Since the beginning of the current real estate cycle in 2010, Brooklyn has been one of the strongest real estate markets in the country, registering a 68% increase in median sales price according to StreetEasy. The combination of culture, restaurants, schools and historical architecture has made parts of Brooklyn some of the most coveted real estate markets on the east coast. This increase in demand and ensuing housing appreciation is part of a longer trend that began well before the downturn a decade ago.
Recently, though, some cracks have begun to form within the narrative that make me think the upswing in the Brooklyn cycle is coming to an end, and that the subsequent market weakness will finally provide an investment opportunity for those who have been waiting on the sidelines and watching.
1. Relative Affordability
At the beginning of 2010, the median sales price in Brooklyn was $565,000 compared to $995,000 in Manhattan, a 43% “discount.” Today, according to StreetEasy data the Brooklyn discount is still 42%, but in certain neighborhoods the discount has been reduced significantly or eliminated entirely:
As the chart displays, the relative pricing between Manhattan and these five neighborhoods in Brooklyn has changed substantially so that now, the Brooklyn “discount” that existed in 2010 is no longer visible. I do believe strongly that a large portion of the demand from people choosing Brooklyn over Manhattan was due to this discount and as this trend dissipates, Manhattan may become the more attractive housing option over Brooklyn once again.
Real estate cycles are all very similar. Typically, a strengthening market leads to an increase in development, which leads to more supply, which pushes prices down. Then, development stops until supply and demand come back into equilibrium, and the cycle begins again. It’s pretty easy to see where we are in the Brooklyn cycle, just by walking around: Construction sites and new buildings are ubiquitous. The numbers agree. New York City is expected to see more than 43,000 residential units delivered between 2018 and 2020, according to an analysis from Localize.city. More than half of those units are concentrated in just 10 neighborhoods, nine of which are in Brooklyn or Queens, which means that the outer boroughs will get much more than their fair share of new supply.
3. The Transportation Nightmare
Last year, INRIX Roadway Analytics identified the Brooklyn-Queens Expressway as the 11th worst highway in the country. The BQE runs through all the neighborhoods mentioned above, except Park Slope. This past fall, the city announced that major sections would need to undergo extensive repairs or be partially closed for up to eight years. This is going to be ugly: Streets will be inundated with traffic, and the relative calm and quiet of these neighborhoods will be gone.
I love Brooklyn for the long term and am excited for the investment opportunities that will present themselves over the next few years there. With prices having risen by so much and so quickly, it will be interesting to watch how much prices correct during the inevitable downturn.