Friday, January 25, 2013

Topics: Supply & Demand

On a 12 degree day in Brooklyn, sunny South Florida was all a flitter over encouraging housing data that show sales in 2012 eclipsing activity during the height of the housing bubble - for single-family homes in Palm Beach County.  Seeing this much activity can be good news, but it's important to note that supply & demand still dictate pricing.  Note that more homes may have sold in 2012 than 2005, but the median sales price has fallen over 43% during that period.  Prices are on the rise consistently for the first year since the crash, but you can still cop amazing 2BR's on South Beach for under $500K, while $700K becomes a tough price for even some of the dinkiest condos in the best parts of Brooklyn.  It remains a buyer's market in South Florida because of all the supply.  Yet in Brooklyn, townhome sales activity levels in Park Slope are completely stagnant compared to last year, yet prices are way up.  How does that work?

With more homes in South Florida than there were owners who intended on living in them, it was easy for things to come crashing down once the music stopped.  And it's taken a lot longer to recover than it did in Brooklyn.  Even Brooklyn wasn't immune to the crash in 2008, the credit crunch that stiffened (even froze) lending, or the stock market dip that cut net worths almost in half.  You could cop an amazing 4-story, freshly renovated brownstone on Underhill in Prospect Heights that fell from a list price of $1.8M to an amazing purchase at under $1.2M!  This is one of the King Kong best alternatives to unicorn-chasing $1.5M in Park Slope in the past 5 years.  But in the winter of 2009, you couldn't get 300 people into a barely-marketed house in Brooklyn.  It was even pulling teeth to get people into 3-Fam's in South Slope for over $1.2M.  Now, 4-stories on that same street in Prospect Heights, with a dinkier renovation, with a stumpier backyard, cruises to $1.75M with the big brokers, just under asking price.  And once that was gone, 3-stories in Prospect Heights - in a condition many wanted to update extensively - cruised over asking price to sell just above $1.7M.  Why?  Because lending is back (rates are lower than before or after the crash), the Dow is back, buyers are back, and all along Brooklyn never went anywhere.  Spare us this nonsense narrative about how "gentrification" is a white thing.  Brooklyn is a thriving international destination for people of all kinds of backgrounds.  Leading up to the crash, we too asked ourselves, "Where will all these millionaires come from?" when $500/sqft became the industry standard for new condos being built throughout Brooklyn.  Now those bad-boys fly off the shelves at $700/sqft & higher.  People take their sales proceeds on a gain like that (or equity loans) to get a townhouse, and the cycle continues.  Even through "the greatest recession in our lifetimes", in just a few years Brooklyn absorbed the thousands of condos they built in towers along Flatbush, that everyone condemned as generic and fretted over as a glut of inventory.  Yet, now they're "building four more new towers".

Another Corcoran broker called us to say that no one's selling, there's no product and tons of buyers, and to report the 375 person open house in Clinton Hill.  We pointed out earlier that morning that some people are selling, and that some of those same people are even buying too.  We agree, it's wild out there, but it's pure supply & demand driving this market.  We've been saying it for a while.  The average apartment in Brooklyn is still 34% cheaper than the average apartment in Manhattan, which the NY Times quotes at $3,973 now in an article that asks, "What is Middle Class in Manhattan?".  And sales comparisons to Manhattan can be even more favorable to Brooklyn than rentals.  So we're still surprised at all the surprise over rising prices in Brooklyn, when in perspective, there's still a ton of value here.  According to these figures, Manhattan rents are up 20% since last year, and people still need an explanation for Brooklyn?

If you don't like fixer-uppers that command $2M in your favorite Brooklyn neighborhoods, you really don't wanna see what fetches over $3M in Manhattan.  Just because Brooklyn isn't this bastion of bargain basement deals anymore, doesn't mean it's cooked either.  There are still great compromises on price, location, size, and condition worth making.  The glass is still half full in our book.  Don't get caught up in that Phil Mickelson swag.  He says he's gonna have to make some "drastic changes" in light of presuming his taxes are headed above 60%.

Poor guy made over $40M last year, but he says, "I've got to make some decisions on what I'm going to do."  Nobody we know would have a hard time settling with 40% of $40M, but...  guess you've gotta play the hand you're dealt.  Just so happens, the resounding reaction to his comments includes, "Move to Florida!"

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