Miami & Miami Beach Condo Trends – November 2007
November 17, 2007 by Lucas Lechuga
I basically wanted to find out how many months of inventory we have in Miami and Miami Beach. I created a report for Miami-Dade County, one for Miami and one for Miami Beach. I broke each report down to various price ranges to figure out which category has been affected the most. I took closed sales for the month of October and compared it to the inventory that is now available. Below you will find the numbers for Miami-Dade County:
As you can see Miami-Dade County has about 55 months, or 4.58 years, worth of inventory. I wanted to see how much of this supply resides in Miami compared to Miami Beach. Below you will find the numbers for Miami:
Miami currently has a 48 1/2 month, or approximately a 4 year, supply of condos. That's actually much lower than I expected. However, keep in mind that there are thousands of condos that will come onto the market within the next 24 months. In fact, in July, I calculated that a little over 16,000 condos would hit the market within the next 19 months in the neighborhoods of Brickell Key, Brickell, Downtown Miami, Park West and the Performing Arts District. Probably about 1,500 or so units have hit the market since I wrote that post. If you add 14,500 units to the Miami figures above then we're looking at close to a 10 year supply. Now that's quite shocking!!!
Let's take a look at the Miami Beach figures:
I was surprised to learn that the supply of Miami Beach condos is higher than that of Miami's. The number of new condos coming onto the market, however, in Miami Beach pales in comparison to the new condos scheduled to hit the market within the next two years. My guess is that about 1,500 units will hit the Miami Beach market in that time which would put it at around an 8 year supply. Still pretty shocking given that it's Miami Beach! I was equally shocked by the low number of closings in the $500,000-$999,999 price range. That appears to be a problematic price range if you're a condo owner looking to sell somewhere in that range.
Despite a number of news stories that have hit the press lately, it looks like the ultra-luxury ($2.5M+) market isn't moving. It has very few available listings compared to the other categories but it had basically no closed sales in October. There were a total of two in all of Dade-County. Both were located in Bal Harbour.
I receive a lot of monthly phone calls from investors who are waiting for the market to bottom-out. They all want to know when is the "right" time to buy into the South Florida condo market. I'm hoping that a report like the one above can help me pinpoint when that time might be.
A recent Fortune magazine article entitled, "Real Estate: Buy, Sell, or Hold?", said the following:
The combination of steep discounts to move inventory and a stream of new communities built at a lower cost will keep prices far below their peak levels in the boom towns. And they'll keep falling until builders work off the massive inventories. The tumbling prices of new homes, in turn, will put enormous pressure on the far bigger existing-home market, already under stress from two desperate groups of sellers, investors and banks. Hence, the adjustment needed to bring the ratio of prices to rents into alignment will happen far faster than in most housing downturns. "In the most vulnerable places in California and Florida, it's highly possible that most of the correction will happen by the end of 2008," says (Mark) Zandi, (chief economist at Moody's Economy.com).
The article was mainly discussing single-family homes but I think the same holds true for the condo market. The Miami condo market is likely to drop lower, on a percentage basis, than other major U.S. cities but I agree with Mark Zandi that the market here will be quicker to correct itself because of the high number of foreclosures and defaults that we are likely to see. 2008 will be a time of readjustment. I'm looking quite forward to it.
Lucas,
Thanks for all the info!
When you say 2008 will be a time for adjustment, do you mean that you’re expecting pricing to bottom out in 2008? It looks to me as if things will take quite a bit longer given the significant inventory and huge pipeline of condos to be delivered in the near term. Are you expecting the market to work through this crazy supply situation in the next 12 months? One other question: Assuming this is a slow sales year during season, what are your expectations for late spring early summer? Sellers who are unable to unload units during the peak season… Read more »
Great post.
It’s most definitely a very turbulent, yet exciting time.
I think that there are a bunch of buyers out there for the condos except I think alot are just on the sidelines waiting for thier right price or just wanting to see the finished product instead of looking at renderings. Alot of towers that went up looked good in drawings and then were dissapointing. I mean I saw stuff that looked marvelous and then when I went inside I was so disapointed in some towers. So combine price and just finished product and we’ll prob have a spike in buyers. Dowtown and the rest of areas are becoming a… Read more »
Waiting to Buy, Yes, I do think that it’ll bottom-out in 2008. I think in 2008 we’ll see some condos sell for very low prices because of the ever-growing number of foreclosures and the defaulted inventory that will be sold at a discount to bulk buyers. When bulk buyers step in to buy in 100-500 unit lots that will mark the bottom. It may take a long time for them to resell that inventory to end users but you can bet it won’t be for the same price that they purchased it. There will still be inventory problems in 2009… Read more »
Price is a function of supply and demand. It’s basic economics. In this case, supply (number of condos on the market) is way, way higher than demand (as evidenced by the number of closed sales). The number of current and upcoming foreclosures tell us that many of the people that were buying condos during the boom couldn’t really afford them. With the death of the subprime market, these types of buyers will be gone for many, many years. The lenders and CDO investors have hopefully learned their lessons. Bottom line is, I don’t expect the level of sales to come… Read more »
BB, Exactly! Price is a function of supply and demand. At current prices the level of supply far outpaces the level of demand. There is a price, however, where the number of new condos will be purchased. The new price will produce a new equilibrium. If a bank gets back 200 condos in a development they are not going to let it sit on their books. They will shop it around until they find a bulk buyer who will purchase them all. This may be at 30, 40, or 50 cents on the dollar. Who knows what that price will… Read more »
Waiting to Buy, I don’t think that this will be a particularly slow peak season. I think that there’s going to be a lot of buying during the Winter months for newly constructed condos. These buyers, however, will likely only make a small dent in the supply in the grand scheme of things. I have four out-of-state buyers flying in this upcoming week and another four the following week. Actually, three of the eight buyers are located outside the United States. They likely won’t all buy something but I think a few of them will. I think the Summer months… Read more »
The property tax reform vote on January 29, 2008 should also bring out some of the buyers that have been waiting on the sidelines.
You can view the details of the proposed property tax reform by clicking here.
My call… 2002-2003 prices before this stuff moves. It’s all about going BELOW mean reversion now. Cycles tend to exceed one extreme only after going way past the other extreme, and the upside was just exceeded by several standard deviations. How fast we get there… ??? (My bet surprisingly fast!)
What would be interesting is a look at what those sqft numbers you post now, for Brickell and SoBe, would have been back then.
Great info though.
I block, In 2001 condo’s sold for about 120 a sq foot.
So prices have to fall A LOT more lol.
If there are 4 years of inventory than the bottom won’t be until 2011.
Not hard to figure out.
Miami Beach is getting stiff competition from South America and the Carribean, and the European market is now realizing this. Its amazing what you can buy in these locations. For about $300,000, you can get a brand new condo directly on the beach in some islands ,with resort ameneties attached. For Miami Beach with its inflated prices and exhorbant taxes, that would put you in some crappy building on west avenue where it smells like a New York City sewer every time it rains.
Great index Lucas & well laid out. Miami Beach (especially South Beach) has long positioned above the downtown collapse fray but I think, given the fact that listings in many cases reflect 05/06 levels still, that the next 12 months will witness a further compression of prices in SOBE/MB as well. Many realtors champion the weakening dollar & the overseas investor as a likely buffer to our domestic mortgage woes in Miami but I feel that may not be not so much faulty as on shaky ground. True, the dollar & lower prices continue to make Miami attractive to foreign… Read more »
Lucas, you mention that you expect many bulk purchases from hedge funds and other investors. What do these investors plan to do with these condos? Re-sell them? If that’s the case, then the “supply” that was taken off the market by the developer will soon be right back on the market. That doesn’t solve anything. Someone who buys a condo to simply “flip” it to someone else (which, I assume, these bulk buyers would be planning to do) does not represent real demand. Real demand would be people who plan to buy a condo as a place to live. Or… Read more »
When I talk about the market bottoming, I’m talking about price. I wasn’t referring to supply. The supply, like you said, will take years to be absorbed. Prices may go down in 2009 but I don’t think that they’ll go lower than the price where the investment groups will buy condos in bulk in 2008.
Seeing units at South of Fifth lux buildings like Murano Grande & The Cosmopolitan on the auction block December 15th seems like a new & negative market indicator.
The unit at The Cosmopolitan was a short-sale that a client of mine made an offer on about three months ago. The bank refused it. They’ll probably end up getting less than what he offered.
Lucas: An excellent study! Congratulations. As you note, the condo market prices will probably stabilize at the end of 2008, but it may take another 7-8 years before the slack in supply is taken up. Therefore, price appreciation will not occur for many years after the bottoming of 2008. This by the way is perfectly normal. Most real estate cycles take 7-8 years. People forget that for most of the 90’s Miami homes did not appreciate more than 5-10%. The 2000-2005 boom was an aberration. The one element that may contribute to a somewhat faster recovery is the cheapness of… Read more »
“When I talk about the market bottoming, I’m talking about price. I wasn’t referring to supply.”
I know you were referring to price. My point is: how is price supposed to stabilize with such a huge supply? Like I said, price is decided by supply and demand. Prices will continue to fall as long as there is excess supply.
Once we’ve got a normal level of supply, prices will stabilize. I just don’t see that happening in 2008 or 2009. Especially if the supply is due to increase even more in that time frame.
Great post, really interesting data you’ve presented!
So you think prices will drop below what the bulk buyers pay?
I worry about what the bulk buyers will do to some of the premium buildings. They are in to make a fast buck, and they will, by dint of the fact that a developer or bank in trouble will give them a discount to get the “assets” off their books in large numbers.
However, a hedge fund is not going to have an interest in maintaining or fitting out these units. They will flip for a % more. The buildings will deteriorate in the meantime, and every other unit owner will suffer from this.
“So you think prices will drop below what the bulk buyers pay?” No–assuming they buy at a price that would allow them to profitable rent the units out. But what does it matter what the bulk buyers pay? They’re going to try to re-sell them for whatever they can get on the open market. They’re motivated by profit like any other investor. Let’s say one of these bulk buyers puts their inventory back on the market. If comparable condos are selling for $400k in other buildings, they may undercut them, but they’re still going to want to get the most… Read more »
If prices aren’t going to fall lower than what bulk buyers pay then I’m saying that will mark the bottom of the current cycle. My statement had nothing to do with supply but rather when prices will bottom.
Private equity will get outrageous deals buying in bulk, but it will be 2011 before an individual buyer can get a sub $200/sqft condo, which might end up being less than 100euro a ft by then
thank you for such valuable info. i have been traveling to south florida for the last 7 years and i am finally thinking of buying a condo since i am there so much and plan to retire. maybe it’s my time 2008. thank you and please continue to inform us.
“If prices aren’t going to fall lower than what bulk buyers pay then I’m saying that will mark the bottom of the current cycle. My statement had nothing to do with supply but rather when prices will bottom.” If price is a function of supply (and demand), then how can a bottom be called without taking into account the market supply? As far as bulk buyers go, yes–maybe they’ll get a price much lower than what an individual could get. But how does that benefit an individual who wants to buy a condo but doesn’t want to buy before the… Read more »
Sorry to post again, but another analogy to illustrate my point about bulk buyers: Let’s say a major retailer buys an item in bulk (and thus gets a much lower price than if I bought it as an individual) and pays $5 per unit. What they end up selling it for has nothing to do with what they paid for it. They’ll still sell it for whatever consumers are willing to pay for it. If the product can be sold for $20 per unit, that’s what they’ll sell it for. They’re not going to leave money on the table for… Read more »
Foreclosures will be what drive prices down, not mythical bulk buyers. After the banks pay carrying cost on these overpriced condo’s for 1 or 2 years and they start dumping them on the market thats when we will see what these units are really worth. Get ready for a 50% price cut FROM CURRENT LEVELS. Flippers paid 375K for a 1 bedroom. Flippers paid 600K for a 2 bedroom REAL PEOPLE pay 125K for a 1 bedroom. REAL PEOPLE PAY 190K for a 2 bedroom Flippers are gone, the psycology has changed. Only real people will be buying these condo’s… Read more »
Chris, why stop at an arbitrary 50%? why not 30%? 20%?
We have a condo auction in the Boston area scheduled for mid- December. These units will have minimum bids of 50% of last asking price. The developer will offer 15 units absolute and there will be unsold inventory remaining.
We have not had the extent of mortgage fraud here so our prices have more accurately reflected the supply and demand curve.
Another auction of new construction two weeks ago. The developer pulled 13 from the auction due to lack of demand. The 17 auctioned units went for 30% off Aug./ Sept closed sales. 40 unsold units remain!
I agree with Lucas 100% when Hedge Funds Come in aand buy in bulk from banks that will mark the bottom of priuces on the market, it will take at least another year to absorb them but the hedge funds and venture Capital funds have the capital to carry these condos for 5 years, they are not planning on buying them repainting them and flipping them next month. They need to have them rented and managed so they can at least cover maintenance fees, and property taxes and having tenants helps keep up the condos so everybody wins. The proposed… Read more »
Regarding the concept of the bulk buyers causing a fairly quick turnaround in the current market place, there are some factors to consider: Obviously if a large investment group were able to buy all of the currently available inventory and hold onto it, as well as all of the inventory that will be coming on the market over the coming 24 months, they would basically be able to dictate selling prices. However, such a venture is not financially feasible. It would cost many billions of dollars, and might be considered somewhat comparable to the Hunt brothers’ attempt to corner the… Read more »