Miami & Miami Beach Condo Trends – November 2007

November 17, 2007

I’m going to start including a monthly condo trends report. My hope is that it will help to shed more light on the current state of the market. It is likely to be my most followed monthly piece. After the new year it, along with some other newly added statistics such as a rental market index, will become “premium” content. Just wanted to give you all the heads up. I just finished compiling the numbers and I was pretty shocked.

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.