Article Courtesy of Market Watch
By Sep Niakan
Published November 9 , 2016
All signs lead downward for the Miami condo market. In
the latest Q3 condo market statistics for the Greater Downtown Miami and the
Miami Beaches, prices declined slightly by 1.4%, and all other leading
indicators are soft; In other words, the market is likely to take a further
This has been the
slowest 3rd quarter since 2009 for Miami condo sales. This
latest quarter's numbers expose a year-over-year 25% decline
in condo sales volume in the Greater Downtown Miami and the
Miami Beaches, with 1,213 sales in Q3 2016 versus 1,615
sales in the same quarter in 2015.
One of the ways to gauge the health of a real estate market
is to look at the absorption rate (aka months of inventory),
which is the number of months it would take to sell all the
properties currently on the market.
The rule of thumb for a balanced market in Miami is 6-12
months of inventory depending on the type and price point.
If we are under 6 months, sellers are in control and prices
typically go up. If we are above 12 months, buyers are in
control and prices typically go sideways or down.
We are currently at a whopping 24.5 months overall
inventory. (Using sales pace from past 180 days, as of Oct. 24.) With this
glut of inventory, it is increasingly likely that we will see more downward
pressure on prices until the inventory dissipates.
When sales slow down and owners are not able to get the price they want,
they have two choices: Accept reality and sell for the lower market price or
hold on to the property, and wait for a better market.
Because of the current market realities, many condo owners have decided to
place their units for rent, and thus rental competition has increased. A
large number of new construction properties have significant rental
availability, which makes sense considering that 70-80% of the buyers were
foreign nationals, many of whom don't intend to move in.
On top of that, if you have driven through Miami lately, you will see a lot
of cranes. What you may not know is that a significant percent of those are
for new rental buildings, not condos.
With all these rentals, no matter how much demand there may be for Miami,
rental prices are likely to see pressure as well. And when rental prices
fall, sales prices must follow. One rule of thumb is that when rental prices
fall, sales prices fall harder, at about twice the rate.
Before the sirens of a bubble burst start blaring, this imminent correction
of the Miami condo market is not a repeat of the real estate crash of 2008.
We are past the days of lenders handing out no-documentation
zero-down-payment loans and developers selling multiple units with 20% down
payment. Post Great Recession, cash buyers have fueled most condo purchases,
and most developers require 50% down payments from their pre-construction
This has been a long 6-year upcycle of price increases for the Miami condo
market, so a normal market correction is a bit overdue. In January of 2011,
condo prices in greater downtown Miami and Miami Beaches hit their lowest
median sale price of the decade at $163,225, while the median sale price in
January 2016 was $325,000, an almost 100% gain in 5 years.
Steep price increases of this upcycle have made Miami a more expensive
market to buy in, although still inexpensive compared to most major global
So where have all the buyers gone? South Americans and Europeans
historically make up a big percentage of the Miami condo buyers. In the
summer of 2014, the U.S dollar started to climb against most foreign
currencies, which started a slow but steady decline of buyers from those
continents. From then until now, the euro has lost 36% of its value, the
Brazilian real 43% and the Colombian peso 59% against the U.S. dollar.
In July, when Wynwood was declared a Zika zone (and then Miami Beach) by the
CDC, it became an international story that hasn't quite gone away in the
minds of many. While the areas are no longer Zika zones, some potential
buyers (and tourists) are still cautious about coming to Miami.
Election years are not known to be kind to real estate. And this one is
especially disconcerting due to how unusually controversial both candidates
are. Many foreign nationals are fearful of what a Trump presidency would
mean for them, due to his harsh rhetoric about Mexicans and other comments
meant to appeal to his domestic base, not the international community.
Given signs of market weakness, there are some buyers waiting on the
sidelines. Their hope is that prices drop, so they can swoop in and catch
the next wave of price increases when the dust settles.
Where do we go from here?
The world looks for reasons to come to Miami. And Miami does not disappoint.
Between the new Brickell City Centre mall, Miami WorldCenter, Design
District's ultra-luxury retail, Wynwood's art scene, improvements in public
transportation and many more exciting projects under way, Miami is an
exciting place to live and invest.
All people need is a good excuse, and as any of the above become non-factors
more buyers will jump back into the Miami condo market.