Research Note: Avoiding Two Common Real Estate Mistakes

Photo by Rhema Kallianpur on Unsplash Negative news and stats have begun to invade the airwaves. “Mortgage Rates Are Accelerating Faster Than at Any Point in History” headlines read. “NYC Price Growth May be Peaking” suggest others. Such headlines often protect consumers from financial loss, but they can also deter prudence by crystallizing fear. I believe the headlines and industry narratives could potentially shepherd consumers down the path of the following mistakes. Hopefully, the awareness presented herein may lift the fog of fear and restore objective decision making. MISTAKE #1 — CHASING THE PAST It happens too often in the equities market. An investor sees the rocketship rise of an Amazon or a Bitcoin, the pain of missing out on gains kicks in and that investor purchases without realizing that their performance exists not in the past but in the future. Rarely does the equity repeat its prior growth and, worse still, the investor often purchases high and loses money on the trade as the stock price cools off. I see today’s mortgage rate environment much the same way. Many buyers are trying to chase the past by hoping and waiting that rates return to their 2020–2021 all-time lows. Rates may never dip that low again and waiting while they race higher doesn’t seem wise either. As we suggested previously, one can always refinance if and when rates pull back. If that reasoning is not enough to silence the “ghost of mortgage rate past’’ haunting one’s consciousness, we should calculate the increase in monthly principal and interest payments that our not acting sooner has generated and subsequently ask ourselves, “Where can I generate that amount elsewhere?” According to UrbanDigs, Manhattan’s median sale price in April was $1,253,750 and, assuming 20% down payment, a past rate of 3.00% and a current rate of 5.00%, that monthly payment increase is $1,156. And how to generate that equity elsewhere? A well vetted NYC apartment is a great place to start, which also leads me to MISTAKE #2. MISTAKE #2 — AN APARTMENT OF INTEREST AND THE AGGREGATE OF ALL NYC APARTMENTS ARE ONE IN THE SAME Let’s lean on the equities market for the purpose of another comparison. For the past month, the S&P 500 has been losing market cap and, as of Friday, April 29, closed down -13.86% for the year. Does this aggregate index performance describe the recent trend and YTD performance of each of the 500 companies within the index? Of course not. Avoiding the obvious pitfall of using an energy company during a time of war to make my point, I’ll use The Hershey Company (HSY) instead, which has trended upward throughout 2022 and closed up +16.85% YTD. So, HSY is a company within the S&P 500, yet not only does the aggregate index not adequately describe its performance, it is literally the inverse. So, indications that NYC apartment price growth is slowing down and may soon reverse course altogether is in no way whatsoever a predictor for an apartment of interest. Maybe that apartment does mirror the NYC aggregate. Maybe the apartment’s performance is worse. Or, maybe, it performs far better. Careful vetting and the prioritization of fundamentals and product quality can lead to capital appreciation, even when the market is moving in the other direction. — Jason Thomas

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Elegran Brooklyn Market Update: May 2022

Overall Brooklyn Market Update: May 2022 Brooklyn Market Update April is traditionally one of the busiest months of the year for Brooklyn Real Estate and the month when supply typically peaks for the Spring market. This April, 951 contracts were signed, 5% fewer than last month and 6% fewer than April 2021. From a contract perspective, April marks the first month this year when contract activity has fallen behind pace compared to a year ago. Although, by historical standards, contract activity remains incredibly high, signs are forming that contract activity in the borough may be normalizing. In the face of rising interest rates, a possible recession, continued geopolitical instability and falling equity markets, future demand might be pulled forward to transact sooner. What effect this will have on the transaction volumes over the next six months remains to be seen. On the supply end, sellers have been coming to market to meet today’s demand and supply rose by 5% in April. Homes continue to enter contract quickly, 60 days on median, a decrease of nearly 8% from last month and 24% from last year. Prices have also increased, with the median sales price rising 2% compared to last month and 9% compared to last year to $975,000. The median price per square foot increased 8% compared to last month and 7% compared to last year to $1,012 per square foot. The median listing discount has also decreased from 3.1% to 2.8% in April, indicative of a high frequency of bidding wars. Brooklyn Supply increased by 5% compared to March, bringing the total supply to 2,631 units for sale. In April, 1,153 new listings came to market, 16% less than March and 22% less than last April. Supply currently stands 23% lower than the same time last year, which coupled with continued robust demand, has driven the Market Pulse Higher, indicating a more competitive market for buyers. INVENTORY: Key Takeaways In the last month, supply increased across most price ranges except for the under $600K and the over $10M ranges. Supply increased the most in Park Slope and Brooklyn Heights, up 16% and 14% respectively, in the last month. In April, supply of 1-bedroom homes decreased, while supply increased for studio, 2-bedroom and 3+ bedroom homes. In the last year, supply has decreased across all price ranges, neighborhoods and home sizes except for those priced $5–10M. Brooklyn Buyer Activity, as measured by signed contracts, decreased 5% compared to March with 951 contracts signed in April. Compared to April 2021, 6% fewer contracts were signed this year. CONTRACT ACTIVITY: Key Takeaways In the last month, contract activity increased for homes priced $5–10M, while remained flat or decreased for all other price ranges. Williamsburg and Park Slope saw an increase in contract activity in the last month, up 41% and 15% respectively. Contract activity increased for 3+ bedroom homes, while decreased for homes of other sizes in the last month. In the last year, contract activity increased 24% for homes priced $2–5M and increased 140% for homes priced $5–10M. Despite rising supply and a slightly slowed pace of contract velocity, Brooklyn’s Market Pulse rose from 1.23 to 1.29 in April, reflecting the continued strength of the current seller’s market in the borough. The Market Pulse [a ratio between pending sales and supply] is an indicator of leverage between buyers and sellers. A Market Pulse below 0.4 is considered a buyer’s market, a Market Pulse between 0.4 and 0.6 is considered a neutral market and a Market Pulse above 0.6 is considered a seller’s market. MARKET PULSE: Key Takeaways In the last month, the Market Pulse rose for homes priced under $1M and those priced between $2–5M. Williamsburg saw a 31% increase in its Market Pulse in April which now stands at 1.91, the highest in Brooklyn. In the last year, the Market Pulse has increased the most on a percentage basis for the larger and more expensive homes. Pricing & Discounts The Median Sales Price in Brooklyn increased 2% from last month and increased 9% from last year to $975,000. On a price per square foot [PPSF] basis, the median increased by 8% from last month and increased 7% from the previous year, to $1,012. Meanwhile, the median listing discount decreased 7% from 3.1% to 2.8% in April, down 39% from last year. PRICING: Key Takeaways In the last month and year, Downtown Brooklyn saw a decrease in median sales price, down 2% to $1,245,015. The median sales price increased for 2 and 3+ bedroom homes in the last month, while it remained the same for studios and decreased for 1-bedrooms. All neighborhoods saw an increase in the median price per square foot in the last month, and all but Bed-Stuy saw an increase in the last year. MEDIAN LISTING DISCOUNT: Key Takeaways Co-ops experienced an increase in negotiability in April, while discounts in condos and townhouses remained unchanged. The median listing discount increased for homes priced under $600K and $1–2M in the last month and decreased for the other price ranges. Negotiability decreased in Bed-Stuy and Brooklyn Heights, and increased in Downtown Brooklyn, Park Slope and Williamsburg in April. On the median, homes sold at the asking price in Bed-Stuy in April. In April, discounts increased for 1-bedroom homes, and decreased for homes of other sizes. What this means for… Buyers: Buyers continue to face pressure from multiple bidders and rising interest rates, but have a slight reprieve as supply increases. Some buyers are accelerating their plans to purchase sooner, given, in part, to rising interest rates. Ample new supply is coming on the market this spring, offering new options, and buyers need to be prepared to compete with other ready-to-transact buyers. Prices are continuing to increase. Given rising rents and current inflation, buying may make more sense than renting today (with a holding period of 3–5 [or more] years). Sellers: Seller competition is increasing as supply increased 5% in April. Sellers need to read the market cues and readjust quickly if they are overpriced or mispositioned in the market Heading into the summer market, sellers who want to sell should strongly consider listing sooner than later to take advantage of the current market conditions. Renters: Covid-era rent discounts are a thing of the past, as renters experience rapid price increases which are erasing prior discounts and landlord concessions. Rents are now back in-line with the increasing trend of the last 5-years. Competition remains fierce amongst tenants, with apartments often receiving multiple offers and frequently going to bidding wars. Supply continues to trend downward heading into the spring and summer rental market as tenants may choose to renew rather than compete in the competitive market and move. Investors: Rising interest rates should have a more muted effect in Brooklyn, as Brooklyn is less leveraged than most of America, enabling the NYC market to withstand the pressures of ascending interest rates better than many other national markets. Leveraged investors, who have a lower interest rate locked in, stand to benefit from the inflationary pressures and rising rental rates. Those investors should continue to hold and experience rising cap rates in the years to come. Please contact us if you would like to learn more …

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Elegran Manhattan Market Update: May 2022

Overall Manhattan Market Update: May 2022 Manhattan Market Update April is traditionally one of the busiest months of the year for Manhattan Real Estate and the month when supply typically peaks for the Spring market. This April, 1,410 contracts were signed, 6% fewer than last month and 12% fewer than April 2021. From a contract perspective, April marks the first month this year when contract activity has fallen behind pace compared to a year ago. Although by historical standards contract activity remains incredibly high, signs are forming that contract activity may be normalizing. In the face of rising interest rates, a possible recession, continued geopolitical instability and falling equity markets, future demand might be pulled forward to transact sooner. What effect this will have on the transaction volumes over the next six months remains to be seen. On the supply end, sellers have been coming to market to meet today’s demand, as nearly 2,200 new listings came to market in April, increasing supply by 12% compared to March. As supply has increased, the Market Pulse, a ratio of supply and demand, has decreased 1% compared to last month and the median listings discount increased from 3.6% in March to 4% in April, raising the question of whether the seller’s leverage has peaked. Homes are entering contract quicker, 71 days on median, a decrease of 7% from last month and 37% from last year. Prices have also increased, with the median sales price rising 6% compared to last month and 11% compared to last year to $1.25M and the median price per square foot increasing half a percent compared to last month and over 10% compared to last year to $1,435. Manhattan Supply Total supply increased in April as expected with nearly 2,200 new listings coming to market, increasing total supply by 12% to 6,206 units available for sale. Supply is now above 6,000 units for the first time since November 2021. While still at historically above-average levels, supply remains lower than 2018, 2019 and 2021 and feels even lower because of the above-average level of demand. Furthermore, April is traditionally the peak of supply in the spring market, as new-to-market supply begins to wane in May approaching the summer season. This year, a historically high-amount of inventory also came to market in April, second to only April 2021. Again, overall supply is kept in check because of the continued strong buyer demand, which is turning the inventory over quickly. Compared to last April, supply is nearly 14% lower this year. Note: “Total Supply” refers to the amount of inventory on the market at a given time. “New Supply” or “New-to-Market” refers to the amount of new inventory that came on the market in a specific time period. INVENTORY: Key Takeaways Compared to last year there is less inventory across all price ranges, neighborhoods and apartment sizes. Compared to last month, inventory increased across all market segments. In the last month, inventory increased the most on a percentage basis in Downtown. In the last month, inventory increased the least on a percentage basis for Studios. Manhattan Buyer Activity as measured by signed contracts, remained historically very high for the month of April, as 1,410 contracts signed, which is 6% less than in March and 12% lower than April 2021. This marks two years in a row with contract activity well above average, and has been a key reason why supply has been trending lower, despite above-average levels of new-to-market supply. CONTRACT ACTIVITY: Key Takeaways Compared to last month, contract activity decreased across all price ranges, neighborhoods and apartment sizes except for the $10M+ price range, studios and 2-bedrooms. In the last month, apartments priced between $1–2M had the largest percentage decrease in contract activity. In the last year contract activity decreased across all market segments. In the last month, on a percentage basis, contract activity increased the most for studio apartments. Manhattan’s Market Pulse [a ratio between pending sales and supply] decreased by 1% in April as supply increased at a slightly faster rate than pending sales increased. The current Market Pulse is 0.76, still indicative of a seller’s market, and is 15% higher than a year ago. With the slight drop in the Market Pulse, the median listing discount has increased and currently stands at 4% on the median, an increase of 11% from last month and a decrease of 50% from last year. A Market Pulse below 0.4 is considered a buyer’s market, a Market Pulse between 0.4 and 0.6 is considered a neutral market and a Market Pulse above 0.6 is considered a seller’s market.] In a seller’s market, sellers often have more leverage than buyers because demand is greater than supply, resulting in apartments selling quickly, fewer discounts and increased bidding wars. MARKET PULSE: Key Takeaways In the last month, the Market Pulse increased for homes priced under $1M and decreased for those priced above $1M. Over the last year, the Market Pulse increased across all price ranges, neighborhoods and bedroom counts, except for Upper Manhattan. The Market Pulse is now the highest for apartments priced $600K-$1M. The Market Pulse increased noticeably in the last month for studio apartments, while decreased substantially for 3+ bedroom homes. The Upper West Side is the neighborhood with the highest Market Pulse followed by Downtown, while Upper Manhattan continued to have the lowest. Pricing & Discounts The Median Sales Price across Manhattan for the month of April was $1,253,750, an increase of nearly 6% compared to March and an increase of 11% compared to last year. On a price per square foot (PPSF) basis, the Median PPSF is $1,435, an increase of 1% from the previous month and an increase of 10% compared to last year. The continued strength of the luxury market is one reason why the price increases are as high as they are, however, leading indicators hint that the luxury market resurgence may be running its course. The market may be seeing a short-term peak of prices as the market reassesses the current rising interest rate environment, geopolitical situations and choppy equity markets. Regardless of prices, the market still feels very competitive for buyers, which is resulting in homes continuing to sell quickly. The median listing discount is currently 4% with nearly 15% of homes having sold over the asking price in Q1 2022. PRICING: Key Takeaways Over the last year, the median sales price for condos rose double digits in all neighborhoods except for Upper Manhattan, which decreased by 4%. Over the last year, the median sales price for coops decreased in all neighborhoods, except for the Upper East Side which increased by 28%. Over the last year, the median price per square foot increased across all market segments except for those priced $5M+. MEDIAN LISTING DISCOUNT: Key Takeaways The median listing discount increased for condos, coops and townhouses in the last month, and remains lower compared to last year. The median listing discount decreased for homes priced between $600K-$1M and for $5–10M, and increased for the other price ranges in the last month. In the last month, the median listing discount increased for all neighborhoods, except for Downtown. In the last year, the median listing discount decreased across all market segments. What this means for… Buyers: Buyers continue to face pressure from multiple bidders and rising interest rates, but have a slight reprieve as supply increases. Some buyers are accelerating their plans to purchase sooner, given, in part, rising interest rates. Ample new supply is coming on the market this spring, offering new options for buyers, and buyers need to be ready to compete with other ready-to-transact buyers. The median sales price and median price per square foot are continuing to increase. Given rising rents and current inflation, buying may make more sense than renting today (with a holding period of 3–5 [or more] years). Sellers: Seller competition is increasing as supply increased 12% in April. The median listing discount increased from 3.6% in March to 4% in April, one indicator of a possible peak to the seller’s market. Sellers need to read the market cues and readjust quickly if they are overpriced or mispositioned in the market. Heading into the summer market, sellers who want to sell should strongly consider listing sooner than later to take advantage of the current market conditions. Renters: Covid-era rent discounts are a thing of the past, as renters experience rapid price increases which are erasing prior discounts and landlord concessions. Rents are now back in-line with the increasing trend of the last 5-years. Competition remains fierce amongst tenants, with apartments often receiving multiple offers and frequently going to bidding wars. Supply continues to trend downward heading into the spring and summer rental market as tenants may choose to renew rather than compete in the rental market and move. Investors: Rising interest rates should have a more muted effect in Manhattan, as Manhattan is less leveraged than most of America, enabling the NYC market to withstand the pressures of ascending interest rates better than many other national markets. Leveraged investors who have a lower interest rate locked in stand to benefit from the inflationary pressures and rising rental rates. Those investors should continue to hold and experience rising cap rates in the years to come. Please contact us if you would like to learn more …

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