Maybe Sunset Park is aptly named. The real estate market in the Brooklyn neighborhood is softening and prices are on the decline, making it one of the first neighborhoods in the city to be registering the lingering effects of the credit crunch.
“What I’m seeing in the third and fourth quarters so far is that the Sunset Park market is good for buyers,” said Sam Heskel, executive vice president at HMS Associates, an appraisal firm that measures prices and transaction volumes.
HMS found that more homes sold between October 1 and the middle of December than in the period right before that, but it also found that prices were down.
The neighborhood is located in south Brooklyn and named for the small park between 41st and 44th streets and Fifth and Seventh avenues. It is home to a bustling mix of Asian and Latino immigrants, and is one of the dozens of formerly fringe neighborhoods that have been on the upswing for some time. Young professionals who have gotten priced out of other areas have turned to it as an alternative – and developers have been feverishly building high-end condos there.
But one broker said he wouldn’t invest in the neighborhood now, while others said they expected much of the development activity to be put on hold until market forces become clearer.
The HMS appraisal data is supported by information collected through StreetEasy.com, which captures and analyzes large brokerage-firm listings in New York City. For Sunset Park, StreetEasy.com data found that prices continued to drop for newly constructed condos, albeit at a slower pace than they had been a few months ago.
“Prices are still coming down, but not as fast as they were in the 60 days to October,” said Derrick Gross, business analyst at StreetEasy.com. He compared the two-month period from mid-October to mid-December with the stretch from August 1 to September 30.
He added: “There’s definitely a condo glut in Sunset Park. It’s definitely a soft market.” He said he expected prices to drop even further this year, but said that would end up making the area even more attractive to buyers.
In November, Gross told The Real Deal that Sunset Park/Greenwood was the only area in Brooklyn where prices had dropped across the board on new developments. At the time, 14 percent of the listings dropped their prices 5 percent, while 5.5 percent of the listings dropped their prices 10 percent.
Last month, Gross said that between mid-October and mid-December, prices on 6.7 percent of the listings in Sunset Park saw a 5 percent drop, while 4.4 percent of the listings saw a drop of 10 percent.
About 90 percent of the listings in the StreetEasy database for Sunset Park are new condo developments; the company does not include many re-sales in the neighborhood.
Gross pointed out that other neighborhoods have seen price cuts, but that they are on a case-by-case basis.
“I believe this [price drop] is mainly because Sunset Park is not as attractive as Park Slope or other Brooklyn neighborhoods that are closer to Manhattan,” Gross said. “Also, developers’ asking prices were too high.”
According to his data, the median prices on new units have fallen 8 percent since December 2006. The median price of a condo a year ago was $598,000 for the unit and $577 per square foot. Now, the median prices are $549,000 and $530 per square foot, respectively.
Prices on the single- and multi-family homes that make up a good portion of the housing stock in the neighborhood saw the most notable declines between the most recent quarters on record. The prices of single-family homes dropped 8 percent in the fourth quarter to mid-December, compared to the prior quarter; prices, meanwhile, fell 9 percent for three-family homes.
But while prices dropped, the number of single-family homes that sold increased to six in the fourth quarter to mid-December, up from two in the previous quarter. Three-family sales volumes more than doubled, to 11 from five during the same time.
According to HMS, Sunset Park is simply adjusting to a much more reasonable pricing level.
“What I think has happened is that sellers have become more realistic and have finally lowered prices to sell properties,” Heskel said. “Sellers are beginning to capitulate, and buyers have been patient waiting for the market to come down. Now we’re seeing a healthier dynamic.”
The boon for buyers may come at the expense of more development.
“Come January, the market may be more of a fire sale situation, but it’s not yet,” Gross says, adding that if the new condos still don’t sell, developers may turn the units into rentals in order to generate income that would pay back their loans.
Sherman Mui, associate broker at Prudential Douglas Elliman, said the area is “flooded with new condos,” but that the development has been a mixed blessing for an area that was not as developed as nearby Park Slope. The new condo development in the area has been well documented. According to state Attorney General Andrew Cuomo’s office, 180 new condominium offering plans were submitted for Sunset Park in 2006, compared to just 59 in 2005. As of November 2007, there were 169 submissions.
Mui, who’s lived in Sunset Park for the last 10 years, said the neighborhood was like a best-kept secret until developers started to rename it in order to market their properties. Mui pointed out that until a few years ago when things got hot in Park Slope, Sunset Park was never marketed as a destination for young professionals. “Then, developers started to refer to Sunset Park/Greenwood as South Slope.”
He noted that later in the year, as the sales pace slowed, it was being called Sunset Park again.
Ritz Realty broker Denny Chen, a 15-year veteran, says he “wouldn’t take the chance on investing in Sunset Park, because I don’t know what the picture is over the next three or four months.” He said he expects activity for developers to be put on hold from now until July or August of 2008.
Gross agrees, saying “I can’t believe any smart developer would actually go ahead and build right now. They’re better off collecting rents, because putting up a new development in Sunset Park is not worth the risk.”