLERS? Competition continues to decrease.
Expect supply to increase in January and continue into the spring months, increasing choice for buyers and competition for sellers.
Brooklyn Demand
Demand (measured by contracts signed), following the seasonal trend observed in November, continues to decrease in December.
What Does This Mean for?
- BUYERS? Less competition.
- SELLERS? Less activity.
Contract activity was nearly 6% higher in December 2023 compared to December 2022, in large part because declining mortgage interest rates pulled some buyers off the sideline.
Brooklyn Median PPSF
The median price per square foot in December aligns closely with the figures observed in November, indicating relative stability.
What Does This Mean for?
- BUYERS? In December, no significant change, but it was slightly favorable for buyers.
- SELLERS? In December, minimal change, yet slightly unfavorable conditions, persist.
Brooklyn Median Listing Discount
Since November, the median discount was essentially unchanged in December.
What Does This Mean for?
- BUYERS? Have more negotiability than they had six months ago.
- SELLERS? Need to be more negotiable with buyers than we were six months ago.
Rental Remarks
In November5, the median rent remained nearly unchanged from October, indicating minimal variation. The 30-Year Fixed Rate JUMBO Mortgage Index6 is trending at 6.5%7, and the average JUMBO APR is 6.51%. 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. For all-cash investors, Brooklyn's cap rate is approximately 3.0%. Unfortunately, for those investors using a large percentage of leverage, there is no net income potential, with the average JUMBO mortgage APR at 6.51%.8 As the chart below illustrates, there was neither a discernable drop in median PPSF nor a rebound due to COVID-19. So, any potential for future capital appreciation will be generated by future price inflation. 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
- According to the Elegran | Forbes Global Properties Brooklyn Leverage Index
- Data courtesy of Miller Samuel, Inc.
- Mortgage data courtesy of fred.stlouisfed.org
- JUMBO mortgage rate APR data courtesy of Bank of America, Chase, and Wells Fargo
- Data courtesy of UrbanDigs
- December 2023 data is not yet available.
- Data courtesy of Federal Reserve Bank of St. Louis
- JUMBO mortgage rate APR data courtesy of Bank of America, Chase, and Wells Fargo
