Brooklyn Market Update: Temporary Seller’s Advantage Within a Buyer’s Market
Elegran’s Leverage Indicator is a comprehensive market snapshot, providing invaluable information on transactional leverage. It tells us who the market currently favors – Buyers? or Sellers?
Our Leverage Indicator is fueled by four key metrics that shape the market dynamics:
- SUPPLY
- DEMAND
- MEDIAN PRICE/SF
- MEDIAN LISTING DISCOUNT
But before we dive into the Leverage Indicator and reveal who currently holds the market advantage, let's take a closer look at each of these four metrics individually.
Brooklyn Supply
Using 2022 as an almanac, Brooklyn's supply level is increasing on its way to the June peak.
What Does This Mean for:
- BUYERS? More choices.
- SELLERS? More competition.
Brooklyn Demand
Typical of Spring, Brooklyn contract activity peaked in March, contracted in April, and peaked again in May.
What Does This Mean for:
- BUYERS? More competition.
- SELLERS? More activity.
Brooklyn Median Price/SF
After trending down recently, the price per square foot increased in April and May.
What Does This Mean for:
- BUYERS? Prices are moving against their interests.
- SELLERS? Prices are moving in their favor.
Brooklyn Median Listing Discount
After trending upward for several months, the median listing discount has retreated over the past two months.
What Does This Mean for:
- BUYERS? Prices are temporarily moving against their interests.
- SELLERS? Prices are temporarily moving in their favor.
Elegran Leverage Indicator: Brooklyn
Elegran's Leverage Indicator tells us which party has transactional leverage, whether it's a buyer's or seller's market. The graph below displays trendlines that show the market influence, while the slope of these trendlines reveals the strength of the leverage.
According to the data below, a buyer’s market has been in place since March 2022. However, recently, we see two pronounced directional changes, one in March and the other in May.
Does this predict a shift to a seller’s market? We think the answer is “no.”
We’ll use Manhattan as a guide since it offers more historical data (PLEASE SEE THE SECOND CHART BELOW). If we look back at the previous buyer’s market that prevailed in Manhattan from October 2015 to September 2020, there were notable shifts in direction during certain months. Specifically, in 2016, 2017, and 2018, there were two temporary changes in March and May, represented as peaks on the chart. However, in 2019, these dual peaks were slightly shifted to occur later in the season, specifically in April and June.
This data supports our claims that demand is robust during Spring and the market tends to favor sellers during the season, even if it’s part of a more significant trend favoring buyers.
History also suggests that there will be another period of high demand in October, which will create a temporary seller's market.
The Verdict
Three of the 4 metrics that power our leverage indicator favor sellers, so sellers possess temporary transactional leverage within a buyer’s market.
What Does This Mean for:
- BUYERS? When the market shifts towards sellers in March, May, and October, there is an urgency to transact quickly. However, the larger market trend remains in favor of buyers, suggesting that the sellers' advantage is temporary.
- SELLERS? When the market dynamics favor buyers, transact quickly. It is advisable to engage in transactions during March, May, and October. The next favorable opportunity will be in the fall.
Rental Remarks
The median rent in Brooklyn is testing previous highs*, and the average 30-year JUMBO mortgage rate is 6.7%. It’s a “catch-22” for renters, as the rent versus buy scale may feel equally punitive on both sides.
* April 2023 numbers, as May 2023 data is not yet available
Investor Insights
With Brooklyn cap rates between 2.5 - 3.5% and mortgage rates at 6.7%, there is simply no net income potential on leveraged investments. However, with rents at all-time highs, opportunities exist for all-cash buyers.
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 assets.
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.
