A market divergence

Citing an appraisal firm's new study, an article in Crain's reports that Brooklyn residential real estate was pretty robust in the first quarter of the year.

The average sales price for Brooklyn homes is said to have increased 9% to $757,000 during the first three months of the year. This is based on sales date covering single-family homes, multi-family homes and condominiums.

Single-family prices rose even more: 13% to $688,000 from a year ago. It gets better (or worse, depending on your side): four-family homes rose 18% to $1.16 million, and the average condo price rose 26% to $551,000.

Despite the increase in price, the number of home actually being sold has declined. Officials said the disparity points to the unwillingness on the part of sellers to drop prices, and the patience of buyers, willing to wait for better deals.

"Home prices can be expected to come back down to earth somewhat with transactions up moderately," said Sam Heskel, executive vice president of HMS Appraisals, which conducted the survey.

Average prices rose in Williamsburg, Bay Ridge, Park Slope, Crown Heights and Boerum Hill, while prices dropped in Greenpoint, Carroll Gardens, Clinton Hill, Brooklyn Heights and Sheepshead Bay. The study on which the Crain's article was based did not include data for Bedford-Stuyvesant, Bushwick or Brownsville. The reason given for this omission is that these areas have a large number of properties encumbered by subprime loans; this would skew the overall results, say the appraisers.

I have two observations on this report. Firstly, it's hard to draw definitive conclusions based on data that ignores such a large part of the Brooklyn market. Bedford-Stuyvesant is active in a huge way, and Bushwick is coming up on the radar in a very serious way. People are starting to float the concept of Bushwick as the next Williamsburg: a haven for the hip and avant-garde who have been priced out of Williamsburg, and, ages ago, priced out of Soho.

My other observation is based on my experience trading stocks. In trading stocks, currencies or commodities, when evaluating a price trend, you want to see price and volume moving in concert. If prices are moving up and volume is trending up too, you generally have a solid and reliable up-trend. Similarly, when prices are moving south and trading volume is going the same way, it's a safe bet that the down-trend is something you can take to the bank - if you're shorting the market, at least.

On the other hand, a stock with its price rising while its volume of trading is declining, is often a stock nearing the top of its current run. When you see that kind of divergence between price and volume, it's time to look closely for other signals. It's time to be prepared to exit the market.

Of course real estate markets don't work exactly the way stock and commodity markets work. Real estate markets are far less liquid, and tend to have a higher level of inefficiency built in, in part due to the relative lack of real-time information.

Nevertheless, I'm going to start looking for those other signals a lot more closely.

Have a great week.

Roger Levy