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February 28, 2007

Brooklyn Prices Up 8% in '06, Appraiser Says

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According to appraisal firm HMS Associates, the average sales price of single- and multi-homes in Brooklyn rose 8 percent in 2006, despite a drop in the number of transactions. "The Brooklyn residential market was very strong in 2006," says HMS Associates founder Sam Heskel. "We expect 2007 will be another good year, but home prices will come back down to earth somewhat, with transactions up moderately." In Brownstone Brooklyn, the biggest price increase came in Brooklyn Heights, where prices jumped 16.6 percent, from $1,831,857 to $2,136,891. The study also cites big rises in Boerum Hill, Carroll Gardens, Williamsburg, Bay Ridge, Park Slope, Greenpoint, and Crown Heights.
Brooklyn Home Prices Rose Nearly 8% in 2006 [Market Wire]
Photo by Adam Brock




Posted by Brownstoner at 9:29 AM | Comments (42)
Categories: Brooklyn, Brooklyn Heights, Market

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By far the most interesting fact to emerge from this article is that prices in Canarsie rose a whopping 17.7 percent. I literally had to do a double take.

Posted by: Anonymous at February 28, 2007 9:36 AM

says it's based on single and multi-family homes and condos. what an odd group. you'd think it would be houses only or everything but to leave co-ops out is odd

Posted by: Anonymous at February 28, 2007 10:01 AM

It can only keep going up from here.

Posted by: Anonymous at February 28, 2007 10:37 AM

10:37, I agree with that statement, but please back it up with additional comments because otherwise it seems troll-ish, honestly, intended simply to provoke a fight you hope to have here.

Posted by: Anonymous at February 28, 2007 10:44 AM

I'm feeling rather nervous about the housing market right now. Sub prime defaults are at record levels and it seems like the low end of the market will suffer:
http://bloomberg.com/apps/news?pid=20601039&sid=aTVx46seG_H4&refer=home

Does anyone remember how Brownstone Brooklyn fared during the last housing slump?....did the lack of speculative buyers add resilience, or did it fall with the Manhattan market?

Posted by: Anonymous at February 28, 2007 11:15 AM

Why has the "zestimate" on my home then, plumeted on Zillow, in the past year (it went down by about 90,0000) in Greenpoint (2 family)

Posted by: anon at February 28, 2007 11:38 AM

(Does anyone remember how Brownstone Brooklyn fared during the last housing slump?)

Very well. At the peak of the last bubble in 1987, a rowhouse identical to mine sold for $300,000. At that point, we figured we'd save up some money here and move elsewhere where housing prices were sane. Sanity returned, and we bought ours for $209,000 in 1994, after waiting six months for our offer to be accepted. Of course, you had seven years of inflation/wage increases to make housing more affordable, in addition to the nominal price decline.

At that time, the entire baby boom was moving out of the singles and couples phase into the parenting phase. So unlike that (perhaps 50% real) haircut for houses, condos and coops really crashed. Friends who had bought them had to save for years, packed into one bedrooms with two kids, just to be able to sell at a loss and walk away with nothing.

In newly gentrified areas, condos and coops, especially recent conversions, became unsalable. People ended up being one of just a few owners in a rental building, until they gave up and handed back the keys to the landlord for a fraction of their purchase price.

My neighborhood has been occupied by cops, teachers, and small business people since it was built 100 years ago. But with closer in parts of the metro area becomming more valuable relative to the suburbs, I could see my rowhouse being worth $600,000. Identical houses have been selling for $1 million.

There may be enough hedgies and CEOs to occupy Manhattan, but not the whole metro area. Sooner or later, housing will have to sell for what the rest of us can afford.

Posted by: WT Economist at February 28, 2007 11:38 AM

and wt economist...why do you think that prices must come down to what everyone can afford vs wages increases so that it becomes more affordable?

hasn't nyc always been more expensive that the rest of the country for 100 years?

back when this townhouse was 300K in 1987, you could have purchased an 8 bedroom, 5 bath "mansion" in a nice area anywhere outside the city for that kinda money.

Posted by: anonymous at February 28, 2007 11:50 AM

Here is a nice overview of the 1980s bubble and subsequent bust, extracted from NY Times articles.

http://www.youdovoodoo.com/80sbubble.htm

(hasn't nyc always been more expensive that the rest of the country for 100 years?)

Sure, and it will be for the next hundred. But given that, prices are too high. Add a zero to the price of houses, making them ten times more expensive than they are. Or too zeros, making them 100 times more expensive. Would you still make the same argument? At some point it is too expensive, even for NY.

I thought we passed that point back in 2003.

Posted by: WT Economist at February 28, 2007 12:13 PM

when you compare new york to many of the major european capitals, we are still a deal in terms of real estate prices. how do you factor this into the equation? i'll still agree that prices may be slightly too high, but i really don't think it's all that significant when put in line with the rest of the u.s. and the world for that matter.

places with culture, vibrancy and now low crime, amazing shopping, etc. have become quite valuable commodities in our lives these days...more than they ever have been i would argue, as our lives become increasingly more "tech" oriented. i think people are willing to, and will continue to want to pay a premium for such things, and this is a relatively new phenomenon as more and more people wish to live in an urban environment. we are witnessing a very significant change in our society and while new york has always been a great urban center, i think that more and more of the general population look at it as something to strive for. we are the best in many areas...the model in other ways for the rest of the country, and we should not discount this fact. these things affect prices just as much as stock markets, inflation, sub prime, etc.

Posted by: anonymous at February 28, 2007 12:22 PM

just as the 50's-80's were times of people fleeing the cities, thus having a huge impact on home prices in cities, i think we are now, in the last 5 or so years seeing a significant reversal of this. i really do think this is something to consider.

Posted by: anonymou at February 28, 2007 12:39 PM

"and wt economist...why do you think that prices must come down to what everyone can afford vs wages increases so that it becomes more affordable?"

Because wage inflation is infinitely worse to the government than other inflation and they will fight it at all costs, even if it means some level of deflation on assets. Wages will catch up somewhat, but talk all you want about culture, and us being a deal compared to Europe, housing prices have to fall back in line with wages at some point, and that will mean a little give from asset value. Does it mean a cop will be able to afford a brownstone on the Promenade? No. But those cops may be able to afford a condo or co-op again.

Posted by: Anonymous at February 28, 2007 1:04 PM

i personally hope you are right that it becomes such that a cop or teacher can afford a decent place in new york, but i just don't see it as a reality. it's not a reality in san francisco. nor is it a reality in san diego or boston. why should it be one here?

Posted by: anonymous at February 28, 2007 1:23 PM

Interesting. I see the exact opposite happening all over Brooklyn and NYC - poor and lower middle class people moving further and further away. I don't see that changing any time soon - unless all those "new" folks in Williamsburg, South Bronx, Bushwick, Harlem, FG, Clinton Hill, Bed Stuy start selling and moving away.

Posted by: Brooklyn Zoo at February 28, 2007 1:42 PM

The point about the relative value of othe cities is a good one....London apartments recently sold for $8000 per square foot!!....makes Columbia circle look like a bargain!

Posted by: Anonymous at February 28, 2007 1:43 PM

(Does anyone remember how Brownstone Brooklyn fared during the last housing slump?)


In the early 90's, the real estate market tanked and stayed weak for several years. One phenomonon was that young couples had a hard time moving out of their places to larger places to start families because they did not want to lose their equity. Coop boards had to deal with requests to rent apartments for market reasons. It was pretty bad and lasted a few years. To give you an example, I couple bought a one bedroom apartment in our building in Brooklyn Heights for 167,000 (1989?) dollars and sold 3 years later at 99,000. (1993?) . That apartment is worth about 600-650,000 right now. There was little sales activity; it really was a slump. That was riding on the recession which began in 91 and the real estate slump lagged that somewhat and lasted a few years. The economic environment was different then - recession, higher interest rates, US going through major corporate restructuring, much higher unemployment than now. Now the danger is not recession, but potentially speculative excesses driven by low interest rates and much more relaxed lending practices. We seem to be "weathering the storm" so far in Brooklyn. The city is in a growth phase, dollar is low (attractive to foreign buyers), there are projected population increases for NYC, unemployment levels low, interest rates still low, and the global economy keeps growing. I have no crystal ball, the market could take a downturn. A key variable in your decision making process should be your time frame driven by your life plans. If you are in it for the long haul, Brooklyn seems a good bet to me.

Posted by: donatella at February 28, 2007 1:53 PM

The cost of homes in European cities is insane, it's so high, it's true. BUT, they have free healthcare, the schools are way better, AND there are still decent places for middle income and working class to live, in European cities. If we are making any kind of comparison, those things have to be figured into it too.

Posted by: Anonymous at February 28, 2007 1:59 PM

I seriously doubt the middle class will be able to afford anything in Brooklyn again. Higher prices doesn't mean properties are overvalued, it could mean that prices were undervalued in the past. Prices were severely undervalued in NYC in the past, and the market has caught on and corrected itself. How can the middle class be able to afford property in a world class city? It was once possible, but no more. The market correct this freak occurence.

Posted by: Anonymous at February 28, 2007 2:03 PM

Wholeheartedly agree with WT Economist. I predict brownstone prices will drop 25% to 50% (real terms) by 2010. Home price appreciation throughout the U.S. and even in Brooklyn has historically followed average inflation, about 4%.

WT's 1994 Price = $209K
Present Value = 1.04^13*$209K = $348K
WT's "appraised" 2007 Price = $1M
Loss = 65%

Highly generalized model but that's why I only predict a -25% to -50% real drop. I think it's a terrible time to buy and an excellent time to sell if you KNOW you want/need to do so within the next ten years or cannot afford a fixed rate at this time. Otherwise, I think prices will rebound significantly five to ten years after 2010 when we have another economic boom.

Right now, most long term indicators point to recession and Greenspan said it himself. Stock market looks like it's about to take a gradual dive, foreclosures are getting worse, sub-prime is taking a bath and the whole economy was pretty much hinging on housing and refinancing (vicious cycle).

All eyes on jobs.

Disclaimer: In NYC, I'm a renter

Posted by: Anonymous at February 28, 2007 2:05 PM

i agree that being affordable is not the barometer here. it is the case with everywhere in the world that if you can't afford this place, you move to a different one. there is an entire borough of nyc....(the bronx) that remains completely and totally affordable to almost everyone. yes, many people may not want to live there, but it's still there for the picking if someone feels the need to buy a place that they can afford. there are parts of queens, outlying part of brooklyn, etc. i don't think manhattan or prime areas of brooklyn will ever again be affordable, but no one ever said that EVERYWHERE has to be affordable to EVERYONE.

if it were, this would be called communist russia. not nyc.

Posted by: anonymous at February 28, 2007 2:11 PM

If brownstone prices were to drop 50% it would not mean it's a bad time to buy right now, it means it's time to leave the country. That's a very dire situation you are predicting. Why are you still here? Why not move to London?

Posted by: Anonymous at February 28, 2007 2:14 PM

"I think it's a terrible time to buy and an excellent time to sell if you KNOW you want/need to do so within the next ten years or cannot afford a fixed rate at this time."

so you think it wiser to sell now and then what? do you have any clue about anything? to rent a similar 1 million place that you use as a model, you'd be looking at probably $10,000-20,000 a month on rent.

and considering not you or anyone else can predict when the next economic boom will be, i think your comments are pretty skewed and not based on anything factual. for all you know, the next economic boom could be 4 years from now, in which case you just gave some pretty stupid advice.

Posted by: anonymous at February 28, 2007 2:15 PM

"WT's 1994 Price = $209K
Present Value = 1.04^13*$209K = $348K
WT's "appraised" 2007 Price = $1M
Loss = 65%"

idiotic.

since this IS a blog read by a ton of bronwstone owners, i would like people to come on here and comment if they have indeed lost 65% on their real estate investments.

i would guess that most people have GAINED that much. anyone who's been here more than a couple years.

Posted by: anonymous at February 28, 2007 2:20 PM

Surely the best model to value houses with is to compare the rental yield

(annual rent-costs)/house market price

to the yield on treasury's....My own house yields about 5.8% right now versus 4.5% for the treasury market.....I'd be interested to know what these numbers looked like in the late eighties....

Posted by: Anonymous at February 28, 2007 2:37 PM

anon 2:11 PM, so what you are basically saying is that only the rich will move to Brooklyn.

And to think it was it's middle class roots that made it popular. This "new" Brooklyn doesn't sound like an exciting one to me.

Posted by: Anonymous at February 28, 2007 3:51 PM

"The study also cites big rises in Boerum Hill, Carroll Gardens, Williamsburg, Bay Ridge, Park Slope, Greenpoint, and Crown Heights."

Aperantly the results of this study indicating a rise in the williamsburg market is pretty exsagurated. Just take a look on the schaefer landing project @ 440 kent ave. With sales going on for more then a year and still most of the building is empty.

Click on the following links and you will be stuned

http://halstead.com/results.aspx?Page=1&p=1&address=440+kent


http://www.elliman.com/MainSite/Search/search.aspx?Search=Quick&RentalMulti=1&Transfer=440%kent


http://newyork.craigslist.org/search/hhh/brk?query=440%20KENT


http://olr.com/newolr/search/ser_buildinginfo1.asp?bid=27655&frombuildingsearch=yes


http://www.siroffices.com/


http://www.c21nyc.com/Rental/17711/1/382555.aspx


http://www.citi-habitats.com/showsales.php?quick_search=440_KENT


http://www.sublet.com/spider/supplydetails_adv_data.asp?SupplyID=436079&source=10037


http://www.sublet.com/spider/SupplyDetails.asp?SupplyID=488507&SupplierID=19021&state=NewYork&city=Brooklyn&StateCount=More


http://www.bestaptsnyc.com/index.cfm?page=details&id=17973


http://www.bestaptsnyc.com/index.cfm?page=details&id=16917


http://espanol.clasificadosnewyork.univision.com/bienesraices/clasificados/ViewAd?oid=oid%3A1594242&name=condos%20for%20sale



Posted by: WILLIAMSBURG at February 28, 2007 3:58 PM

not stunned at all actually.

but i don't see your point? i think most people here are talking about brownstone brooklyn of which williamsburg is definitely not a part.

i for one love all of brooklyn (live in ps), but you couldn't pay me to live in williamsburg.

Posted by: anonymous at February 28, 2007 4:13 PM

Schaefer Landing is probably overpriced.

We bought a condo in the Roebling Square complex which sold quickly thru Douglas Elliman because it was priced well and the location is excellent (Roebling bet. N. 7th and N. 8th). The Mill sold fast too for similar reasons.

Schaefer Landing is really very nice and those apartments with views must be terrific, but the location is too far south.

Posted by: condo dweller at February 28, 2007 4:28 PM

Actually prices are droping at Schaefer Landing. Just check craigslist frequently and you will see the depression of the sellers.

Posted by: WILLIAMSBURG at February 28, 2007 4:39 PM

anon 2:05 -- 1994 was the absolute trough of the last housing slump. Even if your assumptions are all correct, it's totally cherrypicking to use that as the starting base to calculate the "fair" value of NYC real estate.

Also, people love to say that real estate is overvalued because most people can't afford to buy in NYC. But most people in NYC have never been owners; something like two-thirds rent. If housing is overpriced, it's for another reason.

Finally, WT Economist, since I figure you really know something about this stuff (unlike me): can you explain the basis that you think your house should be worth around $600K? I'm not disagreeing, but am curious--do you calculate that as some multiple of average incomes, or what?

Posted by: linusvanpelt at February 28, 2007 5:05 PM

Let's get a little realisitc WT economist. You own a house a WT that you think shuold be woth $348K, not $1 million. Say someone wanted to buy your house for $348K. At 20% down, you'd have a mortage of $278K. At 6% interest, your annual interest expense is $16K. Assume $2K in taxes and $3K for inusurance and you have so you have $21K in annual costs. Your house is likley a triplex with rental or a double doublex. If it's a triplex, you rent out the garden for $1,800 a month which means your rental is covering all your costs. Someone sees they could live for free in your triplex. I think they'll bid up the value of your house.

Posted by: Anonymous at February 28, 2007 7:02 PM

(Let's get a little realisitc WT economist. You own a house a WT that you think shuold be woth $348K, not $1 million.)

I actually said $600k; someone else said $348K. For a one family house that is not a brownstone, but a 17-foot wide brick rowhouse (ie. Philly, Baltimore). On the assumption that places closer to the center are becomming more valuable relative to those farther away, and that only the affluent (two grad degrees) will be able to own family-sized units this close to Manhattan in the future.

Even with all that, it's still too high. As in 1997. Read through the post I linked. After that bubble and bust, I assumed people had learned their lesson and it would never happen again.

Posted by: WT Economist at February 28, 2007 8:04 PM

A bubble, is a bubble, is a bubble.

Tulips, Dot Bombs, the Chinese Stock Market, the US Housing Market (including NYC)

I would guess the NYC market stays relatively flat until the next recession. It may be a year or two away, but once that comes look out below.

Posted by: Anonymous at February 28, 2007 9:10 PM

(WT Economist, since I figure you really know something about this stuff (unlike me): can you explain the basis that you think your house should be worth around $600K?)

A house, like many assets, has an income return and a capital gain return. The income return is the rent you don't have to pay, the value of living in the house. Capitalizing current rents for similar units at the current 30 yr mortgage rate (which is low, BTW), adjusting for inflation,
I get a value of about $500,000.

But in buying you lock in a large portion of housing costs, and that has value. I estimate that worth at about $100,000, for a total of $600,000. Those paying $1 mil are also locking in housing costs, but at a sky-high level that would have almost certainly left them better off renting, even if they plan to be there a long time and unstabilized rents keep rising about inflation.

So what's the other $400,000? Greed and fear. A combination of an upside panic victimizing homebuyers (buy now or you will never be able to say where you want to live), and speculating on future gains after a sale to greater fools. It makes no sense.

But I sympathize with young couples with kids who have decided where and how they want to live and feel psychological pressure to lock that in. That is why I don't feel the price bubble is anything to celebrate. Hopefully, we will be in a bust when my own children are looking for housing.

Posted by: WT Economist at March 1, 2007 8:09 AM

I still think my pricing model is better.....locking in housing value is worthless because you could just have easily locked in a loss as a gain.....

Simply comparing housing yield to bond yields gives an excellent meter of relative value....I have looked at yield numbers across new york city, and they come out remarkably similar......almost all houses yield between 5% to 6%.....(try it with your own house.....take annual rental income, subtract property tax and water rates and annual maintenance, then divide by the market value of the property)

Posted by: Anonymous at March 1, 2007 8:45 AM

People obviously haven't read their economic history. The following crashes are explained at www.stock-market-crash.net.

*Tulip Bulb Mania
*South Sea Bubble
*Mississippi Bubble
*Florida Real Estate Bubble
*Stock Market Crash of 1929
*Stock Market Crash of 1987
*The Nikkei Bubble (Tokyo was like NYC)
*The Collapse of Barings Bank
*The Nasdaq Bubble
*The Kuwait Stock Bubble

Posted by: Anonymous at March 1, 2007 8:58 AM

"Buy now or be priced out forever".

Most powerful pitch of this past bull market. Never ceases to amaze me how people fall for it. We wait for everything else to go on sale, but not houses. Even with real live examples like WT Economist at February 28, 2007 11:38 AM.

Posted by: Anonymous at March 1, 2007 9:11 AM

(I have looked at yield numbers across new york city, and they come out remarkably similar......almost all houses yield between 5% to 6%.....(try it with your own house.....take annual rental income, subtract property tax and water rates and annual maintenance, then divide by the market value of the property)

Same as I did, but solving for a different variable. A return just over 6% (the current mortgage rate) puts the value at $500K or $600K. Put in $1 mil, and you get a much lower yield.

Perhaps 2-3 unit buildings are a better deal, factoring in the rent. But are you then including the extra work you have to do as a landlord, and the need for maintenance and reinvestment? That's no joke. There is a reason that when we rented in a 2-family, the owner was a professional plumber.

Posted by: WT Economist at March 1, 2007 10:03 AM

"Most powerful pitch of this past bull market. Never ceases to amaze me how people fall for it. We wait for everything else to go on sale, but not houses. Even with real live examples like WT Economist at February 28, 2007 11:38 AM"

try to be a little realistic please...

how many people on here who would like to buy something and have not, have over the years found nyc real estate to be more affordable to them now or REALLY think that there is going to be a "sale". new york is not baltimore or philadelphia as someone suggested earlier. i'm from one and spent a lot of time in the other and it's like comparing tj maxx and barneys.

you might find an occassional sale at barney's but everything is still gonna be expensive.

to compare the two is like apples and oranges and new york city for the foreseeable future is much more like barneys than tjmaxx or ross, dress for less.

Posted by: anonymous at March 1, 2007 11:00 AM

To 9:11am, this past Fall was a time when prices dropped. Properties were "on sale" then. But did people rush to buy? No. Because they were scared. Lots of people on this site were saying buy now, you'll get a deal. But people insist on buying when the RE market is climbing, and they hold off and don't buy when it's dropping. It's counterintuitive perhaps, but it's what happens.

Posted by: Anonymous at March 1, 2007 12:40 PM

11:00 AM,

Then intrinsic value of NYC has always been more than those other cities. Agreed. It's been like that before things took off this go-around. But that's intrinsic value. I'm talking about the excess "value" that's inherent in all cities that will crash back down to that of the intrinsic. I should say "back up" because it will probably overshoot on the way down.

But it's just my prediction. I could be wrong or I could be right.

9:11,

5 to 10 percent "discounts" only cut into the excess value I mentioned above. You have to make your way to the intrinsic before you give me a discount on anything.

Again, this is my bet. Debating about the economy can be like debating about who's gonna win the World Series. But sometimes it's obvious who's the underdog, in my opinion the bulls.

Growl!

Posted by: Anonymous at March 1, 2007 2:32 PM

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