Will History Repeat Itself in Miami?
October 28, 2007
by: Lucas Lechuga
Earlier this week, I showed a few condos at Villa Regina to a lady who has owned a unit in the building since 1983. She and her husband purchased their condo in November of that year. She told me that for the first year and a half to two years only 25 condos were owned of the 208 total units. The bust had happened and nobody wanted to buy. The developer, Nicholas Morley, eventually went under and the building was later taken over by the FDIC. Nicholas Morley, was a big-time developer back then who was the equivalent of today’s Jorge Perez or Ugo Columbo.
She said that nobody would touch Villa Regina with a ten-foot pole for the first two years after she purchased because the building was either in receivership, meaning that it was undergoing foreclosure proceedings, or it had already been foreclosed upon. As a result, the common areas were under-maintained. The building didn’t have any security, air conditioning in the hallways, a concierge in the lobby nor valet service.
Before the building went into receivership, she, her husband and the condo owners who represented the other 24 units met each month to resolve the problems. They wanted answers. No, in fact, they wanted action. Each month, the condo board sent requests to the developer stating that they themselves would pay to have the building maintained 100 percent. The developer never answered their pleas.
After Villa Regina was foreclosed upon, there were rumors that Nicholas Morley wished to acquire the building from the FDIC for 10 cents on the dollar. The condo board sent letters to the FDIC to prevent this from happening. Nicholas Morley had made them suffer long enough and they didn’t wish to take any chances.
An investment group stepped up to the plate and purchased the remaining units at Villa Regina from the FDIC, a few years after she and her husband had purchased their condo. She stated that “almost overnight, there was interest in buying condos at Villa Regina”. I asked her for how much the investment group purchased the remaining units. She didn’t know but guessed that it was around 50 cents on the dollar. The level of maintenance that was initially promised had finally been restored. People wanted in because the dark cloud that hung over Villa Regina had been lifted. The investment group was then able to sell the remaining units for a profit.
It was especially interesting to hear, from the above source, that the building fell into the hands of the FDIC. This indicates to me that the bank which loaned the money to the developer also went under as well. I don’t expect buildings in Miami on the horizon, however, to fall into the hands of the FDIC for too long, if at all. The world is too widely connected nowadays. Information exchanges hands at such a rapid pace. Investment groups will act much faster in today’s era than that of the 1980s. If a bank yells, “Help!”, several investment groups will be there to say, “Help has arrived, but how bad do you need it?”.
There’s been talk that the current boom and bust in Miami is worse than had existed in the early 1980s. I’ve advised my readers time and again to watch out for the new digs. If you feel like buying, then look for those buildings that were built prior to 2000. They have much more stability because most units in those buildings are owner-occupied. Investors/speculators flocked to the new buildings and those that were yet to be built. The possibility of the above occurring in a new condo development in Miami is likely within the next couple of years. That’s why I’ve been keeping a close eye on each new development’s ability to close units. If you are interested in buying in a new development then you must be aware of the default rate that is occurring there. Those with a default rate higher than 30 percent, in my opinion, will be ones to stay away from until much of this excess supply is purchased.
The oversupply problem in Miami does indeed currently exist and is worse than that which existed in the early 1980s. However, the level of demand that currently exists far outpaces that of which was evident in that decade. Miami is now on the map. Miami now has world-wide attention. The strength of foreign currencies relative to the U.S. Dollar has made it more alluring for foreigners to buy here. It has also become a mecca for second-home buyers, retirees and those who wish to live in tropical climes throughout the year.
The opening lines of the movie Armageddon says, “It happened before. It will happen again. It’s just a question of when”. It will be interesting to see if history repeats itself in Miami and, if so, then to what extent.
Amazing story.
Even more amazing how we find it on a blog instead of the regular media (tv, newspapers, mags)
Excelent article Lucas!!!I agree 100%. Enven some critize Miami. This city has a bright future. New generations will love this city.
great piece Lucas, but what I don’t follow is why don’t the few owners have a right to obligate the owners of the rest of the units, whether it be the developer or a receiver, to pay maintenance fees.
Also what if all the amenities were not in place before receivership, for example a pool, or the gym, who if anyone would pay to have all the amenities completed. Maybe you or one of your readers have experience with this: unfinished common areas and amenities seem to be a common complaint among owners which have recently closed in a new condo.
Makes you wonder how developers still get TCOs… If something like this happens along the way, the few owners that close will suffer. Amenities may take years to be finished. All amenities should be finished before they can force buyers to close.
You are right Lucas, History does repeat itself. Not in the way you hope though. Lets go back to the 1920’s for some clarity.
http://www.stock-market-crash.net/florida.htm
he 1920’s, in America, were a time of great prosperity. Skilled and educated working Americans had jobs providing numerous fringe benefits, paid vacations and pensions. In addition, automobiles were becoming commonplace for the wealthy and middle class allowing cross country travel. This good fortune set the stage for the Florida real estate bubble.
Starting in 1920, many Americans became enamored by the materialistic and prosperous lifestyle of the time. During this time, the stock market was moving forward at an extremely fast pace. Many investors were becoming quite wealthy. Florida became a hot spot for these newly rich people, who didn’t enjoy the cold. Many whole families took vacations to Florida. It was at this point that tourism started booming and land prices were skyrocketing. Many astute investors took notice and started buying Florida real estate. The population in Florida was growing exponentially and housing couldn’t meet the demand. Florida became the “playground of the rich and famous”. Illegal casinos and drinking parlors became widespread in Miami.
At this point, almost anybody could invest in Florida, even without much money. Credit was plentiful and soon everybody in Florida was either a real estate investor or a real estate agent. In 1922, the Miami Herald became the heaviest newspaper in the world as a result of its humongous real estate advertisements. People in the North heard about the real estate prices “doubling and tripling”, causing a snowball effect. Capital was rapidly pumped into the real estate market. Whole golf communities were developed, such as Temple Terrace. Resorts and retirement communities were developed almost overnight. Mansions were sprawling in every area, as were swimming pools. As always, waterfront property was the most desirable. Florida was seen as a veritable Utopia.
Real estate prices quadrupled in less than one year. An elderly man invested $1,700 in property and by 1925 the property was worth over $300,000! It seemed you could do no wrong by just buying any property in Florida and become a millionaire. By 1925, real estate prices had become so exorbitant that buying land wasn’t affordable any longer. New investors failed to arrive and old investors started to sell. Panic arrived, as it always does, and the real estate market crashed. Prices kept moving downwards as heavily indebted investors tried to sell to avoid bankruptcy. In most cases, no buyers arrived, and the investors were bankrupt from the enormous mortgages.
To make matters even worse, a highly destructive hurricane ravaged South Florida in September 1926. The 125 mile an hour winds eventually turned Palm Beach County into swamp lands. After the storm, a huge tidal wave crashed upon the towns of Belle Glade and Moore Haven. Due to these horrible turn of events, over 13,000 homes were destroyed and 415 people died. Additionally, the arrival of the Mediterranean fruit fly obliterated the large citrus industry. It took years for Florida to fully recover, even through the highly prosperous time from 1925 to 1929. Florida was barely affected in the stock market crash of 1929 and the Great Depression, because of its poor financial state from the start.
Market crashes always occur in the same manner. Regardless of the market, the same simple psychological underpinnings are always at work. People who are caught up in a bubble never look back for historical examples. For this folly, they become paupers.
“Those who cannot remember the past are condemned to repeat it.”
It is wrong to think that history repeats itself and it s wrong to overlook the fact that the real estate market is not as archaic as it used to be in the 20’s ….new instruments and vehicles exists and funds are powerful enough to quickly go in……..and out….
Laurent,
Real estate is, by all measures, still a fairly illiquid investment. There have to be buyers for those funds to sell to…and that won’t happen so some time.
This is a great blog, and like any great blog should encourage comments from others. In that spirit, please don’t get offended if I have a different POV from you. Reply rationally – I’m open to ideas.
Laurent, the “new instruments” you refer to (collateralized debt obligations, or in other words, the bank you got the mortgage from sold the mortgage to a bunch of Wall Streeters) are one of the major reasons why this collapse will be worse than anything before. There’s nobody to turn to if you run into a problem as an owner, and the banks relaxed their credit standards way too much. Give a developer cash and he will build. Give a sub-prime borrower credit and he will buy.
Lucas, with total respect: the other currencies are not strong – the dollar is weak (something to do with how much we are wasting in Iraq and the tax cuts to the rich/end political rant). Miami has seen a windfall of cash from South America in the last four years, all seeking the so-called safe haven dollar. Any South American who invested here in the last three years has lost money in dollars, and probably more in pesos, reais, whatever. Do you still think foreigners are up for more punishment? There are tons of new sunny resorts opening up across the former SSRs that are now part of the EC. Every European I know is buying there, not here.
Perez, that’s the law here, and it ought to be changed. Developers do not pay common charges/HOA fees/maintenance on unsold units. I had an horrific experience with a condo in Houston in the early 80s – oil prices collapsed and so did condo prices. It was like living in a ghost building. Like Lucas’s example: no security, no maintenance work. I’ve seen first-hand how fast a brand new building can deteriorate w/o maintenance.
This is going to happen to all the bright shiny buildings on Brickell. I second Lucas’s opinion: don’t buy in a building that is not sold out. I would add, probably don’t buy. The market here is effed up.
There’s a term that economists use. I think it is called capitulation. It means the rats all ran from the ship. That’s the time to buy. It’s not now.
Chris: Thank you for adding the dreaded H-word. Miami is overdue for a major hurricane. Frances (2004) barely brushed us. I evacuated to the Marriot on Brickell. Their impact glass windows lasted about an hour, and this was a minor hurricane (category 2, per wiki) that made landfall well north of us.
When I drove back from the Marriot, all I could see were broken windows along Brickell. All those glitzy, fraud-ridden condos along Brickell will take major damage in a real hurricane.
doom and gloom on so tiny investments…
200$-300$-400$ even 500$ a sqfoot is emerging market prices…Miami is way underpriced..
people will see price falling but they won’t sell they d rather pay it full in cash…it is so cheap …
What they don’t earn in capital gain (and i do think they will make money in cpital gain!) they will make with the dollar getting more expensive compared to their currency…
If you really think 300-400-500 a sqaure foot is cheap I want you to pass the bong my way so I can take a hit.
75-90-110 a sqaure foot is cheap, and thats what housing cost in the entire middle 80% of the nation, excluding the two coasts (who had a huge bubble driven by speculation).
Prices in Miami will return to 150-200 a sqaure foot, and prices will fall another 1/2 off before all is said and done. That condo you own that is 400K now will be worth 200K (in american dollars) by 2010. Don’t believe me?
Just get some popcorn and watch.
Its all about Income and fundamentals, and The income in Miami means houses will return to 150K-200K like they were in 2000.
Sorry man.
No one is going to be able to get the exotic financing that allowed these prices to happen in the first place. When people can only buy houses that they can actually afford you will quickly see how much these condo’s are really worth. Its happening now. Housing Fear is coming.
I think a major difference between the 1980’s condo crash and the one that will soon occur is that back then, you had an oversupply of relatively affordable condos.
Now you have an oversupply of un-affordable condos.
Market won’t pick up here until prices come way down, plain and simple.
Excellent Comments, I think the FED will cut the Federal Funds Rate by another quarter point tomorrow, pushing the dollar even lower. I expect the dollar to go to 1.60 to Euro, Furthermore I think when property prices drop 50% back to what they were in 2002 they will start moving from foreign investors. I get calls from France every week from people interested in buying foreclosures, WHne you look at the rate of foreclosures its alarming, but when you take into considerations that the banks that own these are just really servicing the loan and they were all bought up by Wall St to be turned into Mortgage backed securities and CDO’s you realize that many of the actual people taking a hit on these defaults are in China. If you guys get a chance read the article of the Wall St Journal called United States of Subprime.
I also heard that in the early 80’s at the Four Ambassadors they would offer you a free Ford Pinto if you bought a condo. As far as prices dropping to $75 a foot considering the replacement cost and the high prices of concrete and raw steel I highly doubt it since most developers will tell you its hard to build a building for less than $220 a foot. Other than that great article
I think all have valid points. However, we cannot generalize about the real estate market here. Lucas is aware of this as he posts alot of info about two distinct sub markets, one being the Condos on Brickell and the other about the Condos on South Beach. There is and will continue to be a decline in prices along the Brickell corridor. Too much supply at prices that locals cannot afford. Someone mentioned about prices going down to $150 – $200 /sqft, that’s about what I am thinking, primarily for the Brickell corridor. Now of course not all buildings along Brickell will be affected the same, I am referring to New Construction.
Now, areas such as South Beach will remain relatively strong. The key term is “relative”. As long as South Beach continues to draw almost 10 million visitors / year there will always be demand for housing on the Beach, not to mention that you are surrounded by water on all sides. There is data to prove that pricing has not declined as much relative to other areas in Miami.
Those feeling that there will be a bust… I do agree to a certain extent. Lucas and a couple others did mention that the World is different now. The Internet has changed EVERYTHING. Information and money gets exchanged soo much faster nowadays. Plus, remember that relative to the 80’s there has been alot more wealth created. In the last 10 years we have experienced two huge booms:
1) The stock market boom of the late 90’s,
2)The real estate boom of the last 5 years
Those two events have created an unprecented amount of wealth, not only in this city and State , but throughout the World. We may never experience two huge events back-to-back like that in our lifetime.
As we all know there is ALOT of money sitting on the sidelines waiting… and waiting… and waiting.
Good luck to all!
I just wish I could post the MLS listings of Miami from 1999.
It was cheaper than Michigan. 4 bedroom, 3 bath 2500 sq foot house in Kendall for $199,000 kind of cheap
What did that house sell for at the peak of the bubble? 700,000?
Seriously guys, Prices are coming way down, everyone knows it, and thats why no one is buying.
The forclosures and REO’s will drive the prices down, and people will have no choice but to sell at a huge financial loss or not sell at all in order to compete with the banks unloading massive REO inventory.
It hath been fortold.
I would love to own one of the condo’s in Miami that Lucas blogs about. The difference is I will pay 150 a sq foot, not 400 a sq foot.
The demand will return when the price is right.
Jose Laya
Do you have the data? I believe you. It’s instinctive that SoBe would hold values better than the Brickell corridor (which even Lucas has given up on, in terms of believing the figures he posts here, if I am not mistaken).
But the two booms you mentioned ended in awesome, hideous busts: The stock market of the 1990s; and the real estate boom of the last five years.
Om the latter topic, the data aren’t in, because owners & developers are in denial. So I guess I am projecting, but it’s an easy guess. Prices will fall or have already fallen 30%. That’s a bust.
@Jose Laya
And those two booms ended well, didn’t they? Sure, the founders of Google can buy any apartment here they want, but the average investor lost tons in the dot.com collapse, and is about to lose tons if he invested in Miami pre-construction condos three years ago. People don’t walk away from 20% deposits idly.
Aargh. Double post. Sorry!
What do you guys think will happen with buildings like 10 Museum? (Lucas) The lobby, gym, pool area, elevators nor spa are done yet. Do you think the developers will finish? How about the other buildings next to it? From what I have heard the guy behind Marquis has plenty of cash and will deliver as promised no matter if it comes out of his own pockets.
The developers behind Marquis are the same developer of Vitri at 5th and Alton….that didnt work out too well!
I think there should be more empahasis on what Chris said about the comparable sales from Banks unloading their REO’s most banks that hold these REO’s dont actually own the mortgage they are just servicing the loan which was bought up by Wall St, thats why we are seing such stories as that of Devaney in Key Biscayne putting up his Phantom and all his estates in Key Biscayne up for sale. I am compiling a list of foreclosures on the MLS and there are over 1,000 condos on the MLS now in Foreclosure, Pre foreclosure, short sales and REO and the fact is that developers and owners are in denial and havent dropped their prices but they will have to when you have substitute REO properties for sale for half the price. After many of these get unloaded we will have what I like to call the Foreclosure Comparable Sales Ripple Effect, since most properties in SOuth Florida are not valued by NOI/Cap Rate, instead everyone values what their home or condo is worth by tracking past comparable sales. So I expect a significant drop of about 30% in asking prices over the next 6 months
Thats exactly my point Alejandro.
Say you purchased your condo for 400,000 and so did everyone around you. No one is going to sell for less than 400K and everything is great.
Now, your next door neighbor in an identical unit lets his condo go into forclosure and the bank owns it. The tables have just turned.
The bank is not in the business of managing properties and just wants to sell the thing. Especially now with tons of forclosures they just want to get rid of.
When the Bank lists that property at a price where it will actually move, lets say 325,000. Your only option if you want to sell is to
A) Reduce your list price to 325K and take a 75K loss.
B) Realize you made a horrible investment, let the bank forclose on your home also, and walk away with a bruised credit score but all your money.
C) You can’t sell your house and you are stuck.
In all 3 of those examples, the price is going to drop, even if people don’t sell, the value still decreases because the forclose’d home creates a new comp thats much lower.
This will continue to happen, and prices will continue to fall lower and lower until it reaches a point where the median income is enough to qualify for a mortgage and all the homes get purchased again.
This won’t be till 2011 or so, and prices will keep falling.
let me tell you one thing guys do not dream dreams.
good buildings at good locations will do well. like plaza on brickell, my friend is sales director they call all buyers and all people said they plan to close on time. lets say 10% will not close but that is still good. brickell avenue will do just fine. bad locations with bad building will end up going down. like platinum condo.
I agree with Joe. There’s alot of new building that are just simply crap or just don’t cut it. Other buildings that are fancy and desirable will have the demand..i.e Marina Blue, 10 Museum, 50 Biscayne etc.. those are just simply eye catching building that people drive by and say “damm thats a nice building I would love to move in there”. Then there is the not so pretty stuff along Biscayne that just isn’t desireable. Those prices will plummet downward cause even the lower income buyers if finacially fesiable to them will wait to save more money to buy at where they ideally would like to live…10 Museum, MB, 50, etc…
I read this article with great interest because I’m seriously considering purchasing a unit at Duo in Hallandale. I’ve been watching the MLS for a few months and the cheapest units for 915 sq. feet 1/1.5s went from $299,000 in July to $249,000 as of today. What’s holding me back is: 1) Falling prices. But then I see all these other new construction buildings going for the mid to high 300s and think $249,000 for a semi-luxury new construction unit is a steal. Do anyone really think prices can drop below $200,000 for a new construction project? 2) The maintenance disaster discussed in this article. I’ve been a renter my whole life so I’m not sure what would happen if only a small percentage of the buyers actually go to closing. What if most just walk away from their deposits. If the building is only 20% occupied, what happens to the security, air conditioning in hallways, pool, etc? If I’m still forced to pay maintenance every month, shouldn’t it be mandatory that I receive all the amenities it’s supposed to cover?
Thanks for anyone who actually read this whole rant and would like to reply in general. Also, if anyone has any knowledge of the Duo in Hallandale and would like to comment specifically on how good of a price you think it should go for, I’d love to hear some input.
People buy and come twice a year sometimes…if they re rich…they still pay maintenance fee though so u should get everything you re entitled to
If they decided to rent it out for the older days (a few of my friends did that) then they still pay it all and put someone in there full time
Some ar just gonna do it in the middle thrrough short term leases rent 6-8 months use the rest of the year
Robin here is a really simple way to tell if the right time is to buy…Figure out what the unit you want to buy could rent out for.
Multiply that monthly rent by 150 to figure out the most you should ever pay.
If you think you could rent out that unit in Duo for say…$1200 a month… Then $180,000 is the most you should ever pay.
The price will eventually fall to be in line with equivlant rent and my feeling is if you bought now you would lose about 70K over the next 2 years.
guys if you do not buy you have to rent it. you either buy or rent it.
when you buy you get tax benefits plus you can turn your condo into cash.
if you rent 2000$ for 10 years
thats more 240.00$ per year or $240.000 in 10 years so you get condo for free plus you deduct taxes so you basically get it for free and in 10 years you sell it and it will be more than you have paid for.
if you have brain long term real estate is good deal
Joe, I’m sorry but your post just doesn’t make any sense.
Also, don’t forget about property taxes and maintenance fees when you look at the rent vs buy decision.
2000$ per month for 10 years is 24.000*10=240.000$ i think that s what he meant and u have the tax deductions which basically come to cover ur maintenance fees..
so rent for 10 years buy forever…that s the idea…(i know there s the mortgage to take into acccount….but he seemed not bothered by that)
there are enough people who can spend 300k on a condo they will rent to you and than in 10 years when they get 240k from rent will sell that condo to you for 500k and at that time you will finally decide to buy cause it is a boom market and everybody is buying.
buy when noone wants to buy and sell when everybody wants to buy!
Ultimatley, if you rent or buy with that 240,ooo over 10 years that should pay off the majority of the morgage if you bought a condo lets say at 300k. In 10 years worst case when you sell let’s say at 300k you break even because you get all your money back. Chanches are in 10 years it will prob be worth more so you’ll get all your 300k back and taxes and maintence back.
Jose Laya said:
“In the last 10 years we have experienced two huge booms:
1) The stock market boom of the late 90’s,
2)The real estate boom of the last 5 years
Those two events have created an unprecented amount of wealth, not only in this city and State , but throughout the World. We may never experience two huge events back-to-back like that in our lifetime.”
I don’t know if you remember, but all that “wealth” that was created during the stock market boom was given back when the market went bust.
Housing will do the same. Prices won’t bottom for years. And then they will go up much more slowly than before because you won’t see the wild west days of the “even a homeless man gets a loan” mortgage business again anytime soon.
South Beach will do better than other areas, but prices will still fall a lot from their peak. There is a lot more supply “waiting” than there is demand “waiting on the sidelines”.
Great comments all. Just want to add a couple cents worth here. I think everyone’s concerns about wholesale lending standards being the driver of mortgage prices is right on, but I think everyone is over-concered about the reaction from banks on these standards. Yes, for the immediate short term, lending standards will revert back to the pre-Alt-A days, but the corner will turn. When it does, look for 125% loans to A-paper types at first, to help refinance bad loans they got into the last couple years. After that, look for the Alt-A loans programs to make a slow progression back. You won’t have 100% SISA with a 580, but 100% SIVA with a 660 is going to be back far sooner than anyone realizes. In fact, some adventurous banks are still doing those loans! (just not for condos!)
Joe Dia,
You need to learn how a mortgage works. Let me educate your for a second.
___________________________
When you close on a mortgage you automatically lose about 5,000 dollars or so in closing cost that you never see again… So right off the bat you are negative 5K
____________________________
Next, Your mortgage payment is about 90% Interest and 10% equity the first 5 years you own your home. So your money is going up in smoke the same way as if your renting.
Renting = 100% up in smoke
Own = 90% up in smoke for first couple years.
_____________________________
Maintence fee’s, Property Taxes, Association fee’s = More Money you never see again that goes up in smoke…. Poof!
____________________________
Bottom line is that it is a HORRIBLE CHOICE to buy a HOUSE OR CONDO THAT IS DEPRECIATING!
In 10 years, even after the market recovers, you will be lucky to get back what you owe on your mortgage. Additionally you will have paid countless thousands of dollars in Assoc fee’s, taxes, and mortgage interest that you will never see again.
Now is a horrible time to buy, Now is the time to Rent and buy in 2010 when prices fall another 50%.
Everyone has valid points but we just don’t know. Who would of thought in 2003 Downtown would start to look like it is now? So in 4 years what a change. The next four year should bring a huge facelift and more to dilapitated downtown. That will draw more and more people to the center. Look at all the billboards going up with the DWNTWN slogan saying methamorphisis. It will take a while but patience is a virtue. If you can hold and live in your condo for 5 years chances are you’ll see the fruit of the investment happen. When to buy thats a perosnal choice wait to long and prices may go up buy now and perhaps you may lose. Everything is a gamble I waited on the sidelines for 2 years monitoring the condos untill I decided to say ok I’m ok paying this price because I think it’s worth that. So I may lose and I may win but at somepoint you gotta make a move.
Renting = 100% up in smoke
Own = 90% up in smoke for first couple years.
yeah but you deduct 90% from tax return cause it is interest so you save in taxes my friend,
obviously you do not own condos cause you have no clue
I do own a condo.
Back to the point, People who rent get a 5,000 dollar standard deduction anyway. The deduction for your mortgage interest is not as great as you make it sound.
If you want a deduction that bad donate to charity lol.
Saving 800 dollars more a year on taxes is not worth losing 80,000 dollars buying a condo that is losing value for the next 3 years.
not all people take mortgage. some pay cash and enjoy it.
well u never get rich renting. so go ahead and rent
It’s almost like leasign a car. You never own the damm thing. I agree owing has it’s benefits renting you just never have anything but you do have the option of moving around much quickly if you get bored of your current home. Owners got to sale and moslty rely on that sale before they can move to their next destination.
Very good points but no one here has taken into consideration time value of money, I showed a condo yesterday to one of my clients and the realtor owner was telling me that there is no way she was going to loose money on the originalpurchase price she payed yet she had lived there for 3 years, she told me she would rather rent, I ran the numbers for her renting her condo that she is asking 480K for and rents out for 2500, I took vacancy and credit losses, property taxes, Association fee and had to explain to her that after all her expenses she was left with 4K a year and if she got 400K for it right now and put it in a Risk Free T bill she would make so much money, and when I put the numbers down she was pale white, Most of the buyers in the last 3 years for condos have just bought on the assumption that the market is going up and have not sat down and done the numbers. I also strongly disagree that the market is not picking up anytime soon, I think if you get a good condo at a good building at 40-50% off of what it was worth 2 years ago its a good invetment, Venture Capital Funds are already looking to buy Condos of of developers at 50 cents on the dollar, the dollar keeps devaluating vs the euro and Miami is very popular for European and Latin American buyers, and if you buy a condo at 50% off and you have your money in pounds or Euro they are already looking like bargains, I have clients from France contact me every day looking for foreclosures, the demand for distress real estate is very strong
If you look at Foreclosure Listings, the bank needs to move them I have been following them for quite a while and thats what I specialize in and 40 foreclosure condos sold in the last 2 weeks, when those prices come into the comparables all the asking prices across theboard should come down. Yesterday they listed an apt in Jade on the 42 floor 2 bed 3 bath 1730 sq ft ocean view originally purchased for 2.1 Million on 5/23/05 and the bank wnats to liquidated it and just listed it at 750K
When this moves which will probably be in the next couple of days the comparables at jade will come down significantly since I just went to see the same apt in the 7th floor 2 months ago and they were asking 1.45 Million and the realtor said there was no way they were going to sell for under 1.3 Million yet this one on the 42 floor just came in with an sasking price of 750K most people are in denial that the market is coming down but I still think buying 50% off is good deal in the long run if its an apt you like and are going to live in
First off, I want to say that I’m very happy that this post has been able to attract such a high number of comments. When writing this post I knew that it would be one of my most popular but I struggled for a while whether or not I should publish it. I knew that it was a story that should be shared, however, so I went forth with it. Everyone, by the way, provided some great points.
Alejandro,
You are indeed correct that the unit at Jade should be under contract very soon. That is a great deal. I would usually say that there’s no way in the world that a full offer would be accepted by the bank, but I checked public records and the short-sale unit on the 42nd floor at Jade only has a first mortgage of $575,000 which is owed to Wells Fargo. This unit, as you said, was purchased in March 2005 for $2.1M. I haven’t viewed the unit in person but it is definitely worth over $1M, even if it’s in bad condition. A full offer $750,000 will make the bank happy and put some money back into the pockets of the owner. Solid, solid deal! I think I’m going to need to take a look at this unit in person very soon.
The unit at Jade that was listed for $750,000 is now pending sale. The list price was readjusted to $1M.
Lucas I wanted this unit for myself as an investment, and it moved way too quickly I called a day later and it was under contract already like you said, More foreclosure deals like this will come to the market soon, however you have to move very quickly
They have that condo listed above now at $1.2 million. Was this a bait-and-switch move by some slimy broker?
no that is unit 4503 so its 3 floors up and was originally purchased for $2,165,000 on 9/12/05
here is an interesting chart for the price of a condo on 101 20th street #1902 in SOBE. The price in Jan 04 was about 600K and then price in Jan of 2006 was 1.6 M. Now zillow shows the price as 1.1M.
What is the fair price for this condo? Is it 600K? Is it less? Even at 1.1M, it is almost double what it was in Jan 04.
I went thru the headlines for LATimes for the housing bubble and it took 7 years from the time the market started going down for it to become hot again. So by that estimate, the market today which started tanking in late 05 will fully recover in 2012….interesting.
I am saving my money..I would love to pick up a condo in sobe (ocean view) in portifino or continuum II at a reasonable price i.e below $500K for a 2 bedroom. I dont know if it will every happen, but if it does, I will be ready with cash in hand.
sorry..forgot to put url for zillow in my previous post:
http://www.zillow.com/Charts.htm?chartDuration=1year&zpid=64470041
I too have looked at the economics of the situation. The market will not turn around in 2008 or 2009. It could very well take until 2012. Who knows? I only know in the short term prices will continue to decline.
It is unfortunate since I’d like to buy…but how can I in this declining market? Unless mortgage rates go down to 3% and I can get an assumable mortgage, it makes no sense to buy in the higher inflated and speculative markets such as south Florida. If I were buying in Iowa, I’d go ahead and buy now, but in south Florida I will have to wait…… The current declining market hurts the current owners and prevents buyers from jumping in. This freeze up will result in faster price declines especially for non-owner occupied homes where since they are losing investments with larger losses every day.
I think we will see the decline will take about 1.5-2.0 times as long as the run up in prices. The run up in prices was sudden and steep so the decline will take a bit more time….easier to jump in and buy when money was cheap and thrown at you, but to get out of the position is a much longer process and messy.
It is going to be a long ugly year for south Florida real estate. And the dollar will get a tad stronger as other country economies slow which will dampen the foreign demand. Where will the demand come from??? Demand will primarily come from lower prices, hence prices need to come down.
[…] also a risk that the condo building is not properly maintained. Read the post entitled “Will History Repeat Itself in Miami?” to learn more about how bad things can get for a building who can’t pay its […]