Guest Post: Are Miami Condo Prices Still Too High?
Submitted by Marc Knight of Miami Condo Shop
Are Miami Condo Prices Still Too High?
Lately, you cant help not notice all the "feel good" news
surrounding the real estate market. Home sales are up, inventory is
down, and prices have risen from one month to the next. Bidding wars
are breaking out on bank owned properties. In Downtown Miami,
developers are finally moving some of their inventory after negotiating
with their construction lenders for massive price cuts. Some buildings
have even sold out due to a strong influx of foreign buyers. So, that
makes me ask the question, are Miami condo prices still too high?
Unfortunately, I think the answer is yes, and I'm a Realtor. Don't
get me wrong, I do think that in some segments of the market prices got
too low, and were due for a bounce, the majority of condos in Miami
were over priced at levels where the developers assumed buyers would
have easy access to credit. In today's market, easy credit doesn't
exist, and I would estimate that today 2/3 of all condo transactions in
Miami are paid for in cash.
In order for the market to bottom, we need a return of financing for
condo purchases as well as a return to the historical relationship
between the cost of renting vs. the cost of owning. Investors are
already capitalizing on opportunities where it is much cheaper to own
as opposed to rent. That is putting downward pressure on rental prices
as the market is getting flooded with available units. It will take
some time before the rent vs. own relationship finds an equilibrium.
Furthermore, the recent intervention by Uncle Sam to buy mortgage
backed securities and offer an $8,000 first time home buyer credit has
helped to arrest the fall of home prices. A recent report published by
Goldman Sachs estimates that home prices are 5% higher on a national
average than they would have been otherwise. Their working assumption
is "a further 5% to 10% decline by mid-2010".
It's going to be impossible to time the bottom of this fall in condo
prices. The only way to know that you've hit one is a year later when
you see that prices have been consistently rising and are now in an
uptrend. Prices have already fallen a lot. If you are buy a property
now, you have the benefit of obtaining it at a deep discount. Desirable
areas, like oceanfront property, are likely to do much better when the
market turns around. Below is a graph of the median sales price per
square foot in the Roney Palace, a prime oceanfront condo with over 500
units on 23rd and Collins in Miami Beach.
Currently, you can buy a unit in this building at a deep discount
relative to prices in late 2007. If you were considering one back then,
right now, it seems like a great deal.
If you think we are headed for a decade of slow growth like Japan,
now is not the time to buy. However, if you appreciate that Miami real
estate is truly unique in the fact that its one of the few places in
the world where you could have such wonderful ocean or bay views from
your place of residence, it probably is. What also sets the area apart
is that it is the combination of a major tourist destination (Miami
Beach) with a major Latin American business hub (Miami).
Only time will give us a definite answer to the question of "Are
Miami Condo Prices Still Too High?", but right now its clear that, in
Miami, there are many people currently capitalizing on the misfortunes
The author of this post, Marc Knight,
is a Realtor specializing in distressed property sales in Miami, Miami
Beach, and Sunny Isles Beach. He operates a comprehensive real estate
site and blog devoted to Miami Condos named Miami Condo Shop.