2015-2016: Correction in the Miami Real Estate Market
Miami is officially the strongest real estate buyer’s market in the entire country, and Miami Beach is #2.
For the past 18 months I’ve been telling my buyers that NOW is the time to be buying real estate in Miami. The data now proves it: Miami, Miami Beach, and Weston are the 3 best cities in the country to be a buyer. In fact, 8 of the top 10 buyers markets in the country are all in Florida.
Home inventory is swelling rapidly and the median days that homes are sitting on the market is steadily increasing. A majority of homes are now taking over three months to sell.
We are heading towards a price correction in the Miami condo market. As of late 2015 we started seeing a slowdown in real estate sales both in Miami and in Miami Beach, but the changes in the Miami Beach market are the most drastic. This is most certainly NOT signaling another recession; we are simply finally seeing a cool-down and adjustment from the frenetic pace of sales and price increases that we’ve had for the past few years, and I welcome it. We need more stability in this market. I don’t expect to see anything as dramatic as we saw in 2007, but a 10%-20% decline in prices and sales is likely.
Take a look at some of these numbers:
In Miami, 1,876 single-family homes sold in the fourth quarter of 2015, a 14% decline from 2014’s fourth quarter sales. Condos had a larger decline in sales for the same period at 16%.
In Miami Beach, only 80 single-family homes sold in the fourth quarter of 2015; a 28% decline from the same quarter in 2014. Condo sales declined 20 percent in the same timeframe.
Miami Home Sales Year-Over-Year Change: 5 months of consecutive declines
So what’s causing the correction in the Miami real estate market?
- The US Dollar is strong relative to the countries that invest heavily in Miami real estate.
The US dollar is up 17% in the past 12 months, making it that much more expensive for foreign buyers to purchase real estate in Miami and Miami Beach. Meanwhile, in Russia, their currency has dropped a staggering 36% versus the US dollar in the last 12 months; so buyers from Russia are now nowhere to be seen. In Brazil, another country that typically sees a lot of real estate investment in Miami, their currency is down 28% versus the US dollar. As most people are aware, foreign buyers have typically accounted for at least 50% of all real estate sales above $1 million in Miami, now, they’re gone. Canadian buyers have vanished due to the currency exchange, and as the Huffington Post reported, one Miami condo developer is actually so concerned that they are offering a whopping 35-per-cent discount to Canadians! The Canadian dollar is 25 per cent lower than the U.S. dollar currently, but that still isn’t enough to attract Canadian buyers anymore.
- We have fewer distressed properties on the market.
The real estate market in Miami recovered rapidly, and has now had a few very strong years of sales, so distressed properties (short sales and foreclosures) are less common. For example, sales of distressed condominiums in Miami in the fourth quarter of 2015 were down 41% from the same quarter in 2014. That’s a dramatic difference.
- There is a lot of new condo inventory coming into the market.
In Miami, in the fourth quarter of 2015 we had more than 8,000 condominiums listed for sale, an increase of 12% from 2014. In Miami Beach we saw close to 29% more condominium units listed in Q4 of 2015 versus Q4 of 2014. We currently have an astonishing 353 new condominium projects being developed now versus 246 back in 2008. This influx of new condominiums has affected the supply of homes on the market; in a healthy real estate market you want to have 6-9 months worth of inventory. In Miami Beach we have 18 months of supply of condos, and 24 months of supply of single-family homes. In January 2016, we had 6,000 new listings added to the MLS, the largest volume of new listings in at least 2 years, and that number is likely to be WAY off, because developers never list every available unit in new developments; they tend to list just a tiny fraction of them. In 2015, Miami broke the record for the highest volume of construction in history. In 2015, the building department in Miami oversaw 23,000 construction permits, 96,000 inspections, and 61,000 plan reviews. Miami completed $503 million worth of construction and had $2.4 billion of construction underway.
In Miami Beach we are seeing widespread price reductions, usually multiple times per listing before a property sells.
Miami Beach specifics:
In my home market of Miami Beach, single-family home sales and condominium sales are both down significantly and more new inventory continues to be brought to market. We have almost 30% more new listings now than we did a year ago, and prices are trending downward with an average decline of 10% year-over-year. Oddly, prices of single-family homes here in Miami Beach seem to be skyrocketing, and I’m not exactly sure why. Perhaps the constant frustration that most of us have with living in condominium developments here is driving most of us into single-family homes. A few months ago I was telling clients in South Beach that we had single-family home options for them just starting at under $1 million. We now rarely have anything for less than $1.5 million, and the average selling price here was an astonishing $3.35 million in the fourth quarter of 2015 — a 67% increase from 2014. For most of us, even with the correction in the Miami real estate market, the dream of buying a single-family home in Miami Beach will remain a dream for the foreseeable future.
So what does this all mean for you?
It’s time to slow down, study the market, and exercise caution. The market is not what it was in 2013-2014 when properties were selling the same day they were listed for above asking price, in all cash.
Buyers:
Due to the correction in the Miami real estate market, 2016 is an absolutely amazing year to invest in real estate in Miami! In most markets we will see widespread price declines. The very high-end market of $3 million+ appears to still be untouched by these recent changes, as is typical for buyers with unlimited spending ability. If you’ve been thinking about buying real estate in Miami for the past few years, but were put-off by the rising prices, 2016 will likely be your best bet to make a move and get a better deal than could be had in 2012-2015. Developers of new condominiums are already making changes in their buying terms, and are also reducing their asking prices. For example, Brickell City Centre, a massive development in Miami, recently reduced their deposit from 50% to 35% in order to attract more buyers and compete against hundreds of other projects. With foreign currencies continuing to decline, it’s only a matter of time before foreign investors begin to sell their condominiums for below market price. Use my Miami MLS Search to see what’s available now!
Sellers:
You might want to sit tight for a bit and see how this correction in the Miami real estate market plays out; listing your property in 2016 will mean that you have more competition, a longer time before your property sells, and potentially some disappointment at the new value of your property. If you are comfortable with those possibilities, there’s no reason not to list your home for sale, just be prepared for less demand than we’ve seen in recent years. All of the factors that affect sales are truly neighborhood-specific though; so ALWAYS make sure that you work with an experienced and knowledgeable Miami Beach Realtor if you plan on selling, so that you can get accurate and current information that’s specific to your situation.
Fall 2016 Update via StatFunding:
The Miami Beach market remains painfully slow with 139 homes sold in the last 30 days. This is a massive 11.5% drop in sales. Meanwhile, in Miami, there were 297 houses sold; the highest number from any of the surrounding cities. Buyers should note that house prices increased in Miami Beach, with the median price rising from $430,000 to $440,000. Miami Beach is a very strong buyer’s market with a whopping 23 months of inventory up for sale.
What can we expect in the next 24 months?
If we are at an inflection point in the condo cycle, the most likely chain of events based upon current market trends is as follows, but this is only a theory:
Most preconstruction buyers will reluctantly close on units due to the 50% deposit structure commonplace in this condo cycle. A subset of preconstruction buyers will be forced sellers for economic reasons and will likely be forced to sell at significant losses. Due to systemic market risks evident in the market, prudent lenders will withdraw from financing preconstruction condo buyers altogether. As a result, a subset of 50% deposit-holder-buyers will not be able to close their preconstruction purchases due to unavailability of financing for their remaining 50% balance to close. Financing for actual end users and resale buyers will also likely become unavailable, which will further shrink the pool of potential buyers and further depress prices. Condo lenders who failed to exit the market early will likely see high default rates, and lenders with loans at the higher end of the loan-to-value spectrum will likely realize losses following short sales and foreclosures. Rents will likely tumble as preconstruction buyers unwilling to take losses on their condos flood the rental market with new units.
http://www.miamirealestateguy.com/Miami-Preconstruction-Condo-Market-Update.pdf
