Does A Buyer’s Market Grow In Brooklyn?

The UrbanDigs Market Pulse for the Brooklyn real estate market has dipped into buyer’s market territory for the first time since the pandemic recovery began. Typically, this means buyers have more choices and more leverage. To those looking to purchase in Brooklyn, this is welcome news and a long time coming, but, like many post-COVID phenomena, this time, it’s different.

A buyer’s market in Brooklyn?

The Market Pulse measures the ratio of pending sales to active listings to gauge the overall strength of the market. Half of a standard deviation on either side of the 10-year median of that ratio helps define whether buyers or sellers have more leverage.

In Brooklyn, this suggests the market favors buyers when the Pulse is below 0.5. (Anything between 0.5 and 0.7 is considered the neutral zone, and above that, we are in a seller’s market.) For instance, in July 2020, the Pulse bottomed out at 0.2, just as the market reopened and an influx of supply had yet to be absorbed by the waiting demand. As the recovery took hold, the Pulse steadily grew until reaching a peak of .87 in January 2021. After flatlining at an elevated level and resisting the gravity of higher interest rates which pulled the Manhattan market lower, the Brooklyn Pulse finally fell with the seasonal downturn in September 2022.

With the typically busy fall season being atypically slow, the pulse failed to rise as 2022 closed out and fell again in the new year, eventually falling below the neutral market level set by the 10-year median.

Usually, a buyer’s market signals deals and higher discounts for buyers and lower prices and longer times on the market for sellers. This time, however, it may be different.

The underlying mechanics

While the Pulse signals a weaker market, the underlying mechanics of the market have not really deteriorated. For instance, as markets slow, rising inventory pressures prices and increases discounts for buyers. That is not the case in Brooklyn. Despite the weakening market, supply has actually fallen from over 5,000 in late 2020 to 2,900 now – a drop of 45%.

Additionally, discounts in Brooklyn do not appear to be rising. In fact, the latest available data concerning discounts from the original asking price (from October) shows a drop in the discount buyers got from 3.9% in September to 3% in October. Moreover, a 3% discount means more than half of all sellers keep more than 97% of their asking price – not bad for sellers in a buyer’s market.

Finally, market liquidity in Brooklyn is increasing off of its lows. Liquidity, as measured by the running 30-day tally of contracts signed, is a measure of the ease of selling. As liquidity falls, selling becomes harder because there are fewer buyers.

Traditionally in a buyer’s market, the combination of higher supply and lower liquidity (fewer buyers) means buyers have more power. However, today we have, as shown above, a decrease in supply and a burgeoning uptick in liquidity.

Taken together with the Pulse, this suggests more buyers are entering a supply-constrained environment. More buyers combined with less supply usually leads to a seller’s market. So while the technical definition of a buyer’s market in Brooklyn may have been met, in reality, this market remains a tough nut for buyers to crack.

Advice for sellers

Brooklyn remains popular among buyers, but it is not immune to overall market dynamics. With that in mind, pricing right immediately is key to avoiding more days on the market and price cuts.

Also: Know your competition! If there are competing sellers in your building, understand what sets your unit apart. If there are similar apartments in your neighborhood for sale, understand how your apartment stacks up in comparison. The goal is to know where you stand from a value perspective and price accordingly. For example, is one of your bedrooms a walled-off dining area while other units offer full-sized rooms? Or does your unit come with a washer/dryer and others do not? Just as you answered these questions when you bought, buyers today are asking them anew.

Lastly, a sobering reminder: the price you paid has far less relevance to buyers compared to comparative utility, so if you underperform the competition, be sure not to outprice them based on your purchase price.

The goal is to adjust to the market quickly versus waiting for the market to come to you, which is why it is just as important to have a plan if the market doesn’t respond in the first two to three weeks. The data is starting to show harsher negotiation discounts for listings that remain unsold for three or more months.

Advice for Buyers

While this may be a buyer’s market in name only, the fact remains that your negotiating power is probably higher now than it was in the last few years. With that in mind, there may be a window of opportunity before the peak of the spring season to use what little advantage you may have to find value and discounts. While the market is nowhere near the same state it was in July 2020, it’s also nowhere near the frothiness of 2021.

If you’re a buyer who needs to buy, timing the market for a better opportunity later may not be the best idea. There are some forces against you:

1. Sellers are not panicking en masse, so discounts are low
2. Inventory is not surging, so competition still remains
3. Rents are off their highs but not enticing
4. Well-priced, quality product continues to see immediate absorption

To conclude, while the Brooklyn Market may be flashing buyer’s market indicators, the current level of supply and demand suggest otherwise. While certainly no longer a pure seller’s market, buyers should not expect copious choices or gratuitous discounts. Instead, they should console themselves by using a slight uptick in leverage to potentially avoid the typical spring crowds. As the first quarter crosses the halfway point, expect the unexpected in Brooklyn real estate.

This post first appeared on Forbes.com. To see the original, click here.