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
of others.

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.

Comments

[Anonymous]

As a follow up on the financing dilemma, is there any financing available right now or do banks not even consider it at this point?

[Anonymous]

Keep in mind, in buildings were prices were initially expected to be in the millions of dollars per unit the condo fees are massive and necessary to keep the building and amenities going. A mortgage might start to become reasonable but if you tack on another $1,000 for condo fees and 2% for real estate taxes in Florida, all the sudden you still have an unaffordable condo. Miami is not NYC, the number of $100K jobs for professionals is quite limited.

I know people who have started looking but once they saw the true carrying cost they said no thanks. You can easily rent a 2 bedroom condo right on the beach for $2,000 a month, the cost to own the same unit is probably at least 2x that.

[anynonmous]

It would appear to me that the author of this post is looking for customers - he also neglects to "clearly" differentiate between Miami the city where most of the condo overbuilding took place and Miami Beach  (not that the latter is any sort of paradise)  - for paradise you need to head a couple of hours west to Collier county 

[Shiznit Diggity]

Thanks for the advertisement disguised as a post. Online advertising is getting so subversive these days.

[Tripps]

i hear other parts of FL like in Orlando are its 80/sf

MIAMI is way overvalued still

[Anonymous]

Couple of comments:

-There is financing available for condo purchases in existing buildings with a minimal number of foreclosures or new buildings that are fannie mae approved. In downtown miami, I would estimate that half the new construction condos are fannie mae approved.

-I agree, I did not clearly delineate between Miami and Miami Beach, as the differences are numerous. Miami Beach is a much more desirable area to live (in my opinion), and did not have as much new construction right at the peak. In my graph however, I was trying to show that the best real estate in Miami Beach, a condo right on the beach, is 50% off. A condo in downtown miami can be had for a bigger discount.

-This post was not intended to be an advertisement. I happen to be working with a few customers that are looking at downtown miami condos as investments, so I thought I would post something on an investment site. We have been looking at 2 buildings built in 2006 downtown where you can buy a condo between 100-130k and rent it out for 1100-1300/mo. You can't finance the purchase, but the return still is quite good.

-Miami is nothing like Orlando. Sorry..

Regards,

Marc (Miami Condo Shop)

[Anonymous]

I have seen / heard that in DT / Brickell prices have been coming down, however, it doesn't seem that rents have dropped too much (at least in the Brickell area).... Especially Icon (what the fuck is with the pricing there?? $1 mil for a 2/2 when only 1 tower is open??)

Do you think renting on Brickell is still a better option than purchasing?

[BabaJ]

I am accustomed to reading high quality analysis on ZH. If I wanted to read biased nonsense disguised as "analysis", I could watch CNBC.

[BabaJ]

sorry double post

[Shylock81611]

When did ZH get into the real estate business?

BTW: Miami is the anal orifice of the USA.

[Anonymous]

Miami is a nice place to visit, but the job market there is as bad or even worse than Detroit (nationally known as the waste land). Most of the money there is old drug money and let's just say that it does not come from extensive investment background. Biz hub of Latin America my ass.

[Anonymous]

Close, but I believe New Orleans actually still holds the title. You can ever see for yourself on Google Earth.

[Anonymous]

I can't comment about Miami condos, but the Parkside condos are the worse ever! Don't move to the Parkside Condos in Maryland Heights, Missouri. They are not managed properly at all!