Abbie Cuellar was one of the lucky ones.
In 2011, after the bottom fell out of the Miami real estate market and property values plummeted, Cuellar and her partner, Delsa Bernardo, were suddenly underwater on the four-bedroom, two-bath house in Shorecrest they had purchased in 2002 for $180,000.
“We had taken out an equity line because we were starting a business, and a contractor we had hired stole our money and fled to Italy,” Cuellar, 56, says.
“We were broke. We tried to negotiate with the bank to lower the monthly mortgage price, but they would not approve it.”
So the couple started hunting for another home in the $200,000 range and ran into a different kind of problem: competition from foreign buyers, mostly from Latin and South America, who had flooded into South Florida, offering to pay for homes and condos above the asking price — in cash.
“We must have looked at 20 or 30 properties and made five to seven bids,” Cuellar says. “And we got outbid every time.”
Cuellar and her partner had given up on their house hunt altogether when, in a stroke of good fortune, their next-door neighbor listed her three-bedroom, two-bath home just north of Northeast 79th Street for $180,000 — and even accepted their offer of $170,000 in January 2012.
But stories with happy endings like this one are the exception for most people trying to buy a moderately priced home in Miami-Dade County today. Inventory is tight: In the fourth quarter of 2018, there was a total of 995 single-family homes priced under $300,000 in the entire county, with an average of 330 homes sold each month, according to the EWM Realty International 2019 Real Estate Outlook report issued in January.
The situation doesn’t seem to be improving: In mid-May, only 872 single-family homes were listed for $300,000 or less in Miami-Dade, with 677 in Broward County, according to real estate website Zillow. For those with a bit more money, the options increase: In the $300,000-350,000 range, another 531 single-family homes are offered in Broward and 514 in Miami-Dade.
And as South Florida continues to grow into an international destination beyond vacations and beaches, locals must compete with cash-rich foreign and out-of-state buyers, whose growing presence keeps driving up land and housing prices while local wages remain stagnant.
After the 2009 recession crippled Miami’s real estate market, foreign investors pulled the industry from the brink of disaster by buying up distressed and foreclosed homes and condos in huge numbers — often paying bargain prices in cash.
The economic and political miseries throughout Central and South America became a blessing to the local real estate market. Foreign buyers used Miami real estate as a safe place to park their money during the upheavals in their countries, often not even bothering to rent out the condo units they had purchased.
Miami real estate also became a hotbed for money laundering, with shady buyers using anonymous shell companies to snap up homes and condos in a seller’s market, driving prices up. In 2016, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) launched a dragnet to combat money laundering in Miami-Dade and Manhattan real estate. The ongoing effort has since spread to a total of 10 cities.
Between 2009 and 2017, more than 20 percent of Florida’s real estate buyers each year were foreign, putting the Sunshine State well ahead of California and Texas, the next two states most popular with international buyers. Only in 2018 did the percentage drop below 20, with 19 percent of Florida’s buyers coming from abroad.
That influx continues today. According to the Miami Association of Realtors, foreign buyers spent $8.7 billion on residential properties across Miami-Dade, Broward and Palm Beach counties from August 2017 through July 2018, up from $7.1 billion over the same period year over year.
The current amount is nearly double the $4.4 billion foreign buyers spent in 2010, when the industry began its slow recovery from the recession. The number of transactions has grown as well. In Miami-Dade, foreign buyers bought 14,300 units in 2018 — up from 10,800 units in 2015.
Unlike some countries, where foreign buyers face significant restrictions, the U.S. puts all buyers on the same legal footing. The same tax rates and laws apply to all, said Louis Archambault, a partner at the Saul Ewing Arnstein & Lehr law firm.
“There may be different laws that apply as to how the capital is brought into the U.S. and, upon sale, how the sales proceeds are treated,” he said. “But from strictly a property ownership standpoint, the United States does not differentiate between foreign and U.S. buyers.”
New York, New York
Then there are the out-of-state buyers. Since President Donald Trump’s tax reform plan capping the deduction of state and local taxes to $10,000 went into effect in 2018, a flood of wealthy residents from New York, California, New Jersey and Illinois have flocked to Florida — most of them to Miami — which has no estate or state income taxes. According to a report in the Wall Street Journal, Florida had the largest gain of domestic migration from July 2017 to July 2018, while New York had the biggest population loss.
The construction industry has benefited too. Florida ranked third in a list of states that added the most construction jobs between March 2018 and March 2019, according to the Associated General Contractors of America. Florida added 24,100, for a year-over-year growth of 4.5 percent. (Only Texas and California added more.)
All the investment has been a boon for local government coffers. Breaking out tax revenues generated strictly by foreign buyers is impossible. But according to the Miami-Dade County Office of the Property Appraiser, the total countywide taxable value rose from $187 billion in 2011 to $290 billion in 2018 — one indication of the financial windfall generated by Miami’s growing multicultural population. (U.S. Census stats show the average daily population in Florida grew by 781 people per day from 1998-2018.)
Those revenues have been critical. Miami-Dade property taxes generated $1.9 billion in revenue in 2018, comprising 35 percent of the county’s overall $5.4 billion operating budget.
That’s nearly a $1 billion increase over 2011, when property taxes generated $1.2 billion in revenues, or 28 percent of the county’s overall $4.5 billion operating budget.
But the downside of all the international interest: Home prices keep soaring. According to the Miami Association of Realtors, prices for existing single-family homes and condos have shot up 103 percent and 120 percent, respectively, since 2011.
In the first quarter of 2019, the median sales price of single-family homes in Miami-Dade rose to $350,000, a 3.9 percent increase over the same period last year. The median price for existing condos went up 4.3 percent year over year, from $230,000 to $240,000. Median sales prices have risen for 29 consecutive quarters, or a streak of 7.25 years.
In Broward, the median sales price for single-family homes in the first quarter of 2019 hit $355,000, a 2.9 percent jump year over year. The median sales price of condos was $165,000, a 3.1 percent rise year over year.
“Real estate is the backbone of the economy, and population drives real estate,” says Lynda Fernandez, chief of communications for the Miami Association of Realtors. “We used to be the sun-and-fun capital, but now we’re a business center for financial and tech companies. With the growth of a big city comes more interest and people. And the data we’ve looked at shows foreign buyers don’t impact affordability that much, because they tend to buy more expensive properties than local buyers.”
Fernandez points out that median sales prices in Miami-Dade are still below their peak from 2005, when they stood at $380,000 for single-family homes and $272,000 for condos.
The cash advantage
But others argue that the influx of foreign and out-of-town cash has a ripple effect that goes beyond prices. Foreign buyers’ ability to pay hefty 50 percent deposits in cash for high-priced luxury homes and condos led developers to cater to that market, at the expense of more modestly priced properties.
Often, those omnipresent construction cranes dotting the Miami skyline are working on a building aimed at newcomers and the second-home crowd — not full-timers who have lived here for a generation.
“One of the things that makes Miami so wonderful — the influx of foreign investment here and the fact that 50 percent of our population is foreign-born — is also one of the things that is causing land and homes and units to be unaffordable,” says Shahrzad Emami, director of the affordable housing and community development practice group at Legal Services of Greater Miami Inc.
“We have experienced a tremendous amount of gentrification in Miami in the last 10 years in neighborhoods like Little Havana and Overtown and Little Haiti,” Emami says. “After the recession, during the five or six years when everyone stopped building, foreign investors bought a lot of land and buildings in those areas and held them. Once the market started coming back, they flipped those properties or turned them into market-rate or luxury buildings themselves. None of those areas are owned by the same people who owned them 10 years ago.”
Another change: The majority of foreign buyers who snapped up luxury properties during and after the recession as investments either never lived in them or used them as a second or third home. Now, there’s a new wave of middle-class foreign buyers who are relocating to Miami because of its diverse mix of cultures and the educational opportunities it provides for their children.
“These are educated, middle-class people who are coming here with $100,000 or $200,000 to purchase a house, and many of them have established businesses back in their native countries that provide a source of income,” says Helens Piņiero, owner of Epic Title Group, who has seen a dramatic uptick in the number of foreign buyers who are relocating to Miami with their families. “A lot of them come here to put their kids through school. They’ll usually also say that they have a friend or know someone who bought a condo here.”
Piņiero says that aside from their ability to pony up a large down payment, foreign buyers have another edge over locals who are competing for the same mid-price home or condo.
“When the foreigners need a bank loan, they don’t mind taking one with an adjustable interest rate, because that’s the only kind they can qualify for, and they can afford it,” she says. “Brokers will always steer their clients toward these foreign buyers over local residents who require stricter loans or may be saddled with college or credit card debt.”
A seller’s market
The intense competition is forcing buyers to be more flexible in terms of size, location and amenities. Jon Murphy, 32, moved from Dallas to Miami three years ago for a job opportunity as a purchasing manager for a food supplier. He and his wife, Sarah, rented a three-bedroom, 1,700-square-foot house in Coral Gables for $3,000 — a steep increase from the $2,100 rent he had paid in Dallas for a larger, top-floor condo — to acclimate themselves to the city before deciding where to buy.
“We were looking in the $300,000-$350,000 price range, and we wanted a three-bedroom house because we have a large dog and were planning to start a family,” Murphy says. “We wanted to live in a walkable area and a neighborhood that would retain its value even if the economy went south. We also wanted something with public parks. We didn’t want to do Brickell.”
The couple searched in South Miami, but the houses they liked were out of their price range or needed too many repairs. They switched to condos and considered a 750-square-foot unit in Coconut Grove but decided it was too small.
Eventually they settled on a 968-square-foot, two-bedroom, two-bath, gut-renovated condo in Coral Gables with water views that was listed at $399,800. Because the unit needed new hurricane impact windows and other renovations, the price was negotiated down to $355,000. After a 20 percent down payment, the couple’s monthly mortgage payment, including association fees and insurance, is $2,500.
“We feel pretty good,” says Murphy, who now has a 7-month old son. “We are not saving as much as we’d like, but we are fiscally conservative. Both of our parents retired at 60, and they instilled good values in us.”
Christopher Iduate, 29, a civil engineer for Kimley-Horn and Associates, also adjusted his expectations when he set out to buy his first home with his fiancée in the $400,000 price range.
“We didn’t want to rent from the get-go, so we lived with our parents and saved up for a 20 percent down payment before we started looking,” Iduate says. “We wanted to live closer to work [in Coral Gables] so we looked in Kendall, Westchester and South Miami. But a lot of the homes we saw in our price range were not in great condition. We would have had to put in a lot of money upfront [in addition to the down payment] to replace the roof or make sure the property was up to code.”
The couple also did their homework, checking public records to see if the price of a property had been artificially inflated by an investor who was trying to flip the home.
After a yearlong search, the couple settled on a two-bedroom, 800-square-foot condo in South Miami for $264,000.
“The building is an old army barracks from the 1950s, the community is good and we have a 15-year mortgage,” says Iduate. “Our monthly payment is $2,100, which is what we would have paid in rent if we had moved to Brickell. It’s a great location and has great potential as an investment.”
Iduate says the plan is to eventually upgrade to a bigger single-family home after they’ve amassed enough equity in their condo. But Brad O’Connor, chief economist at Florida Realtors, says the high cost of housing is causing many owners to hold onto their properties longer than usual, which further exacerbates the scarcity of medium-priced homes.
According to the 2019 EWM Realty International market insight report, the existing supply of single-family homes priced below $299,999 in Miami-Dade is a scant 2.2 months, and Broward’s stock is equally tight at 2.1 months. (An optimal market should have between six to nine months of supply.)
In the $300,000-$999,999 price range, supply is a little higher — 5.3 months in Miami-Dade and 3.8 months in Broward — although still not enough to satisfy demand.
The supply of condos below $299,999 in both counties is better — six months supply in Miami-Dade and 4.3 months in Broward. But the stockpile of condos between $300,000-$999,999 starts to show a glut, with 21.6 months in Miami-Dade and 11 months in Broward.
“Many of the people who are holding onto their houses are locked into record-low mortgage rates, and the lessons from the last cycle are still imprinted in their heads,” O’Connor says. “People are still wary of that, so there are fewer listings. And new home construction [in the $300,000-$400,000 price range] is moving at a very slow pace. We overbuilt a decade ago, but we ate into that pretty quick and we haven’t made up the difference.”
Cuellar, for one, isn’t moving, even though she says she has gotten a lot of offers from people asking if she is interested in selling her house.
“My mortgage is $1,415 a month including taxes and insurance,” she says. “We went solar, so I pay $20 a month for FPL. And even though our house has gone up in value, that’s just an illusion. Unless I move out of Miami, the increased value isn’t going to help me, because you can’t even find a house for $300,000 now, and even those are [shabby] houses.
“Our kids will never be able to buy a house in Miami if this continues,” she says. “I’m a true believer in capitalism. If you’ve got the money, you should be able to buy. I’m not against foreign investors coming here. But we are pricing everyone out of Miami. Is this still good for people who live here? At what point does this stop?”