Brownstone Market: Trouble on the Fringes?

I had my offer accepted at $50,000 under asking on a 2 family house in Bed Stuy. Everything I see seems very overpriced, but I'm wondering if all asking prices are now padded in the hopes of getting a true target price underneath. I.E. - asking $700, accept $600. I have seen many listings just languishing on the market. Back in December, the seller would not budge beyond $9000 under asking on this house: http://www.corcoran.com/property/listing.aspx?ListingID=818089&Region=NYC

and that was with a flooded basement, and termite-ridden main beam. the house is still just sitting there. (this is not the house we wound up going into contract on.)

Posted by: Anonymous at March 28, 2006 9:11 AM

Did the author really equate "the far reaches of Fort Greene" with East NY and East Flatbush?

What exactly are the far reaches for Fort Greene?

Posted by: Anonymous at March 28, 2006 9:37 AM

@ 9:11

A couple of years ago, an appraiser "warned" me about blocks north of Quincy (being generous, I think) in Bed-Stuy.

The house in your link is on Van Buren. I don't care that it is b/t Stuyvesant and Lewis. It is going to be a tough house to sell--especially when you include the hospital-white painted....everything and (based on a pic) questionable floors.

With all due respect, since when was access to the J-line a selling point?

"A new boiler and hot water tank will be installed by the owner." - why not install it first and use the upgraded mechanicals as a selling point?

Posted by: Anonymous at March 28, 2006 9:44 AM

We must remember Bedstuy is BKLYN's largest nab. What's on the market for 600k is not in the prime sections of Bedstuy. A house priced that low in the Stuyvesant Heights section would not last a week on the market.

Posted by: Anonymous at March 28, 2006 9:47 AM

One test of this theory will be how the high-priced houses currently on the market in Lefferts Manor do (since the area is mentioned in the article). The houses asking in the 900's will be probably sell close to asking, but if this article is on the money the places listed at 1.3 to 1.6 aren't going to go for near asking. With the market in "flux" many smart people will think long and hard before paying record amounts on a fringe area.

Posted by: Anonymous at March 28, 2006 9:56 AM

I think all this talk of a bubble is a big 'hype'. It's often propagated by people who don't own any property or would like to own property in areas like, say bed stuy, but feel priced out. Real estate envy I would call it. A studio apartment in my building just closed for $250K. A year ago, it would have sold for $125 (at best). Brooklyn remains an affordable option from prospective home-buyers who can't afford property in Manhattan.
Bed Stuy is still one of the most affordable nabes in Brooklyn. So, even though many of us react to the continuous surge in property value, the fact is Bed Stuy still remains at the lower end of the spectrum.

Areas such as Park Slope, Brooklyn Heights, etc. are becoming so expensive that buyers who want to remain in an urban environment have no choice but to look at areas outside their comfort zone (i.e., Bed Stuy).

Supply and demand still rules and will continue to do so for some time.

Posted by: Anonymous at March 28, 2006 10:11 AM

Stuy Heights prices are not dropping to $500k to $600k. Anyone in the market knows that. Yes, Bed-Stuy is huge, and must agree that a questionable property on Van Buren is not exactly a meter for the neighborhood as a whole.

Posted by: Anonymous at March 28, 2006 10:11 AM

Face it people, the rules of gentrification has changed. Property owners are more informed of the value of their house in comparison to other neighborhoods. They are no longer willing to 'give it away' just because the neighborhood is 'questionable'.

I would love to buy a house in Bed Stuy also but I'm not about to join in a bitter gripe about prices just because it's out of my range.

I've often read comments here that 'poorer' people (i.e., renters) who are priced-out of their neighborhood should look elsewhere once their rental lease expires. Well, by the same token, buyers who would looove to buy a brownstone but find themselves priced-out out should likewise look at other neighborhoods or adjust their expectations (maybe buy a studio instead).

Posted by: Anonymous at March 28, 2006 10:23 AM

A lot of people consider Clinton Hill and parts of Ft Greene and the South Slope as "farflung". But, if a reduction in prices are on the way, it is usually the areas that went up last that tend to fall first. As a homeowner, I hope prices remain flat or go up. But as a realist, I suspect that Bed Stuy is not the only "farflung" area that will drop first

Posted by: Anonymous at March 28, 2006 10:28 AM

I think what changes from frenetic market to a 'more normal' one is that inferior properties no longer get snapped up or can be priced nearly as high as nicer properties. And what I mean by inferior is undesirable block (not a whole 'hood), house with major problems or needing $100k's of work.
Just because a house sold for over $1m block or so away does not mean that my house - needing lotsa work, no orig detail left, next to grocery that is front for drug dealing is worth almost as much.
But in crazy market people will buy almost anything.
I think thats what happens in BedStuy. People hear 'BedStuy is hot' - but some buyers don't know the nice parts with outstanding homes from very rough parts. Some delusional sellers think that they can command same prices as StuyHts.

Posted by: Anonymous at March 28, 2006 10:30 AM

David,
Do you know what studios are selling for in manhattan. On average, maybe around $350-400K.
Do a search of the nytimes real estate section for studios in brooklyn. Then call those brokers. Chances are they're all already under contract.
Rent is going up...people are stuck between a rock and a hard place. The stock market is still volatile. For many people the option of purchasing a studio is still the smartest choice.
It's mind boggling but we all have to learn to continuously adjust our expectations in today's market.

I read somewhere recently that the American Dream has morphed from the single family bungalow with the picket fence to a 2-bedroom, 2-bath condo with views.

I think that underneath it all people are just trying to either build equity or protect savings by investing in real estate. I'm not saying that I agree with it all, but I expect that prices in Brooklyn will continue to increase for the next year or two.

The 'priced-out' and disgruntled hipster who complain about the prices in Bed Stuy represent a small segment of the current prospective home-buyers. There is a 'lot' of money flowing into the city...from retirees moving back to the city, to international buyers who want to establish a pied-a-tierre in nyc, etc., etc.

Get over your disdain for Bed Stuy, Bushwick and other 'economically depressed' areas. Four years ago I could have bought a 4-story brownstone on the border of Clinton Hills for $300K but I balked. I think many buyers who balk in todays market will find themselves full of regret a few years from now.

Posted by: Anonymous at March 28, 2006 10:40 AM

I think some of you are forgetting that there is a mass exodus from the rural areas and the suburbs to the inner-cities.

It's a reverse of the 'white flight' back in the 50's and 60's to the suburbs. I'm not trying to provoke a race debate, that's what the experts call it.

It used to be, in the olden days, that you automatically knew when you crossed the border of Clinton Hills into Bed-Stuy. It was visible and viceral. But now a days you can drive well into Bed Stuy (especially along Gates and Greene) for several blocks before realizing that you're in a 'bad' nabe. I don't see those areas being impacted by a downturn.

Posted by: Anonymous at March 28, 2006 10:56 AM

Is supply in Bed Stuy really increasing? I would love to hear from people who are actively looking, not just those doing armchair analysis.

A lot of people make the mistake of reading the national buzz that home prices are dropping and assuming that it applies across the board.

The fact is, like it or not, brooklyn real estate is a very hot market (bed stuy included).

I think a more accurate description of the market is that 'crappy' properties on 'crappy' blocks are staying on the market longer. But it's foolish to make a global generalization and say that prices everywhere is dropping. The more affordable units (studios, one-bedrooms, a good house in bed stuy) are still flying off the market (if they're reasonably priced).

Let's wait and see what the spring and summer brings. I think we'll see much of the same 'irrational exuberance'. People are dumping their savings into their homes and they're 'hunkering' down for the long haul. Which I think will be a good thing for this borough.

Posted by: Anonymous at March 28, 2006 11:06 AM

Reading these comments, I have to say that I think Bed-Stuy is overpriced in the sense that I really believe everything everywhere is inflated now and due for a correction. Bed-Stuy is an actual community that will survive the rise and fall of yuppie interest in it, just as it survived decades of neglect and abuse by the city.

The best way to protect yourself is to buy in a nabe you really like and feel comfortable in, where you are satisfied (even if not thrilled) with the services, because then you can ride out any downturns. You have to pay for a roof over your head somewhere. If you spent a lot of scratch on something you believe in your heart is crap, or in an area you dislike even if you won't admit it, you're way more likely to get screwed. Location matters, and quality counts. Flush times gloss over those facts, but strapped times put them into high relief.

Posted by: Anonymous at March 28, 2006 11:22 AM

Stacey, chances are you're a long-time resident (i.e. pre-real estate frenzy).
It's all relative.
I don't consider them 'had'. Money begets money. That 700-900K condo will be worth a lot more years from now as the neighborhood evolves into an uber-exclusive community. They're laughing at you as much as you're laughing at them.
It's easy to under-value amd take for granted what you've grown accustomed to (property included).

Posted by: Anonymous at March 28, 2006 11:32 AM

Anonymous... I have been in Fort Greene long enough to doubt that the area is going to become the uber-exclusive community you refer to. If you can buy an entire brownstone for 1.3 million on the same block you bought a piece of a building for 900K...it's easy to see you are not making a smart investment. I have friends who paid the price for this and are now "stuck"
with it because they can't sell and break even never mind making a profit.

Posted by: Anonymous at March 28, 2006 11:43 AM

David, if you want to talk history, 4 years ago, in the wake of 9-11, the word on the streets was "wait it out, there's going to be a lot of foreclosure within the next year or two, prices will drop". The opposite happened, property values tripled and quadrupled.

If you, like me, wasn't born wealthy then it's hard to fathom where all this money that is driving this market is coming from. But it's out there, and the market is shifting from speculative investors to buyers who've resigned themselves to plunking down the majority of their assets into their homes.

I'm not denying that psychology isn't a major factor. But psychology is also a major factor in the stock market, which still remains volatile.
Prices will stabilize evetually but I don't see the drastic plummeting of values, circa 1989, that many people are predicting. I think what we're experiencing is a radical shift in the evolution of home prices. As much as I would like to own a brownstone, I don't think we'll ever go back to the turn of the century home-prices.

Posted by: Anonymous at March 28, 2006 11:49 AM

It's difficult to compare real estate to stocks because real estate is 'tangible asset'. That's like comparing apples to oranges.
People who buy homes do so with the awareness that values might drop. But they're not about to day trade and sell instantly when the value changes. They're in it for the long haul.
I think the speculative investors and flippers have moved on to other territories outside of brooklyn. It's hard to find a 'good deal' these days.

Posted by: Anonymous at March 28, 2006 11:58 AM

Okay, let me put it to you this way. Try going to the auctions/foreclosure sales over by the courthouse in downtown brooklyn. Then after all the properties have sold, try pulling one of those investors aside to get their analysis of the market. They've been doing this for yearrrrsssss. And many of them don't even bother bidding on brownstones in bed stuy anymore because there no more 'deals' to be had. They've shifted their expectations to buying vacant lands and building on them. Either that or they have enough cash to buy a commercial property that they'll rehab and convert to condos.
The active buyers of brownstones at these auctios are people who believe that they'll get a better deal than going through the retail channels (i.e., brokers, fsbos). They have the cash and are prepared to do the renovations on their own.

Posted by: Anonymous at March 28, 2006 12:13 PM

Okay..got to get back to work...but let see what changes the summer and spring brings.

Posted by: Anonymous at March 28, 2006 12:22 PM

I love it when people use 'sound bytes'. They clip and re-organize your statements to provide a snapshot that proves their point. Here's the most important part of what I said...
"People who buy homes do so with the awareness that values might drop. But they're not about to day trade and sell instantly when the value changes. They're in it for the long haul."

You're comparing real estate to stocks once again. They're not equivalent.

I think today's buyers are smarter....the worst of the frenzy is over....people are taking out less ARMs and doing lesss creative financing, thankfully due to media coverage.
I'm not saying prices won't stabilize or even drop, I just doubt that it will plummet.

I agree with anon 11:22 AM that the best bet is to buy smart, anticipate a down-turn and hunker down for the long-haul.

And for those people who feel better renting....haven't you read all previous posts about renters being priced out of dumbo and bushwick. One thing's for sure...RENT WILL INCREASE. Real estate values might not go up, they may even drop, but make no doubt about it, as soon as this happens landlords will take advantage of the 'crisis' and raise rents.

There is an inverse relationship between the real estate sales market and the rental market. When the sales market is strong, the rental market languishes. What do you think will happen when the sales market weakens? Where will you be?...you definitely won't be able to buy or rent in bed-stuy or bushwick.

Posted by: Anonymous at March 28, 2006 12:36 PM

Re: renting vs. owning,

When I rented, my housing costs were $16,200 per year ($1350 x 12). Now that I own a co-op, my expenses are $13,400 per year ($2200 x 12 minus $13,000 in tax returns). Plus, if I decided to, I could sell, whereas if I were renting, I'd have absolutely nothing from all of the money that I paid out in housing costs. Prior to buying, I estimate that I paid 70K in rent - all of which is gone, forever.

I paid 299K for the apartment 18 months ago. Last summer, an apt. in my building sold for 450K (same configuration as mine, with about 20K of renovations).

Seems like a no brainer to me...

Posted by: Anonymous at March 28, 2006 1:28 PM

ItsAWrap, can you please provide similar facts/figures for the rental market. I'm sure that it would suggest the point that rents are about to hop, skip and jump.

There is indeed an inverse correlation between rent and sales in a normal market. The late 80's, early to mid 90's was a bit aberrant to the extent that crime rate was much higher than it is today. People weren't as hell-bent on moving to the city in droves as they are now.

So...if migration patterns continue and the population continues to grow...it makes perfect sense that RENTS WILL INCREASE.

Check out the following links:
http://tinyurl.com/mckux
and
http://www.nytimes.com/2006/02/19/nyregion/19population.html

Posted by: Anonymous at March 28, 2006 2:00 PM

can we just admit that all of our estimates of the size & shape of "the bubble" are filtered wildly through our personal neuroses??

Posted by: Anonymous at March 28, 2006 2:09 PM

i am an owner of a "fringe" brownstone and i completely agree with the poster who points out the REAL costs of ownership: maintenance, renovation, closing costs, on and on. it is completely simplistic to think that the amount you pay on your mortgage every month represents your actual costs. anyone who has owned property for even a short while realizes that. i still think it's worthwhile, and i am happy with my situation, but i don't get $$$ in my eyes even as i see prices going up around me.

Posted by: Anonymous at March 28, 2006 2:10 PM

ha ha 2:09, very well put!

Posted by: Anonymous at March 28, 2006 2:11 PM

Se, the mortgage industry learned its lessons from the 89 crisis. Sure, some lenders are pushing the envelope but to suggest that we're in a worse situation is simply untrue. There was a lot more risky financing going on in the late 80's. Ever heard of the S&L scandals (i.e., savings and loans). It triggered an entire restructuring of the mortgage industry.
Keep dreaming of the bubble bursting. I have pipe dreams too. But I'm realistic enough to recognize that I missed my opportunity to own a brownstone in downtown brooklyn.
Maybe, if I won the lottery or got discovered by a long lost relative or something....

Posted by: Anonymous at March 28, 2006 2:14 PM

David, you're right, the S&L scandal was due to irresponsible commercial real estate loans but it had repurcussions throughout the entire mortgage industry that trickled down to the residential loan market.
Whether to buy or wait is always a risky proposition. If you can afford the down-turn I'd say go for it. But I for one am happy staying put because I already have a property that's building equity.
But on another topic, are you saying that you don't believe rentals will rise dramatically in the years to come. I think this is the real, hidden, overlooked bubble. You're right all, the current valuation methods used throughout the industry suggests that investors have somehow modified the rate of return that they expect on their investment. Why do you think that the 'correction' will only occur in the sales arena and not in the rental arena also. It's almost as if you're suggesting that those who are renting a "very- large (~900sqft) 1BR for $2000/mo in midtown" will be able to do so indefinitely at that price. I think we've learned our lesson from the stories of the rent-control couple in williamsburgs and the hair-dresser in dumbo.
Renters eventually get priced out of their beloved neighborhood. I think it's a bit unfair to continue propping up the dreams of prospective buyers who are betting on a collapse of the real estate market. We've all been waiting for that to happen over the last 5 years, through the fall of the twin towers, ebola scares, subway strikes, etc. I'm not saying that the current sales market is invincible but you have to admit that it's withstood challenges that would have crippled the market in other cities.

Posted by: Anonymous at March 28, 2006 3:45 PM

The gist of the point that I was making about the rental market vs. the sales market is that 'buyers' usually leave the sales market to become 'renters' once the sales market goes soft.

As more and more prospective buyers decide to rent instead, supply and demand takes over. If you factor in population booms and the migration trends to urban areas, I think renters will be at the mercy of real estate brokers and landlords.

The 'prime' properties will experience a rapid increase in rental income.

I just think people need to be realistic and be prepared to make compromises either in the neighborhood that they can afford to live in 'or' the size of property that they can afford to buy.

Posted by: Anonymous at March 28, 2006 4:06 PM

I've seen the house that was featured in the article on the Massey Knackal website and thought it was a little strange. Not only did it seem 'under-priced'. In addition, why would anyone enlist a broker that specializes mostly in commercial properties to sell a residential property when agencies like Corcoran, A&H, Halstead and Brown Harris Stevens would have been frothing at the mouth to get ahold of the listing. Nothing against Century 21 and Foxtons, but even they would have listed it for more.
My immediate impression was that there has to be something intrinsically unappealing about the house itself or the block for the owner to hand it over to Massey Knackal.
Don't think this is reflective of a price drop in Bed Stuy.

Posted by: Anonymous at March 28, 2006 4:27 PM

I remember in 2002, inquiring about the house in Red Hook that was mentioned in the article. Once again, I balked, because it didn't have a centralized heating system. There was an old wood burning stove that heated the entire house.
Damn, damn, damn...hindsight is a $#@!*

Posted by: Anonymous at March 28, 2006 4:32 PM

Sunset park is a safe area and is worth looking into. There are some beautiful brownstone blocks.

Posted by: Anonymous at March 28, 2006 4:35 PM

The ebola scare.
Don't you recall the 'white powdery stuff' that triggered a nation-wide panic. It was left on trains, mailed to post offices, dumped into the ventillation systems of some gov't buildings. It caused CBS (or was it NBC or ABC) at Rockefeller Center to close down the entire building because traces of white powdery stuff was found in the building.

Where were you when all this happened. Asleep?

Posted by: Anonymous at March 28, 2006 4:41 PM

David, you think rental income is more closely tied to salary? The same could have been said about home values a few years back. People pay to live at an address; whether it's for financial investment reasons, or prestige, safety, or otherwise.
I expect a similar kind of 'irrational exuberance' to occur in the rental market once the sales market goes soft. Demand for rentals will drive prices up as more of the 'moneyed' crowd pay more for neighborhood, architecture, views, details, etc.

Posted by: Anonymous at March 28, 2006 4:51 PM

interesting that they quoted someone from brown harris stevens they do not have ONE listing in bed-stuy. how are they competent to comment on the market there? cur!ous really.

Posted by: Anonymous at March 28, 2006 4:58 PM

Bob Marvin, RE the Lefferts Manor comments. You make a good point that LM residents are dependent on rental income to pay the mortgage. That should keep the area from having a run of owners who need to sell quick before they forclose. However it won't change whether or not people are willing to pay large amounts for the area. And if the economy as a whole gets softer, not having the rental option will be a real negative for some buyers.

Posted by: Anonymous at March 28, 2006 5:29 PM

RE my 5:29 comments, I meant LM residents are NOT dependent on rental income. sorry...

Posted by: Anonymous at March 28, 2006 5:42 PM

RE my 5:29 comments, I meant LM residents are NOT dependent on rental income. sorry...

Posted by: Anonymous at March 28, 2006 5:42 PM

As the demographics in brownstone Brooklyn continue to change, then why wouldn't the prices continue to change?

The Yuppies are coming!!!

This is a trend that doesn't seem to be slowing. Until it slows, townhouse prices in Brooklyn will continue to rise.

Posted by: Anonymous at March 28, 2006 5:58 PM

I love the PLG area. Great housing stock and very close to Prospect Park, Brooklyn Museum, Botanical Gardens and the Library. I think it's one of the last undiscovered areas in Brooklyn (along with Victorian Flatbush). Alas, it's out of my price range.

Posted by: Anonymous at March 28, 2006 7:24 PM

stuy heights goes out that far, it doesn't just stop between stuy and lewis the nostrand ave train station services part of stuy heights too.

Posted by: Anonymous at March 28, 2006 9:14 PM

David is on target when he says prices (everywhere in the city) have no relation to any economic reality.

People have only been buying because they're afraid they'll pay more next week or they'll be able to make a killing in 6 months. Change those perceptions, which are changing fast now, and that silly money has got to go somewhere else. People can't rent to pay the note or, for the most part, live and work in these overpriced places.

Me, I can't wait to see scores of real estate hypsters asking me, like they will be, "You want an extra shot in that latte, sir?" Payback's a bitch!

Hey, I sold and made some dough and now must rent and wait. Fall's looking good, maybe.

Posted by: Anonymous at March 29, 2006 3:50 AM

"How much have you paid to renovate? How much has that renovation depreciated? How quickly are your maintenance expenses rising? How's the building's facade? Roof? Bricks? Boiler? Elevator? Have you figured out the rate of physical depreciation? Are your taxes rising? What were your closing costs? What would your selling costs be if you sold? How quickly does your principal amortize?

Your estimated 18-month appreciation of $131K, may not be as much as you think and your expenses may not be as low as you think."

No renovation needed, as the apt. was in "move in" condition. Maintenance fee has risen a measly $10. A new roof and boiler were installed about six months prior to our arrival. The building's facade is in excellent condition and the boiler is only two years old. Closing costs were a mere 2% and taxes have risen, but at a rate I can easily afford. And since I don't plan to move, selling costs are irrelevant. So, despite your attempts to burst my bubble, it's still painfully obvious that owning, for me, is much cheaper than renting. Plus, I don't have to worry about some landlord not renewing my lease.

Posted by: Anonymous at March 29, 2006 9:34 AM

Anon 3/28 @ 2:44 PM "I just think people need to be realistic and be prepared to make compromises either in the neighborhood that they can afford to live in 'or' the size of property that they can afford to buy."

Spoken like a RE agent. The tide is turning, and now its the sellers who have to get realistic and make compromises

I read an article last year about the Wash DC market where a couple got nothing of the features they were looking for (neighborhood, space, appliances, garage, etc.); paid 50% more than they budgeted for it - including ludicrous escalator clauses; but were 'very happy' with their purchase. Damned if I saw any objective indicia of something to be happy about.

You're only a captive to your landlord because landlords know most people are reluctant to move. If you're willing to move, and understand that replacing a tennant costs at least one month's rent, plus advertising and painting clean-up costs, you've got at least 9% to negotiate with.

Posted by: Anonymous at March 29, 2006 11:42 AM

I looked at brownstones in BS. It's not that I found the area "scary", but that every building was a hike from the subway and I couldn't find a single grocery store, bakery, restaurant, etc. in a wide radius of any building that was in my price range.

I'm renting in Carroll Gardens 3 block from subway on street that has corner commercial/retail and within 3 blocks there is: Convince Grocery store, Dry Cleaners, Laundromat, Bakery, Liquor Store, Met Foods, Drug Store, Pizza/Italian, Chinese take-a-way, Sandwich Shop, Gourmet Restaurant, Pet Supply store, etc.

Sure I would like to buy, and BS does have some lovely Brownstones that are much more affordable than BOCOCA, but it's the lack of commercial/retail in large areas of BS that have knocked it off my list.

Posted by: Anonymous at March 29, 2006 12:27 PM

The BOCOCA guides are found in restaurants and shops all over those nabs
http://www.brooklynnow.com/bococa/index.html

I don't use the acronym much myself, but it much easier than typing them all out ;)

Posted by: Anonymous at March 29, 2006 2:32 PM

"BECROCLIN" - how hilarious!! Had me laughing for hours. But why not. Think I'll use that term from now on (giving credit to Yente)

Posted by: Anonymous at March 30, 2006 11:31 AM