Article Courtesy of Market Watch
By Sep Niakan
By Sep Niakan
Published November 9 , 2016
All signs lead downward for the Miami condo market. In the latest Q3 condo market statistics for the Greater Downtown Miami and the Miami Beaches, prices declined slightly by 1.4%, and all other leading indicators are soft; In other words, the market is likely to take a further hit.
We are currently at a whopping 24.5 months overall inventory. (Using sales pace from past 180 days, as of Oct. 24.) With this glut of inventory, it is increasingly likely that we will see more downward pressure on prices until the inventory dissipates.
When sales slow down and owners are not able to get the price they want, they have two choices: Accept reality and sell for the lower market price or hold on to the property, and wait for a better market.
Because of the current market realities, many condo owners have decided to place their units for rent, and thus rental competition has increased. A large number of new construction properties have significant rental availability, which makes sense considering that 70-80% of the buyers were foreign nationals, many of whom don't intend to move in.
On top of that, if you have driven through Miami lately, you will see a lot of cranes. What you may not know is that a significant percent of those are for new rental buildings, not condos.
With all these rentals, no matter how much demand there may be for Miami, rental prices are likely to see pressure as well. And when rental prices fall, sales prices must follow. One rule of thumb is that when rental prices fall, sales prices fall harder, at about twice the rate.
Before the sirens of a bubble burst start blaring, this imminent correction of the Miami condo market is not a repeat of the real estate crash of 2008.
We are past the days of lenders handing out no-documentation zero-down-payment loans and developers selling multiple units with 20% down payment. Post Great Recession, cash buyers have fueled most condo purchases, and most developers require 50% down payments from their pre-construction buyers.
This has been a long 6-year upcycle of price increases for the Miami condo market, so a normal market correction is a bit overdue. In January of 2011, condo prices in greater downtown Miami and Miami Beaches hit their lowest median sale price of the decade at $163,225, while the median sale price in January 2016 was $325,000, an almost 100% gain in 5 years.
Steep price increases of this upcycle have made Miami a more expensive market to buy in, although still inexpensive compared to most major global cities.
So where have all the buyers gone? South Americans and Europeans historically make up a big percentage of the Miami condo buyers. In the summer of 2014, the U.S dollar started to climb against most foreign currencies, which started a slow but steady decline of buyers from those continents. From then until now, the euro has lost 36% of its value, the Brazilian real 43% and the Colombian peso 59% against the U.S. dollar.
In July, when Wynwood was declared a Zika zone (and then Miami Beach) by the CDC, it became an international story that hasn't quite gone away in the minds of many. While the areas are no longer Zika zones, some potential buyers (and tourists) are still cautious about coming to Miami.
Election years are not known to be kind to real estate. And this one is especially disconcerting due to how unusually controversial both candidates are. Many foreign nationals are fearful of what a Trump presidency would mean for them, due to his harsh rhetoric about Mexicans and other comments meant to appeal to his domestic base, not the international community.
Given signs of market weakness, there are some buyers waiting on the sidelines. Their hope is that prices drop, so they can swoop in and catch the next wave of price increases when the dust settles.
Where do we go from here?
The world looks for reasons to come to Miami. And Miami does not disappoint. Between the new Brickell City Centre mall, Miami WorldCenter, Design District's ultra-luxury retail, Wynwood's art scene, improvements in public transportation and many more exciting projects under way, Miami is an exciting place to live and invest.
All people need is a good excuse, and as any of the above become non-factors more buyers will jump back into the Miami condo market.
When sales slow down and owners are not able to get the price they want, they have two choices: Accept reality and sell for the lower market price or hold on to the property, and wait for a better market.
Because of the current market realities, many condo owners have decided to place their units for rent, and thus rental competition has increased. A large number of new construction properties have significant rental availability, which makes sense considering that 70-80% of the buyers were foreign nationals, many of whom don't intend to move in.
On top of that, if you have driven through Miami lately, you will see a lot of cranes. What you may not know is that a significant percent of those are for new rental buildings, not condos.
With all these rentals, no matter how much demand there may be for Miami, rental prices are likely to see pressure as well. And when rental prices fall, sales prices must follow. One rule of thumb is that when rental prices fall, sales prices fall harder, at about twice the rate.
Before the sirens of a bubble burst start blaring, this imminent correction of the Miami condo market is not a repeat of the real estate crash of 2008.
We are past the days of lenders handing out no-documentation zero-down-payment loans and developers selling multiple units with 20% down payment. Post Great Recession, cash buyers have fueled most condo purchases, and most developers require 50% down payments from their pre-construction buyers.
This has been a long 6-year upcycle of price increases for the Miami condo market, so a normal market correction is a bit overdue. In January of 2011, condo prices in greater downtown Miami and Miami Beaches hit their lowest median sale price of the decade at $163,225, while the median sale price in January 2016 was $325,000, an almost 100% gain in 5 years.
Steep price increases of this upcycle have made Miami a more expensive market to buy in, although still inexpensive compared to most major global cities.
So where have all the buyers gone? South Americans and Europeans historically make up a big percentage of the Miami condo buyers. In the summer of 2014, the U.S dollar started to climb against most foreign currencies, which started a slow but steady decline of buyers from those continents. From then until now, the euro has lost 36% of its value, the Brazilian real 43% and the Colombian peso 59% against the U.S. dollar.
In July, when Wynwood was declared a Zika zone (and then Miami Beach) by the CDC, it became an international story that hasn't quite gone away in the minds of many. While the areas are no longer Zika zones, some potential buyers (and tourists) are still cautious about coming to Miami.
Election years are not known to be kind to real estate. And this one is especially disconcerting due to how unusually controversial both candidates are. Many foreign nationals are fearful of what a Trump presidency would mean for them, due to his harsh rhetoric about Mexicans and other comments meant to appeal to his domestic base, not the international community.
Given signs of market weakness, there are some buyers waiting on the sidelines. Their hope is that prices drop, so they can swoop in and catch the next wave of price increases when the dust settles.
Where do we go from here?
The world looks for reasons to come to Miami. And Miami does not disappoint. Between the new Brickell City Centre mall, Miami WorldCenter, Design District's ultra-luxury retail, Wynwood's art scene, improvements in public transportation and many more exciting projects under way, Miami is an exciting place to live and invest.
All people need is a good excuse, and as any of the above become non-factors more buyers will jump back into the Miami condo market.
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