Brooklyn Prices Set to Cool Off?

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We’ve noticed several signs recently that the quickly rising prices for Brooklyn town houses may begin to slow soon. Nationally, growth of home prices is slowing down, according to the Case Shiller index. Mortgage interest rates have finally begun to rise. And, finally, equity-backed investment firms — which have purchased at least an estimated third of homes across the U.S. and buoyed prices nationally as well as in Brooklyn in recent years — are beginning to falter. Last week, the U.S.’s second biggest owner of single-family rentals, American Homes 4 Rent, laid off employees after going public. Early mover Carrington Holding has stopped buying single-family homes to rent and has started to sell, reported Businessweek.

“We just don’t see the returns there,” said the company’s chief executive officer in the story. “There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.” At least three companies have reported losses in their single-family rental investment businesses because they snapped up houses faster than they could fix them up and fill them with tenants. “Colony American Homes, a division of Thomas Barrack Jr.’s Colony Capital, has found tenants for only 51 percent of the 9,931 homes it bought for $1.4 billion, according to a May 28 regulatory filing. American Residential Properties (ARPI) and Silver Bay Realty Trust (SBY) reported losses in the quarter ended March 31,” the story said.

Closer to home, we hear even more inventory is about to come on the market in Bed Stuy — so much inventory that prices are expected to slow or even plateau there. What do you think? Could sale prices for town houses slow across the borough? What about apartments and rentals?

44 Comment

  • Here comes BHO, drooling.

  • People interested in Bed Stuy brownstones aren’t interested in Bed Stuy high rise condos or coops.

    Besides, this is about the rise in interest rates

    • To be fair Dave – some of the supporting articles are looking at investment firms who are purchasing property more quickly than they can find tenants for, so it is not only condos and coops. It also is looking at flippers who can’t move their inventory (which I am increasingly seeing more of, especially in bed-stuy). Also, I would argue that condos and coops feed off brownstone prices, especially in the price per square foot categories.

      • Can’t say I didn’t see this coming. Hopefully no one has gotten themselves into deep, that will result in a foreclosure. I guess we’ll have to wait and see….Now the question is will prices adjust to these new interest rates here in our “HOT” Bed-Stuy…lol
        I mean inventory remained at a low amount in other neighborhoods (Park Slope, Clinton Hill ) regardless of the low interest rates, I don’t imagine that we will see an large influx in housing stock there now that these rates have gone up. I do think a lot more people in Bed-Stuy will continue to list their properties for a while with the hopes of getting those 2 million dollar sales. Sadly I don’t think they will get those prices without an all cash buyer. Now who are these cash buyers —-Investors??? and it looks like their closing their pockets up for another rainy day.

  • > “There’s a lot of — bluntly — stupid money that jumped into the trade…”

    And the winner of Understatement of the Year is…

  • I’m glad that some rationality may be entering the speculative purchase of single family homes but I also know that national trends do not necessarily have a corollary in the local market.

    • Agreed Joe, but I think that assumes the buyers are local as well. There’s been an influx of institutional buyers that have a larger footprint than the local market which means their local decisions may be more affected by national trends (ex. Best Buy shutting locations in down in NYC even though they probably were doing ok in order cut down on high cost locations)

  • I guarantee you prices will decline, stay flay and increase. However, in what order or the exact time I cant tell you (nor can anyone else)!

  • The inventory coming online in Bed Stuy is likely to be snapped up by a firm like Dixon.. At least that’s what the weak-handed flippers in BS are hoping for.

  • The prices have climbed too steeply, probably due to professional flippers buying up everything sight unseen. The rest of the country is still trying to shake off the effects of the great recession, I think it is astonishing that Brooklyn has been out there bucking the trend for so long. It will be very interesting to see what happens in the next couple of years, especially as twenty somethings get a gander at what education costs are like for the kiddies.

    • Side note to the student debt, they’ll also be continuing to pay their own as well as paying for their children. I’m in that age bracket myself and many of my generation from what I have heard are waiting longer to have children. Realizing they can afford them. Establishing careers first and attempting to grounding themselves financially.

  • On the one hand, now more than ever New York City is a separate market than has little to do with national trends. Unless the economy here tanks, or new restrictions are introduced for foreign buyers (which seems unlikely), I don’t see anything changing much. Look at London, where prices are exponentially higher than the rest of the UK. On the other, prices in certain neighborhoods have risen too far too fast and are unsustainable. Yes, Bed-Stuy, we’re talking about you.

  • I need to do my daily hater quieting… so, prices will level off with rising interest rates cooling demand. People rushed to get a lower rate creating a pause now. Bear in mind the higher interest rates have made places effectively about 10-12% more expensive for buyers. This is absorbing some of the price increase this month. Most people buying thought even if I pay 5% more and have rates one percent lower, why not. Developers at the same time saw a great buying opportunity and decided get are while staff buying, even if they take a short term loss, they know they can profit enormously in long term. …. may there be done that ramped up too quickly and under estimated the work required? Yes. But this not a problem to the market unless all do. … now remember the country is coming off all time low in supply, this will take us off all times lows, but property is still affordable, people will buy. Bed stuy is still thebest deal out. Brooklyn is still the world’s best city (and many people still believe it is just an alternative burough). Prices will rise … rising rates historically are a very short term impact. Bed stuy is a huge place, of course inventory will come to market

  • Perhaps my view is out of touch because I bought my Bed Stuy house over 8 years ago back when I was worried that I was purchasing at the height, but…

    1. Transportation is top notch here, especially along the A line.
    2. Rental units can cover much of the mortgage.
    3. Personally, I’ve experienced more safety issues living in the Slope in the 90′s and early 2000′s than I ever did here.
    4. Amenities will come. When I first moved here, Applebees was a big deal because it was the first sit down restaurant. There were only bullet proof glass liquor shops. The best place for coffee was the corner bodega. I could only order take out from ONE fairly clean “Asian” restaurant. Fast forward to 2013 and we have some great dining choices, I can order any kind of delivery, including Fresh Direct, I have my choice of coffee places, wine shops and trendy bars.
    5. I love Bed Stuy because it’s NOT Park Slope or Cobble Hill.

    That being said, the prices are pretty out of control. I’d rather see my own property value a bit lower (I don’t plan on going anywhere!) and have some cool people move into the neighborhood rather than a bunch of investment bankers and lawyers. No offense to investment bankers and lawyers.

  • For sure Brooklyn and specifically Bed Stuy will eventually cool off. I doubt Bed Stuy will continue to see 30% price increases per quarter like it had this year thus far; that just doesn’t make sense. Once Dixon has picked up all his properties, prices will level off and then you will start seeing slow but steady increases for a while.

  • Cool off? Yeah…avalanches are pretty cold. I’d say an arctic blast downward.

    “While just a few months back NYC foreclosures recorded a new low, second quarter foreclosure activity experienced a sizeable growth.”

    http://www.propertyshark.com/Real-Estate-Reports/2013/08/01/nyc-first-time-foreclosures-reach-2-year-high/

    “Pre-foreclosures have not changed their trajectory, and are continuing their upward trend…Midtown’s River House takes a top spot, but not among the ritziest residential buildings (as it was accustomed to); the co-op at 435 E 52 St #4E was the property with the biggest lien filed in the second quarter ($4,690,233), with an auction set for June 3.”

    3/4 off!

  • How come BHO gets to post with link, but my post with links are still “under moderator consideration”?

  • Markets rise and fall, and if prices fall in Brooklyn Heights and DUMBO, they’re most likely going to fall in Bed Stuy too (not that I believe that they are going to fall any time soon, although that’s just my belief based on open houses with 100 prospective buyers and 10-15 offers, many of them all-cash for every decent brownstone that comes onto the market).

    So, the question really boils down to, is Bedford Stuyvesant inferior to other brownstone neighborhoods in Brooklyn? Is the premise that somehow Bed Stuy prices are more inflated than the rest of brownstone Brooklyn? If anything, the pattern in Brooklyn over the past 15 years has been consistently that gentrifying neighborhoods continue gentrifying, adding restaurants, shops, amenities, and get nicer and nicer — at least to the gentrifiers. What is happening in Bed Stuy with prices is, I would suggest, evidence of a tipping point. The neighborhood has gentrified to the point where the pace of gentrification is only likely to pick up momentum. I hope that the neighborhood finds a place for new and old residents alike, but change at this point is inevitable.

    Park Slope was once a gritty neighborhood of pioneer gentrifiers! And I’m sure that people made snarky remarks about living in Park Slope and missed that boat. And it wasn’t that long ago that “Park Slope” meant East of 6th Avenue and north of 9th Street. And Williamsburg was the murder capital of the City before it became hipster central. It was only 10 years ago that there were what, 5 or 10 restaurants there?

    The landmarked blocks of Bed Stuy and those calendared for landmark status are as nice as any anywhere in Brooklyn. And my commute to Manhattan takes 15 minutes on the A train. Bed Stuy represents a substantial discount over what buyers would pay in other brownstone neighborhoods for comparable brownstones, and the more gentrifiers that buy and fix up these homes, the more that their investments will look like incredibly good deals in the future.

    If — and this is a big if, because equating investment companies that bought up single family homes in middle America to the ones buying 2-4 family brownstones to rent as apartments in Brooklyn is a mind bending leap to make — investment companies scale back their buying or step out of the market, then there might be only 6 all cash offers instead of 8, and more homes will go to the hundreds or thousands of families looking to move into the neighborhood.

    F.D. Vrooman

  • Simple-minded take on the crazed flipping orgy of Brooklyn: all of that plaster is being ripped out and replaced by cheap drywall and exposed brick and those horrible, horrible beige bathrooms. Prices I do think will fall back down, but we’ll all be stuck with horrific drywall, baseboard heating and vessel sinks forever.