Brooklyn Market Update
The inflation rate is +151% higher than its long-term average.
JUMBO mortgage rates are up +109% YTD.
^GSPC (the S&P 500 index) has given back –22% YTD.
And yet, demand for NYC residential real estate (as measured by weekly signed contracts) continues to equal or exceed its pre-pandemic average (the period 5 Jan 2015–1 Mar 2020). Floating atop an ocean of investments that purport the primary objective of principal preservation with capital appreciation as a secondary strategy, NYC residential real estate would appear to be the new gold standard. Except that the concept of NYC weathering market volatility isn’t a new story at all; in fact, it’s a story as old as the data allows us to tell.
Brooklyn Supply
Month-over-month, total supply increased modestly to 3,474 units, and new listings, 834, were down –12% as we would expect historically. new listings that were uploaded during September. We can expect a bump in those numbers again next month since, historically, October is the high mark of supply. Brooklyn inventory is still well shy of the record high reached in 2020 as uncertainty prompted increased listing activity and is significantly lower than 2021 as sellers leveraged record demand.
Brooklyn Buyer Activity
Per the first chart below, demand for Brooklyn — as measured by contracts signed — would appear to be at alarmingly low levels since October 2022 numbers are significantly below the same month in both 2020 and 2021. However, we must keep in mind that by October 2020, Brooklyn was already heading into a skyrocket recovery that extended through H1–2022. As we’ve discussed previously, we must look back to more normal periods, and when we do so (5 January 2015 to 1 March 2020), contracts signed are significantly higher than the pre-pandemic average.
Brooklyn Monthly Contract Activity
Charts Courtesy of UrbanDigs
Brooklyn Market Pulse
Currently at 0.56, the ratio of demand (as measured by pending sales) to supply decreased by 10% from September.
The graph below tracks the monthly aggregate of demand (as measured by contracts signed), supply, and median price/sf. It indicates that Brooklyn is firmly in the grips of a buyer’s market — and a strong one at that, based upon the curve’s slope.
Data Courtesy of UrbanDigs
Pricing & Discounts
At $947,948, the median sales price is little changed compared to last month, yet +6.5% higher than this time last year. The median price per square foot, $991, is higher than last month and Oct 2021 by +4.3% and +5.3%, respectively. September’s listing discount, 2.9%, has more than tripled since July 2022 but is still significantly lower than H1–2021 as Brooklyn pulled out of the pandemic.
What This Means for:
Buyers:
- Because supply and pricing became markedly overheated during 2021 and H1–2022, Brooklyn is currently a strong buyer’s market. Remember, a buyer’s market means, in part, that prices are moving in favor of buyers and that they should be rewarded for their patience.
Sellers:
- Although the current market favors buyers, demand is still at or above its pre-pandemic average. So, there are ample consumers in the market to move inventory; however, sellers need to set their expectations at pre-pandemic levels, not at 2021 levels where demand and price inflation were at record ( and unsustainable and, ultimately, unhealthy) levels.
- Sellers who are not commanding their desired sales price should consider renting their home instead, at least for a year or two, and capitalize on the strong rental market and high rents.
Renters:
- Although peak rental pricing has plateaued, rents remain significantly inflated as decades-high — and still climbing — mortgage rates force buyers out of the for-sale market and into the for-rent market.
Investors:
- Strong rents and humble pricing create continued opportunities for cash investors (who are either liquid or able to trade out of another real estate investment) to invest in Brooklyn real estate.
- Brooklyn presents relative value compared to national markets that experienced steep price appreciation over the last 24-months, now overheated with little to no room for near-term growth.
