Overall Brooklyn Market Update: November 2024

Brooklyn Market Gains Momentum: Seller Advantage Returns as Demand Surges

October 2024 saw significant activity in Brooklyn’s real estate market, with 666 contracts signed—a staggering 49% increase from September and a 34% year-over-year rise compared to October 2023. This month marked only the third time in the past 18 months that contract volume exceeded the seasonal average, reflecting heightened demand and a market gaining momentum. The recent surge underscores robust interest in Brooklyn properties and signals a healthy market as we head into the colder months. The Elegran | Forbes Global Properties Brooklyn Leverage Index indicated a shift in favor of sellers this month, following a brief buyer’s market over the summer, driven by October’s rise in demand.

Unlike typical seasonal trends, Brooklyn’s housing inventory declined in October, falling to 3,383 listings—a 3.3% month-over-month drop. This reduction was fueled by increased contract activity, pushing the market closer to equilibrium. Year-over-year inventory growth remained modest at 3% as buyers swiftly absorbed new-to-market listings. With contract activity outpacing supply increases, Brooklyn is now a more competitive environment, and well-priced, strategically marketed properties stand to benefit the most.

Price trends have shown mixed signals. The median price per square foot (PPSF) fell to $895, a 7.3% decrease from September and a 2.7% decline year-over-year. This drop is linked to contracts signed during the summer when higher interest rates and buyer fatigue led to longer time on the market and larger discounts. However, as demand has picked up, this downward pressure is expected to reverse, with annual appreciation becoming more evident in the months ahead. Sellers should note that accurate pricing and strategic presentation remain critical to capturing buyer interest in a competitive market.

The rental market also experienced shifts. The median rental price in September held steady at $3,650 but marked a 1.4% decline year-over-year. Bidding wars were still prevalent, accounting for over one in four lease signings.  With interest rates declining, the rent-versus-buy equation is tipping in favor of purchasing, prompting more renters to consider buying. This trend is expected to drive further demand in the sales market while easing pressure on the rental market moving into the spring season.

For investors, Brooklyn offers both challenges and opportunities. The current cap rate for all-cash investors ranges from 3.0% to 3.4%, making net income generation difficult for those relying heavily on leverage given the 6.7% average JUMBO mortgage APR. Yet, Brooklyn’s fundamentals remain strong, especially compared to overheated markets. The borough’s slower price appreciation relative to the national average points to room for future growth, particularly as interest rates decline and buyer activity accelerates. Investors, especially those considering all-cash purchases or foreign investment opportunities, may find compelling long-term value in Brooklyn as we move toward the end of 2024.

Elegran | Forbes Global Properties Brooklyn Leverage Index

The Elegran | Forbes Global Properties Brooklyn Leverage Index² 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

It’s not the exact numbers that matter most—it’s the direction and slope of the trend. After a brief seller’s market this spring, Brooklyn’s real estate market shifted in favor of buyers over the summer. However, this fall has seen momentum swing back toward sellers, driven by a surge in contract activity. The Fed’s rate cut has brought buyers off the sidelines, intensifying competition for well-positioned units in Brooklyn.

Brooklyn Supply

Contrary to the typical seasonal trend of rising listings, Brooklyn’s housing inventory declined in October, reaching 3,383 units. This 3.3% month-over-month decrease was driven by a surge in contract activity, shifting the market toward a more balanced equilibrium. Year-over-year inventory growth remained modest at just 3%.

What does this mean for:

- BUYERS: Growing buyer demand has quickly absorbed the seasonal inventory boost. Bidding wars are still common for well-priced, well-positioned properties, while homes that are incorrectly priced or poorly positioned may linger, offering more room for negotiation.

- SELLERS:  With less competition from other sellers, properties may command higher prices.

Overall, Brooklyn’s housing market favors sellers. Buyer demand is anticipated to strengthen through the winter and into spring, allowing sellers to time their listings strategically. Supply is expected to stay tight over the holiday season, gradually increasing as spring approaches.

Brooklyn Demand

October typically brings an uptick in new listings and buyer activity; this year was no exception. The month saw a significant surge in signed contracts, with 666 contracts—a 49% increase from September and an impressive 34% rise year-over-year from October 2023. While most months this year have lagged behind last year’s activity, October outpaced 2023 levels. It also marked the first time in five months that monthly contract volume exceeded the seasonal average and only the third instance in the past 18 months.

What does this mean for:

- BUYERS The surge in contracts highlights growing buyer interest, indicating more competition, the potential for bidding wars, and upward pressure on prices. Buyers must be decisive and prepared to act quickly to secure desirable properties.

- SELLERS: The increase in contract activity is promising for sellers, signaling strong demand and greater market liquidity. With competition for limited inventory, sellers may benefit from multiple offers and higher prices for their properties.

Overall, the sharp rise in contracts underscores a robust Brooklyn real estate market that slightly favors sellers. Buyers should prepare for a highly competitive environment and be ready to move swiftly. However, it remains uncertain if contract volumes will continue to outpace seasonal averages through November and December, especially given the 80-basis-point rise in average mortgage rates since mid-September and the ongoing election-related uncertainty. Once these concerns diminish and interest rates resume their gradual decline, buyer activity is expected to increase even further.

Brooklyn Median PPSF

In October 2024, the median price per square foot (PPSF) for residential homes in Brooklyn was $895, reflecting a 7.3% decrease from September and a 2.7% decline year-over-year. Much of this decrease can be attributed to contracts signed over the summer that closed in September. These deals were made during a quieter period for Brooklyn real estate when interest rates were higher, buyer fatigue was evident, and a larger share of contracts involved properties on the market longer, trading at lower prices and more significant discounts. As the market has accelerated, expect the MoM trend to reverse, with annual appreciation continuing.  

What does this mean for:

- BUYERS: The slight decline in median PPSF is a lagging indicator tied to contracts signed before the Fed’s interest rate cut. Current demand for Brooklyn real estate suggests that prices are under upward pressure.

- SELLERS: The recent price dip reflects earlier market conditions, and upcoming months should start to show price gains. While strong demand is expected to bolster property values, accurate pricing remains crucial to attract interest. Today’s buyers are savvy, and overpricing may turn them away in a competitive market.

Overall, the current market dynamics present opportunities for both parties. Sellers can benefit from heightened demand, while buyers, supported by lower interest rates, may find increased purchasing power. However, buyers should be prepared to act quickly and face competition as demand rises.

Brooklyn Median Listing Discount

In October 2024, the median listing discount for residential homes in Brooklyn rose to 3.5%, up from 3.1% in September and a 0.3% increase from October 2023. This modest uptick is mainly due to seasonal factors, reflecting contracts signed during the summer, which often involve homes that have been on the market longer and are, therefore, more negotiable. The slight annual increase is also linked to higher inventory levels compared to last year, but this trend should be short-lived as the recent surge in contract activity is outpacing any rise in supply.

What does this mean for:

- BUYERS: May find opportunities to secure better deals, especially on homes that have been on the market for extended periods.

- SELLERS: To avoid deeper discounts, it’s crucial to properly position your home for sale with strategic pricing and appealing staging. Well-presented homes can attract more interest and potentially fetch higher offers.

Overall, while the slight rise in the median listing discount may provide some leverage for buyers, sellers can still achieve strong outcomes with the right market approach. As competition intensifies through the winter and into the spring, discounts are expected to decline, making strategic planning even more important.

Rental Remarks

In September, the median rental price held steady at $3,650 from August 2024 but saw a 1.4% year-over-year decline. Bidding wars were still prevalent, accounting for more than one in four lease signings³. With declining interest rates, the rent-versus-buy equation is beginning to shift in favor of buying. This trend may prompt more renters to transition into buyers, boosting demand in the sales market while easing pressure on the rental market.

Mortgage Rates: The 30-Year Fixed Rate JUMBO Mortgage Index is at 6.8%⁴, with an average JUMBO APR of 6.7%⁵. Although rates trended lower in late August and early September, they have risen by 80 basis points from their mid-September low. As market uncertainty wanes, mortgage rates are expected to gradually decline by the end of 2024, offering potential relief for buyers heading into the spring.

Investor Insights

Total returns in Brooklyn are driven by a combination of net rental income and capital appreciation. Current cap rates range from approximately 3.0% to 3.4% for all-cash investors. However, given the average JUMBO mortgage APR of 6.7%, net income potential remains elusive for those heavily relying on leverage.

The chart below illustrates that Brooklyn has experienced a gradual upward price trend. While appreciation in the borough has outpaced Manhattan, it has lagged behind the national average. This presents a strategic opportunity: while other markets are at risk of overheating and some are entering bubble territory, Brooklyn’s fundamentals indicate room for additional appreciation, especially as interest rates decline. Future capital appreciation will be the key driver of returns, offering significant potential upside.

For foreign investors, timing is crucial. A strong USD relative to their native currency may enhance the opportunity to realize meaningful capital gains when selling assets in Brooklyn. As interest rates continue to soften, the borough’s real estate market remains primed for long-term value growth.

References

1. Data courtesy of UrbanDigs

2. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index

3. Data courtesy of Miller Samuel, Inc.

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

5. 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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