Estate agents in Brooklyn believe the hype!
History shows that the property market in Brooklyn, USA has defied gravity even during the most challenging property market times including the 2008 US mortgage led crash. Such is the demand that estate agents are reporting record property prices week on week across different neighbourhoods of New York’s most populated borough. It was also interesting to see a number of very positive quotes this week from “experts” but are they naive?
No end in sight!
Comments such as “the Brooklyn property bubble will never pop” and there is “no end in sight” to property price rises obviously grab the headlines. However, there is a real danger that inexperienced real estate investors will take these on face value without looking into the situation themselves.
If you take a look beneath the surface you will see that the median income across the Brooklyn borough is $46,000 – which looks encouraging at first glance. When you look at the fact the median sale price of property in Brooklyn has topped $600,000 for the first time, an unaffordable 98% of median income in the borough is needed to cover mortgage costs!
Rental market squeezed higher
If we told you that 70% of residents in Brooklyn rent their homes would this surprise you? If we told you that rents have increased by 77% since the turn of the century would you be shocked? Well, perhaps the biggest surprise of all is that people renting properties in Brooklyn will use around 60% of their income to cover rental costs. So, we have traditional demand for Brooklyn real estate and we also have growing demand from the buy to let arena which is squeezing real estate prices higher.
The reality is this is a situation which cannot go on forever and one which the authorities need to address sooner rather than later. We will either see a significant shift in demographics or we will see a collapse of the market in due course when reality hits home.
Estate agents fan the flames
When you see some of the comments above attributed to estate agents across Brooklyn these are doing nothing but fanning the flames of a market which is already overbought in the minds of many people. Historically these over exuberant comments tend to come before a market “correction” leaving many inexperienced investors nursing heavy losses.
It will be interesting to see how the market performs in the short to medium term because with property purchases eating up 98% of median income and tenants spending 60% of their income on rent, these are situations which cannot go on forever. This will also place significant pressure on the Brooklyn authorities and perhaps it is only when they feel the financial pinch that they will act?
Conclusion
Historically we tend to see over exuberance just prior to market crashes and overly pessimistic comments just prior to the turning point of a depressed market. So the comments attributed to Brooklyn estate agents do not help the situation by giving the impression growth in Brooklyn real estate prices will “go on forever”.