Miami & Miami Beach Condo Trends – February 2008
February 26, 2008 by Lucas Lechuga
Since the January 2008 update, the overall condo supply in Miami-Dade County has increased about 10.3 percent. Most the increase, however, was due to a 25.1 percent increase in the $0-$249,999 price range, where about 41 percent of the overall condo inventory resides. The $250,000-$499,999 and $500,000-$999,999 price ranges had slight increases of 4.5 percent and 2.8 percent, respectively. The $1,000,000-$2,499,999 price range had a big drop of 25.6 percent and the $2,500,000-$4,999,999 price range had an even bigger drop of 39.8 percent in its condo supply.
As many would expect, the lower part of the market is experiencing the most problems, mainly due to it now being much more difficult to obtain financing for those looking to buy in this segment of the market. Those in the market to buy a condo for over $1M, oftentimes, can do so without any financing whatsoever.
The following statistics encompass only those condos located throughout Miami (not other areas of Dade County such as Miami Beach, Aventura, Sunny Isles Beach, etc.):
Miami has continued its upward climb in condo supply this month with a 24.3 percent increase since last month. Again, we see that the lower and upper parts of the market have performed quite dissimilarly. The condo supply in the $0-$249,999 price range has increased 20.6 percent while the $250,000-$499,999 price range has gone up a shocking 62 percent. On the flip-side, the condo supply in the $500,000-$999,999 price range has gone down 26.7 percent and the $1,000,000-$2,499,999 has dropped almost 50 percent.
The following statistics encompass only those condos located throughout Miami Beach:
Overall, Miami Beach experienced a 19 percent drop in its condo supply levels since last month. I was a bit surprised but I probably shouldn't be. Miami Beach did not come close to experiencing the level of development that we recently saw in Miami. Foreign and out-of-state buyers are also much more likely to buy a condo in Miami Beach than they are somewhere in Miami. I think we will continue to see a widening gap between the Miami and Miami Beach condo supply figures in the months ahead.
One wonders how many of the upper end $1M+ condos on the MLS were sold versus just taken off the market? Agreed, the foreign buyers want the beach, not inland, but that too will decline once the initial foreigner demand is satisfied and people realize prices are going to continue to decline.
I think it is important to look at why the supply decreased rather than just looking at the numbers.
If the supply decreased because of sales, that is a good thing. More likely, the supply decreased because many condos were taken off the market. They may end up right back on the market at some point in the near future.
I’ve noticed this trend in the past, where the supply may dip during the “season”, when out-of-towners temporarily take their condos off the market while they are in town, only to re-list them during the “spring selling season”. Others may have just been rented temporarily.
Another important thing to note is that you can’t draw too many conclusions by segmenting the market by listing price. It could be that listing prices are falling – thus pushing a previously $1M condo down into the $999k and under range, a $500-999k range condo falling into the under-500 range. This would make certain price segments look like they are falling in supply, when in reality they are just falling down to the next price segment.
If the overall supply of condos is increasing (which it is), then I would pay close attention to exactly what is happening among those pricing tiers.
There may be some disconnect in market segments, but they are not insulated from each other. I think a building-by-building breakdown would be more useful (not suggesting this – that is a lot of work, but definitely more useful). Maybe pick a “basket” of representative buildings for each area and track the inventory in those.
my building opera tower is the number #1 condo in america.
tibor,
hahahahaha
Many owners keep their units listed for sale even though they may have filled them with tenants which will not move for at least 6-12 months. I often see in the MLS “This unit is rented until xx/xx/xxxx. This is something a buyer is not interested in anyway so your inventory of condos in a position to actually resell to an end-user is not as large as these statistics show. It would be virtually impossible for Lucas to go through and make the distinction of actual closeable properties but I thought it should at least be mentioned.
With a 6.31 YEAR supply, I doubt it makes much of a difference Samir. But thanks for sharing. I would also point out that condos under construction also aren’t on the MLS generally. With a 20 year additional supply that was being added, that 6.31 year supply could grow to a 10 year supply.
The MLS availability numbers are much lower than actual units available. My condo in Miami Beach has 10% of the units that are for sale by owner. Add all the units that were bought in bulk and units rented by developers and the numbers are much worse.
These are all great points made by everyone here. Bottom line is we are trouble unless things turn around. A couple of points I would like to add. How many more months until unit owners who recently closed on new construction run out of cash with the negative they have on the units. Also, I would like to address the rampant mortgage fraud units that have not even come to the market. I know units on the beach that falsely got appraised at $800K and now are literally worth $400K. This is a big problem especially when regular sales are going to have to match the foreclosures if they want to sell now!
So one question answered by the realtors. Years supply in the $1m range is now nearly 9 years.
There appears to a be a massive problem with the data though – you will also see in the next six month, years supply falling as non-MLS units such as closings on Paradiso, MEI etc, falsely boost the no of units closed.
If my understanding of the way this data is compiled is correct, it can actually be quite misleading.
Lucas- can you clarify? Are the closed sales from government data and the available is from the MLS?
If my analysis is correct, you need to do some kind of “seasonal adjustment”, so when a big project closes in Miami/Miami Beach it does not distort existing sales on existing inventory, just like a retailer reports same store sales to the market.
Otherwise you get a situation say in March 2008 when 100 ‘new supply’ units on the beach close and therefore make it look like there is only 1 years supply.
(if my understanding of the data is incorrect, please advise)
Julian,
That’s not correct. New construction closings do not appear as closed sales in the MLS. The data above is strictly from the MLS.
http://www.nytimes.com/2008/02/26/business/26econ-web.html?ex=1361768400&en=92b6997853438827&ei=5124&partner=permalink&exprod=permalink
“A recent report by analysts at Credit Suisse, the investment bank, said that prices in some metropolitan areas like Phoenix, Miami and Los Angeles would have to decline by 20 percent to 40 percent more than they have already fallen for home affordability to be restored to its long-established level.”
Lucas – thanks, stand corrected. So it is more of an existing inventory on existing sales comparison.
My second question – what was the monthly or annual Miami Beach sales rates in 1997-2002/3? I.e. are we now at a normalised sales rate (72 units per month?) based on these years? What is the number of units in the housing stock today (pre-new construction closings in 08/09) versus say year 2000?
I think this will give us a good idea of how far from bottom we are (I am not convinced real estate drops like equities do by the way). I’ve done the numbers nationally, existing home sales would fall to around 4m if you calculated sales as % of housing stock of the last 2 bubbles at their peak/trough.
Would love to know the Miami Beach numbers (which would be more stable from 1997 onwards versus Miami itself)
Off topic question (sorry about that) – does anyone know if La Perla in Sunny Isles is valet ONLY parking?
Lucas,
Did you change the formating of the comments? The font is now very small and hard to read…
I know. I’m not sure what caused it. Something within the comments is causing it because the front page is not having this problem. I’m having my developer take a look at it.
Maybe something in your related posts pluggin. The font seams to be the same size as that.
OFHEO just relieved some caps on FANNIE MAE and FREDDIE MAC which will open up billions for them to lend out in the mortgage markets. this was a big shackle taken off their necks. don’t know if it will help the miami condo much …but it’s a step … a very slow step to helping potentially stabilize the lockup in the lending markets. we won’t see the prices of the past few yrs again (maybe not for 5, 10, 15 yrs)…but maybe it’ll help somehow.
i’m realistic about the r/e markets as many who write here are. we are smart guys here … anyone have ideas of how this situation can be somewhat stabilized/improved? besides the big price correction that’s necessary … trying to think outside the box and see if theres any unconventional manner which could suddenly hit the markets and stabilize it (even at these still higher prices)? any thoughts anyone?
Cyrus
(1) dismantle/raze to the ground and convert back to parkland/everglades some condos and some communities. Protect these lands for the future. CHange your zoning policies and make permission much harder to get in the future. Building profligacy always ends in teas.
(2) taxes. Cut property tax to either 1% of value or put property in bands with inflation adjustment to the $ tax in each band. Raise additional revenue, initially through sales tax, but then income tax for earnings made in state of Florida. It’s going to happen, just make it happen.
(3) Keep inflation high, rates low. Inflates away the debt load, destroys purchasing power of the $ – but it is the classical economist way of re-balancing nominal borrowing with earnings. I mean 4.3% inflation and, say, 2% fed funds rate. Will help…
(4) Help understanding that the volume of transactions seen in the boom is as much an aberration as prices. Educate people that transactions should be seen in the context of % of the housing stock not 6m, 5m, 4.9m etc.
“… anyone have ideas of how this situation can be somewhat stabilized/improved? besides the big price correction that’s necessary … trying to think outside the box…”
The simplest solution to the situation is to let the market correct itself. I don’t see any reason to try and artificially “prop-up” the market. Who does that benefit, other than some speculators who paid too much for their property?
There are plenty of people who want to move to Miami (and South Florida, in general) but can’t afford it. By all objective measures, there is currently a net outflow of people from Florida. Plus, the Carolinas, Tennessee, and Georgia have replaced Florida as the retirement “hot spot”. I think a great deal of that has to do with a lack of affordabilty in Florida – not a lack of desirability. Hurricanes were certainly a factor, but if we have a few more years without any big hits, people will forget.
The best thing that could happen (albeit unrealistically) to the market would be a very sudden crash in real estate prices. If prices went way down overnight – sales volume would go through the roof because you would be opening the market back up to all the people who simply can not justify paying even today’s “discounted” prices. Taxes and insurance are another problem, but those would gradually have to come down if prices did the same and we return to a normal storm pattern.
Unfortunately, it will most likely be a gradual overall decline in prices (with some of the real decline masked by inflation) followed by years of stagnant prices. Sure, some buildings will “crash” very quickly, but they will most likely be the most undesirable places to live (certain downtown condos).
I won’t be surprised if at some point in 2008 we see a year-over-year increase in sales volume. Real estate cheerleaders will see this and declare that the “market slump is over!”. But the truth is, it simply can’t get much worse in terms of sales volume. So, an increase in volume (due to decreased prices) is not unlikely. However, it won’t stop prices from falling until the supply is absorbed. Even if we returned to boom-level sales volume, we still have a muti-year supply of condos and homes.
Thus, the situation will not likely improve anytime soon. The huge market supply has to be absorbed before we can declare the aftermath of the bubble as history.
The Ponzi scheme mentality of the 1920’s market is still here, all we need is another hurricane like the one in 1926 to finish the game. Anybody here know what Three-card Monty is? The Realtors, developers lure the mark in with prospects of easy money and future gains. The mark then buys a condo in a up and coming area only to be alerted by the county court system that in fact the game really consists of liens, foreclosures,and contractors liens. The building department and government are also involved. They are the ones that made impact glass code approved for high rises. Without that glass you would not be able to build floor to residential skyscrapers. Problem is once the glass cracks you have to replace it. The government will still receive new permit fees to replace the glass and collect property taxes on buildings that are damaged so it really doesn’t care. The developer will move on the next street corner to repeat the process. The bulk buyer is also involved hiding excess inventory. Watch out for him.
cyrus
that’s a tough question. on one side of it, bfg is absolutely right – the only way this gets fixed is if you let it fix itself, i.e., let prices return to the fundamentals. not to mention, the moral hazard implications that are triggerd in trying to effectuate a solution are concerning. the gov’t didn’t save my ass when i bought CMGI when it was hovering at $150 a share (post split) and then proceeded to get crushed, so why should speculators in real estate fare differently? our system handsomely rewards risk takers when they are right. conversely, when they are wrong, they bear the brunt of their decisions. same logic should apply to housing.
flip side is that housing, unlike stocks, has a different societal connotation in this country, i.e., owning your home is part of realizing the “american dream” (i’m on a patriotic bent today). thus, if there is a gov’t bailout, in effect you’re really attempting to save something more than some tangible asset , notwithstanding the fact that along the way, you’re saving some (speculators) who shouldn’t be bailed out in the first instance. throw in the fact that housing takes years to correct , some would suggest that a fall in housing has significant long term economic implications for this country that must be addressed (unlike crappy internet stocks).
all that said, way i see it, there’s already a system in place to fix this entire mess – bankruptcy (at the personal and corporate level) coupled with the free market process. any artificial prop up will only prolong this housing downturn. let prices be freely determined. if that means condos in south of fifth overlooking the water are worth $2,000 sq/ft while brickell comes in at $150 sq/ft (regardless that it cost $200 to build it), so be it.
As a realtor we need a hurricane to speed up the process 🙂 Little by little we see the decline in the market. The sooner the better! I still see agents over price units. It is so frustrating, when these units will not appraise and you can clearly see that the same unit on a lower floor is priced $200k lower. All these realtors are doing is flooding the market wth units that won’t sell.
Generalmagic – As a realtor, what pricing needs to be considered to move product today? As an example if preconstruction was $350 psf on 12/03, where is the market today? Is there any traffic that’s purchasing?
I think we are going to go below those prices. But it all depends on project! Quantum is a building that really should hold up well. I think prices there are around $250 psf. I see a lot of buyers shopping around with offers being made at about $100K below asking. I work on the beach and I mostly see foreigners actually closing on deals. It is just tough and we are slowly reducing prices. I wish it would just happen apready!
Lucas
The 19% decreace in Miami Beach inventory month over month given the amount of closings
makes the data seem very shaky no? I realize that Miami Beach is a very different from Miami
but we all watch the market closely. One has to wonder if this is in fact some kind of negative indicator of something ominous? Maybe a chunk of inventory is moving off MLS & into bank or auction category? Either way, if that
statistic was a valid & positive reflection of the market I think its safe to say it would be plastered all over the media 24/7.
Proflipperate: When flippers entered the condo market, condo construction proflipperated to levels never seen before. Now prices are continuing to proflopperate downward over the next three years.
Lucas or Samir or Anyone who knows,
Kind of off topic but, what experience have you guys had with bulk condo sales? I hear from some that it is a waste of time, but others seem to be excited about the opportunities.
Generalmagic – Just to understand where the current bottom is are you saying a project like Quantum is as much as 30% below a 2003 $350 psf preconstuction price?
If that is the case why would anyone close going forward.
Lucas – Any word on when the WSJ article will be released?
NJ, I’m not sure. I thought that it would be released by now. The reporter did say that he thought it would come out some time this week. There’s never really a way to know though since it all depends on what other stories they want to print for the following day.
Juan,
I used to get calls for these a couple times a week but I used to shun them off because most of the developers have just begun closings so the bulk deals don’t tend to take place until the developers have closed every possible unit they can close. Every building is on a different schedule but I do expect the bulk buyers to resurface soon. Some either only want oceanfront or they want affordable waterfront. I would expect them to buy and hold for 3-5 years and slowly sell off product after that term.
Lucas said: “The $1,000,000-$2,499,999 price range had a big drop of 25.6 percent and the $2,500,000-$4,999,999 price range had an even bigger drop of 39.8 percent in its condo supply”
I just looked back and compared the above numbers to January and realized why some of those changes were so dramatic:
– First of all, on first read, I thought you meant that the number of units on the market decreased 25 and 39%. In fact, you were referring to the “months of supply”. You might want to emphasize that. Because in raw numbers, the picture looks quite different. Here is the comparison among those pricing tiers:
Price Range:
Month: Inventory / Monthly Sales
——————————————
$1M-2.49M:
January 2008: 1,445 / 20
February 2008: 1,451 / 27
$2.5M-4.9M:
January 2008: 314/ 3
February 2008: 315 / 5
See what a different picture that paints? Number of listings WENT UP slightly for each tier. And the only difference in sales was 7 units in the lower tier and 2 units in the higher one. TWO UNITS!
The reason you ended up with those big percentages is because you’re dealing with such small numbers. And increase from 3 to 5 units sold is a 66% increase in sales volume. Although factual, it would be ridiculous to then proclaim “sales are up 66% this month!”
When dealing with such small numbers it would be better to abandon percentages altogether – it is far too misleading and prone to wild swings from month to month.
I encourage everyone to look closely at the Jan and Feb charts. It does not paint a rosier picture for the higher-prices units. In fact, it looks FAR worse. At least stuff at the lower end is selling in greater numbers. An increase in a dozen or so units out of about 1,900 on the market does not bode well at all for the $1M+ range of the market. I predict this segment will get hit the hardest of all.
Again, the percentages you are posting are highly misleading.
Samir,
I appreciate the response.
BFG – Excellent clarification.
Also note the same thing for the “it’s different here” Miami Beach area:
Price Range:
Month: Inventory / Monthly Sales
——————————————
January 2008: 4282/ 58
February 2008: 4299 / 72
A small increase in number of condos on the market, and a 14 unit increase in sales.
A 14 unit increase in sales out of about 4300 still on the market – doesn’t paint a very rosey picture to me.
I think it is clear, with more condos coming online, that the available condo units will continue to far eclipse the monthly sales. I wouldn’t doubt a 100 month supply is on the horizon by the end of the year.
Therefore with so many Miami condos on the market have they become a simple commodity with radical price swings and volume discounts?
How does an owner differentiate their product to move it? Location had been important but after looking on-line at 50 condos within a narrow price and location, only two popped due to furnishing/staging. It may be superficial but realtors must have a difficult time getting people to clean up or update the older properties that have 20-30 year old stuff.
Putting the following in perspective…
Price Range:
Month: Inventory / Monthly Sales
——————————————
January 2008: 4282/ 58
February 2008: 4299 / 72
Lucas’ stats are inventory at month’s end. So 4282 was ending inventory in January. 4282 – 72 sales in February + 89 new listings in February = 4299 listings at end of February.
Bottom line is that listing are overwhelming appetite for purchase.
someone asked about La perla parking.
It has only valet parking
lara
I ended up asking the realtor that had the rental listing and he said that it was my choice, valet or self-park in the La Perla????
FORECLOSURE ACTIVITY INCREASES 8 PERCENT IN JANUARY
http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=4148&accnt=64847
This is not pretty. Miami is looking at another 8% loss next year, and a 25% haircut in the next 4 years. In my opinion, that is being kind. Factoring in the new hyper inflation of at least 3-5% per year, condo owners, hotel conversions, half occupied developments, and over supply will shave some 50% in inflation adjusted prices off some neighborhoods. Yes, I said 50%. You heard it hear first.
Don’t believe me? Take a drive to Miami and see all of the unfinished condos. Travel to West Palm Beach and marvel at the numerous abandoned condo projects. Think these builders like Lennar, WCI, Toll, Centex, etc. are going to stop building and adding to the already bloated supply of inventory? Not a chance. They are like sharks that either swim or die- they either keep building or go bankrupt.
From:
http://southfloridarealestatebubble.blogspot.com/
great site! thanks.
please, take a look here too:
http://floridaoceanfrontcondosmiamisunny.blogspot.com/
[…] Earlier this afternoon, someone left a link in the comments area of a previous post to a Florida Association of Realtors article that reveals an improvement in real estate inventory levels for the state of Florida in the first quarter of 2008. I wanted to see how the Miami and Miami Beach condo markets fared in comparison, so I decided to provide new supply figures for May 2008. My last Miami & Miami Beach Condo Trends report was published in February 2008. […]