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This Time Is Different: Miami Condo Prices Flatline For First Time In Six Years
Back in March we suggested that slower price appreciation in 2014 might be the proverbial canary in the coal mine for a Miami condo market that has, in recent years, benefited from an influx of foreign buyers. Here’s a look at the trend:
While it’s still “up and to the right” so to speak, the growth rate fell to 16% in 2014 from 20%+ in the two previous years. Cooling prices are in large part attributable to dollar strength, which has hit demand from wealthy South American buyers especially hard.
As Miami’s Downtown Development Authority noted:
“The primary driver for the Downtown Miami Condominium market is foreign investment. At the early stages of this cycle, South American capital was extremely strong versus the dollar and represented significant purchasing power for South American buyers using foreign currency to purchase pre-sale units that were being sold in U.S. Dollars. In addition to the favorable currency exchange rates, South American buyers are typically hedging against their own economies, which experience significant fluctuations due to political turbulence.
Due to the recent advance of the U.S. Dollar vs. most South American and European currencies, the advantageous buying power of foreign investors has been diminished significantly since 2011 (with the exception of China). While the Euro has not diminished as much as the South American currencies, its slide vs. the U.S. Dollar has only recently started and is expected to continue to decrease over the next 6-12 months.”
The trend has continued in recent months and as Bloomberg reports, many developers are now having a difficult time locating buyers as "whole countries" are priced out of the market.
Via Bloomberg:
Downtown Miami’s luxury-condo boom -- fueled by buyers from Latin America and Europe willing to pay half the purchase price up front -- is becoming a casualty of the year-long climb in the U.S. dollar.
Diminished purchasing power and rising prices are holding back the overseas investors that make up the bulk of sales at new towers, cooling a frenzied market.
In response, developers are delaying projects, lowering down-payment requirements and turning their focus to Americans.
“We’ve seen a very strong shift in the last year in the dollar -- it has literally pushed whole countries out of the marketplace,” said Kevin Maloney, founder and principal of Property Markets Group, which is developing Echo Brickell, a 57-story luxury tower that will have a shark tank in the lobby.
“We look around as real estate guys and say, ‘Jeez, who is our buyer?’” he said.
When last we discussed prevailing market conditions, we also mentioned that even as demand abates, construction and land costs are rising, pinching developer margins. According to the Miami DDA's most recent quarterly report, this dynamic has continued to conspire with slumping foreign demand to create a drag on the market:
As land pricing and construction costs continue to increase, either increased end-unit pricing and/or a decrease in required developer/investor returns will be required to achieve financial feasibility of future condo projects. IRR-Miami projects that a number of recent and pending land sales are being made by long-term investors with plans to sell or develop the site in 5-10 years after the current pipeline has been absorbed.
As was noted in the February 2015 report by IRR-Miami, the Miami economy and the growth of the real estate market are not driven solely by local job and wage growth. The continued growth in the Downtown Miami real estate market remains largely-dependent on foreign capital participation.
The decline in foreign currencies compared to the U.S. Dollar over the past 18 months has narrowed the buyer pool. Several brokers have expressed concern regarding the closing ability of mid-level buyers that may not be fully denominated in U.S. currency. There have been early reports of buyers seeking approval for the assignment of their contract to a 3rd party.
But perhaps most telling, is the following updated version of the chart shown above.
As you can see, price appreciation has leveled off for the first time in at least six years.
And here's a table which clearly shows that average lease prices are increasing at a far slower rate than they have in the past. Indeed it certainly looks as though overall price appreciation is likely to flatline in the not-so- distant future, having fallen to just 2% from 5% in the previous two years.
From the report:
According to leasing statistics from the MLS, approximately 350 to 400 units are leased every month, a contraction of the rental market since Q2 2014. This number could be skewed by the significant number of units that are leased every month outside of the MLS, either as renewals or between parties in off-market transactions. Lease rates in the greater Downtown Miami continue to increase with annual lease pricing increasing over 5% per year on average (2012-2013), and 5% per year (2013-2014). Since the beginning of 2015, rental price appreciation has slowed to about 2% annualized.
Despite all of the evidence above, and despite the strong dollar's effect on demand from South America and Russia, some developers say there's nothing to worry about, because after all, "corrections" are always portrayed as "healthy" in the beginning and this time is always different...
Anthony Graziano, senior managing director at Integra Realty Resources Inc. (which prepared the above cited report for the DDA):
“We’re basically going to be in a period of slower growth for the next year, year-and-a-half while the market stabilizes. I characterize it as a healthy correction."
Carlos Rosso, president of Related Group of Florida:
“Everybody is looking at Miami and saying when is something bad going to happen? I say this is a different market. You’re not going to have a bubble burst.”
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it's the recovery, stupid
Hot money in, Hot money out. And this time the banks can't collude to keep the transactions off the market since most of these are cash purchases and not mortgages. Buckle up.
But... but... the Obozo sycophant MSM keeps saying the economy is growing and housing is too! WTF?
Beep. Beep. Beeeeeeeeeeeeeeeeeeeee......
Fuck China. In the 1980s Japan was going to buy the world. Now it's China. I've seen this movie before.
I used to live in South Beach around 26th and Collins.
Whenever the skyline filled with construction cranes, you knew the wave was cresting.
Prices of residential real estate in some of Australia’s biggest cities, such as Sydney and Melbourne, have soared in recent years, with concerns growing that cashed-up foreigners, particularly from China, have helped inflate the market.
"The Australian Taxation Office is using all the resources of government to fully investigate any suggestions that come forward that a foreign person has unlawfully purchased real estate in Australia," Hockey said, with 60 officials on the case.
http://www.nationmultimedia.com/national/Australia-widens-probe-into-ill...
Miami is because of stopping QE. Brazil currency tanked like others, and they were the buyers.
A lot of them in South, Middle and North Miami Beach are Russians or were Russians.
Miami Beach is a crowded shithole.
But it is also really fucking hot in the summer with high humidity, awful traffic and lots of crime. Oh wait
I hear Groucho Marx is buying so it must be ok
"...and you can get stucco, oh how you can get STUCCO!"
Yeah, its going to be very funny watching that crowded shithole empty out as the ocean swallows it. Miami Beach real estate - about $30B. Scott, Bush, Rubio and the Florida real estate industry - priceless.
Miami Beach is a crowded shithole.
Santa Monica is like that as well. Next week, we're outta this goddamn town for good.
ha ha ha ... bubbles don't go into correction and they always burst.
... have reached "a permanently high plateau"
https://www.youtube.com/watch?v=MEc7sE7psJA
Mean while back in Vancouver BC:
http://www.huffingtonpost.ca/2015/06/08/west-vancouver-real-estate_n_753...
There's never been a better time to buy a concrete box in an empty building.™
" Don't be priced out of the [overpriced] market ... Buy Now! "
Since we are replaying the prior depression, let's go back to the source material:
http://xroads.virginia.edu/~HYPER/ALLEN/ch11.html
Pay attention to the the paragraph above.
http://www.zerohedge.com/news/2015-02-13/another-bubble-pops-price-farml...
from their website: This elegant boutique development from Carlos Ott will be located in the epicenter of Miami’s fastest growing and most metropolitan neighborhood. This new luxury tower is scheduled to be completed on 2017. The curvaceous tower will be one of the tallest buildings in Miami rising 60 stories with 190 luxury residential units and 30 penthouses. Spectacular amenities. Incredible Bay and City views. Prices from $1.2 to $30 m. Currently under construction!
this is a normal south florida real estate cycle south florida has experienced since i first became familiar with the market in he 70s. paradise gets cheap when the economy goes to hell and gets expensive when the money flows.
Exactly.
The foreigners don't know the that the local building departments in Miami and Miami Beach don't inspect the interior units very often. Massive amount of botched renovations in these units. The best scam going are the floor permits. Toilet paper. Good luck fighting your corrupt condo board. They have Right of First Refusal when you sell.
They also have to approve any buyer. check out the HOA rules. In NYC, there is a full ' HOAboard package' that must be submitted where you have to go for an interview as well in front of the condo board. They can REFUSE any buyer for ANY REASON OR NO REASON
Yeah, well PHUCKING BLOW ME HYMIE TOWN YOU WORHLESS TRIBAL PHUCKS.
Who wants to live in that PHUCKING hellhole?
I'm still in the "midcyxle correction" camp.
Sorry but you ain't finding buyers right now with the US dollar surging and the only thing moving right now STILL is arable land and a place where there is serving to offer other than being murdered in broad daylight.
With the only thing heading to the USA because of Clownie and his feckless chicken Hawks being a hundred million refugees I'm not too bullish on 100 million dollar pansy properties that have no value whatsoever.
Good lucking goosing the Saudi Shiek market right now too...looks like Yemen has had enough of the "pan Arabist bullshit."
The chumps who bought at the top must be figuring out how to unload their air-conditioned boxes in the sky.
when will prices 'flatline' in the NYC area for condos ?? average is over 1 million now. Average mortgage is $7900 which makes renting a bargain since average rent is 'only' $3998 -- this is citywide not Manhattan.
I checked rents in Miami, a decent apartment around $3,000 a month... Where do these illegal mexicans & the cubans off the boat rent???
Certainly not near the coast.
There are loads of communities around Miami-Dade with much ore reasonable rent.
The general rule is that if you can smell salt water, expect to pay.
"Where do these illegal mexicans & the cubans off the boat rent???"
They don't, they move to Orlando and work at Disney.
I'm renting a brand new, furnished waterfront condo in Malaysia for a little under $600 per month. The guy who came to install the washing machine said, "wow that's expensive." I probably could have haggled the price down but I was on a time crunch. This place could easily compete with Miami and more people speak english here.
One mean ass Category 4 even and Miami will look like friggin Stalingrad.
"your not going to have a bubble burst"
you need to convince me its not a bubble.
If its a bubble, then it will burst.
Miami, the new Hong Kong?
Hong Kong has more freedum.
Panama is WAY better. You won't be seeing food riots in Panama City anytime soon.
The FED can do a lot with software.
This is Miami pal! ;) https://www.youtube.com/watch?v=Ykvv8buikRE
For us Gen X'ers, THIS is Miami...
Miami Vice - In The Air Tonight
Miami is one of the most over-rated shitholes on the planet. Im not even sure what language they speak there. Its some mutated spanglish with a "bro" thrown in every other word. Got that, bro
Boots on the ground can tell you this echo boom cannot presist. After the last bubble burst, We had depression like conditions from late 2007 until spring of 2010. Lebron had just arrived for his stent here. i commentat the time we would look back on thisas the bottom. During that bottoming process there was very little construction work. Most of the labor here is immigrantfrom the Caribean Central and South American. Illegal or not makes no differnce they went home or somewhere elese becasue there was very little work.
They say we built 280 towers during the last go around and by 2011 90% of that product changed ownership. Before 2007 there was no signs of urban life in downtown Miami. Today because of the rental market it is full ofyoung people and others how are priced out of home ownership because of our inflated real estate market. I can tell you for a fact we are higher in price in certain desireable locations than during the first bubble. This time around they have 330 projects being built, in permitting or in design there is not enough skilled labor to make this happen. Something has to give....the cost of labor is going higher. The problem is the workers can't find places to live on what they are currently paid. I am certaion over 90% of the new planned development is for the ultra high end.
I get that every wealthy person in South America wants to have some money invest here in America. The most logical location is in Miami. I get it. We sold a McMansion house to a young Brazillian fellow in early 2014 for $3.6mm. I think back if he had $10mm worth of Reals then, today that is only worth $6.5mm......Wow he would not buy the same house today. That can also be said for the Russians who own Sunny Isles. I say that beacause the signs are not in Spanish or English they are in Russian.
The potentail for a FED tighten cycle has the dollar on a tear. I am here to tell you the strong dollar is going to be the pin that finds the bubble here locally in the Magic City. For that matter too in the Big Apple. In the mean time I am hoping for the satus quo so this thing keeps on going. One last thing prior to the last 6-10 months all these projects where being done for cash. There is very little bank finacing going on. Only the Ubers who don't need money were getting loans. Now I see in front of new projects signs from small community banks that I never heard of finacing projects. No signs from the TBTF Banks. All the banks are getting their NIM killed by ZIRP. In Miami Real Estate is one of the only games in town. So I keep hoping for a crack up boom fostered by bank lending which would blow the bubble bigger before it finds it's envitble pin.