Amidst rising inventory, political changes, and general uncertainty, there has been much speculation around whether the Miami real estate market is heading into a crisis. Looking at all of the factors at play, it is fair to say that the market is in for a price correction, but we are far from talking about a crash. As Anthony Graziano of Integra Realty Resource puts it, “ there’s no distress in the market right now. I think a lot of this pricing correction right now is really just a function of good old supply and demand — and I think that’s good for buyers.”
Influx of Inventory
So why is the price correction in order? There has been an increase in supply in both the condo sales and rental markets because of all of the new construction. There have been and will continue to be a lot of units hitting the market in the coming year as construction comes to a close.
This is particularly true for luxury condos. One of the ways to gauge the health of a real estate market is to look at the ‘months of inventory’ which is the number of months it would take to sell all of the properties currently on the market. Luxury condos in Miami-Dade are currently at a whopping 55 months of supply.
Inventory is pretty high all around with 20 months of condo inventory in Miami and 24 months of single family home inventory in Miami Beach. In some cases, the increase of inventory is leading to price decreases in the Miami real estate market as the supply and demand level back out.
Some condo owners looking to sell their properties are not willing to accept lower prices, and so they are opting to rent out their units instead. This is, in turn, adding more competition to the rental market. A report found that there are also 4,900 rental apartments under construction downtown, in addition to 1,000 that were produced last year. These two aspects combined are helping to create a very competitive landscape in the Miami real estate rental market.
There is an influx of inventory in the Miami real estate market right now, but it is not the start of another housing crash. Patricia Mazzei from miamiherald.com says that “despite the forest of cranes in downtown, the total number of condo units is far lower than during the boom prior to the Great Recession. About 12,300 new condos are expected to be completed in downtown between 2014 and 2019; between 2004 and 2009, more than 21,000 units were delivered.”
Three Reasons The Miami Real Estate Market Is NOT Heading For A Crash:
1. Banks Have Learned Their Lesson
This isn’t 2008. You can’t buy homes for 125% of the purchase price and actually get cash back rather than making a down payment. As Sep Niakan puts it on marketwatch.com, “we are past the days of lenders handing out no-documentation zero-down-payment loans.” Mortgage regulations are much more strict than that now. A 20% down payment is standard, and low 3% down payment options are reserved for qualified low-income first-time home buyers looking to build some equity.
Regulations have also changed for the pre-construction Miami real estate market. Pre-construction projects now have to sell units before they can build, and these sales are subject to the tighter lending regulations as well. According to Brian Bandell at bizjournal.com, “most of [Miami-Dade’s] condo buildings haven’t been approved for conventional Fannie Mae loan or FHA mortgage with low down payments.” This means that people have to come in with more cash down on these units. Jonathan Smoke, chief economist at Realtor.com actually expects the federal government to be more receptive in 2017 to programs that would ease credit for condo buyers.
In addition, lenders now require 50% of pre-construction units to be sold before they can start drawing on a construction loan. “They are very aware of what happened in the last cycle in 2008 and 2009. Those days are gone.”, says Taylor Collins, a partner with Two Roads Development.
2. Buyers Have Learned Their Lesson
The memory of the housing crash of 2008 is still fresh in the minds of anyone who lost from it and the whole country learned from that experience. The investors and buyers of today are in turn much more cautious. According to Robert Banting, president of appraising firm Anderson & Carr in West Palm Beach, “70 percent of the flippers are reportedly paying cash for their homes.” He goes on to say “there’s no irrational exuberance. We don’t see amateurs in the market.” Dan Kodsi, developer of Paramount Miami Worldcenter and Paramount Bay says that “you will not see a mass sellout because these are not people who can’t make their mortgage payments. You will likely see these investor buyers taking their units off the market and renting them out.”
3. Population growth
Florida is the 3rd largest state in the South East based on population. It is also the 5th fastest growing state in the entire country, and the 8th most densely populated state according to countrydigest.org. More than 1,000 people move to Florida each day.
Miami, in particular, is an important destination for international investors. It is an international melting pot with a now more established culture. Miami population grew 10.4% between 2010 and 2015 according to worldpopulationreview.com and this trend is projected to continue.
Inventory might be high right now, but Miami is a strong market with international significance. Florida, and Miami imparticular, are still growing. This means that eventually, the supply and demand will even out and prices that were affected will recover.
Despite signs of a market slowdown, there are reports that sales and median home prices are actually up year over year. As the market absorbs the new influx of inventory, there will be some degree of a price correction, but it won’t be as extreme as some are projecting. The shift will just be to more of a buyer’s market. “There is more inventory on the market [in South Florida] than a year ago and prices haven’t fully recovered so it is more of a value play for buyers than other parts of the country,” according to Smoke.
If you are looking to buy or sell in South Florida, contact one of our knowledgeable agents to get started.