In Miami Condo Glut, Preconstruction Resale Market Freezes up

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Share on RedditPrint this pageEmail this to someone

Over 7 years of supply.

The Miami housing market has split in two diverging segments: single-family homes and condos. For now, the single-family market is hot.

Sales of existing single-family homes in Miami-Dade County jumped 8.7% from a year ago to 1,232 units, the highest for any August ever, according to the Miami Association of Realtors. In terms of dollars, total sales soared 16% to $569 million and the median price 14.5% to $300,000. This marks the 57th month in a row of year-over-year price gains.

But total existing residential sales fell 3.3% year-over-year to 2,389 units. Why? Condos!

Existing condo sales – not including the new construction market – plunged 13.6% year-over-year to 1,150 units. Yet the median price, at $215,000, is still up 5.7% from last year.

Cash transactions for all sales plunged by nearly 9 points, from 49.6% a year ago to 40.7% in August (national average = 22%); 25.7% of single-family home sales were cash, and 56.8% of condo sales. The report:

Miami’s high percentage of cash sales reflects South Florida’s ability to attract a diverse number of international home buyers, who tend to purchase properties in all cash.

The fact that the percentage of cash sales is plunging has perhaps, possibly, maybe something to do with the efforts by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to identify and track secret homebuyers who hide behind shell companies. Some wealthy Latin American buyers appear to be getting cold feet in the condo market.

At the worst possible time. Inventories are increasing. For single family homes: up 9.8% from a year ago to 6,346, a 5.7-month supply; for condos: up 20.1% to 14,055, nearly a year of supply!

And this supply of condos keeps piling up. By comparison, in the nearly six years since 2011, 56 condo towers with 5,720 units have been completed in Miami-Dade County east of I-95. And now, look what’s happening:

  • An additional 75 towers with 11,736 units are under construction.
  • Another 55 towers with 7,026 units are planned, but construction hasn’t begun yet.
  • And about 73 towers with 9,891 units have been proposed.

According to StatFunding’s Miami Preconstruction Condo Market Snapshot for August, this onslaught of condos, seen from a slightly different angle, looks like this:


And the existing supply is going to have to compete with the new supply. This preconstruction market, which teems with condo flippers, was hot in Miami. And now it’s ice cold.

In his report, Andrew Stearns, Founder and CEO of StatFunding, wrote that these condo flippers “experienced continuing weakness in the Miami preconstruction condo resale market in August.”

Over 700 condos were listed for sale by the original purchaser, who’d bought those units from the developer, at the largest 17 developments (with over 85 units each) completed between 2012 and 2016.

Only 8 units sold. At this sales rate, a 7.3-year supply! The preconstruction condo resale market is essentially frozen.

And 7 of the 8 units sold at a loss, ranging from -2% to -11%, after accounting for the 6% in real-estate agent commissions. Worse, according to Stearns:

[I]f preconstruction developer fees, association contributions, and other actual costs (paid by the preconstruction buyer at closing, generally more than 1.5% of preconstruction purchase price) are included in the analysis for each resale, then 100% of resellers of Miami preconstruction condos in August 2016 lost money on the resale transaction, even without including carrying costs.

This is clearly not a good sign for the market.

Many of these condos now listed for resale are investments. They were bought to be flipped and bring in the moolah and make the astute investor rich. But that’s not working anymore.

A condo, when it’s just sitting there, costs a lot of money on an ongoing basis: interest costs, condominium association fees (which can be high), property taxes, and other expenses. So not being able to sell a vacant condo and holding out for better days is not a good deal.

Stearns, in an email, called this end of the market “distressed.” And given the tsunami of new units being completed over the next two years, with part of these units being put on the market for resale by the original buyers, “the preconstruction condo resale market will likely continue to weaken,” he warned.

The problem might be “contained” – a scary word these days – “to a limited number of forced sellers or a temporary lack of willing buyers.”

Or it might not be that kind of “blip,” but a “long-term trend,” he wrote:

Regardless of the cause, this instability could not have arrived at a more inopportune time in the current Miami condo cycle, with a deluge of units nearing completion in the immediate future.

Real estate moves in cycles. Turning points can sneak up on you. They first happen locally, in some sub-markets. They’re brushed off because other sub-markets are still booming, and because mortgage interest rates are at historic lows, and because they don’t make any more land, and because everyone has been re-convinced that you can’t lose money in real estate, no matter how crazy the speculation. Then it all turns the other way.

And some of these condos, when they can’t be sold, are shuffled off to the rental market and compete with apartments. This is already happening. Rents in Miami are now falling, and not just in Miami. Read … and check out the rental trends in your own city…  It Starts: Rents Drop in 10 of the Top 12 US Markets

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Share on RedditPrint this pageEmail this to someone

  26 comments for “In Miami Condo Glut, Preconstruction Resale Market Freezes up

  1. NotSoSure
    September 25, 2016 at 5:36 pm

    I heard through the grapevine that the Fed will be given an additional mandate come next week and that is to keep condo sales stable and the price elevated.

    It’s all part of NALB program i.e. No Asset Left Behind.

  2. Bruce Adlam
    September 25, 2016 at 5:48 pm

    Yes it’s happening in Perth rents are falling and house prices are following and the crisis hasn’t got here yet

    • hidflect
      September 25, 2016 at 9:42 pm

      Over at the Australianpropertyforum the bears have wiped the floor with the bulls on Perth. Every indicator is red and getting redder. The Empire collapses at the edges first. First it was 50% or more declines in the mining towns. Now Perth is down about 10% and no end in sight.

      • VK
        September 26, 2016 at 2:45 am

        Imagine that, the prospect of affordable housing once again in line with incomes…
        The Australian property bubble has been a force to reckon with though, relentless price increases for over 20 years I believe.

        The crazy thing is how brain washed people have become into thinking that houses are assets when infact they are cash flow negative over time due to maintenance costs and taxes. A house is supposed to be a place to live in, business is where you invest.

  3. Petunia
    September 25, 2016 at 6:11 pm

    The Miami market is not as “cool” as it was before the financial crisis. All the beautiful people left and the investors moved in. In the last 5 years I lived in south FL, people made faces when mentioning Miami.

    Now that Cuba has opened up, many Cubans are buying in Cuba through relatives living on the island. Money that would have stayed in FL is flowing out.

    Also if you look at the listings for even the cheapest condos, the HOA fees are really high. Much higher than buying all those services/amenities separately, when you buy a house.

    • GSX
      September 26, 2016 at 3:43 am

      Maybe to buy Air BnB potentials. Cuba is not quite a “Miami’ in terms of living and infrastructure.

      • Petunia
        September 26, 2016 at 10:16 am

        Cuba has more profit potential because it is not as restricted as America. Once Castro gets his cut he is happy and gone.

  4. unit472
    September 25, 2016 at 7:48 pm

    A few years ago in Fort Myers a developer built two 35 story condo towers. This first one had buyers until the market collapsed. The second tower was completed but only had one resident, a retired fireman from New Jersey iirc.

    The thing is a condo projects HOA expenses are mostly fixed no matter the state of sales or occupancy. The pool must be maintained, the elevators serviced, the lights kept on etc. When you only have few occupants in a multi storey tower to share these costs they could be overwhelming, bankrupting the owners.

    The moral is KNOW your HOA financial condition before you buy.

    • CrazyCooter
      September 26, 2016 at 12:20 am

      From my reading, “common law”, and more specifically “real property law” is probably one of the singular reasons the US ascended to global dominance. Ownership of property is a fundamental requirement for true capitalism. In the case of the US, the land was largely confiscated from native populations and the expansion ran for well past 100 years – unimaginably high quality timber, mineral, water, and farm lands.

      Abrogation of these simple rights is one of the premier problems the US has. Just consider the EPA (among other agencies) – they can regulate pollution and shove it down my neck. Just imagine if there wasn’t a government agency to say what frackers could/couldn’t do – and presume they had liability for any property damage.

      HOAs are part-and-parcel along the same lines.

      Frankly I would NEVER buy into any property where I am not 100% old school common law/real property law owner. Hell, I don’t even like the idea of property tax anymore – because one day they are going to be THAT broke.

      If I had a wish, I would get allodial title – which exist in the US by the way, but you or I won’t ever have a chance to own it.



      • walter map
        September 26, 2016 at 12:55 pm

        “Just consider the EPA (among other agencies) – they can regulate pollution and shove it down my neck. Just imagine if there wasn’t a government agency to say what frackers could/couldn’t do”

        Translation: “I demand the right to have others pay my costs and to poison the planet to maximize my profits.”

        U.S. environmental regulation is based on your much-vaunted common law and goes back to the middle ages in Britain. which common law says you lost your sheep herding operation and are living out your days in a dungeon because you dumped sheep shit upstream of the town where the magistrate’s brewery was ruined.

        It’s illegal for you to evade responsibility for the costs you incur. And other people have property rights too.

    • Mike B
      September 26, 2016 at 8:27 am

      Yep. condo fees can eat you alive if you are not careful.

      This exact thing happened to an acquaintance of mine from New York. He had supposedly done “everything right” worked hard, saved his money, bought a five story building in the Meatpacking District in the late 80’s WAY before that part of NYC became cool. Turned it into 9 units with a ton of sweat equity. Sold at the top of the bubble for around 6 mill. Moved to Miami into a 900K condo in the just completed Icon Brickell and proceed to buy half a dozen other condos to ‘flip’. This was all in late 2005 into 2006.

      Well,… I’m certain you all know what happened. The condos didn’t ‘flip’, the Icon was only about 20% occupied, the HOA fees were into the hundreds of thousands and my friend from NYC lost everything. Should he have seen it coming? Possibly if he had poked his nose into less traveled parts of the net but that’s the nature of a bubble feeding frenzy. People don’t WANT to know. They just want to cash the checks. Until it all blows up.

      This is why I will NEVER buy a condo.

  5. michael
    September 25, 2016 at 8:34 pm

    This is welcome news in general for those waiting for a down turn in the market. Once the investors stop buying there is no more support for prices. It will take some time but well worth the wait. My guess is 6 to 8 months this issue goes viral.

    • chris Hauser
      September 25, 2016 at 9:11 pm

      uh, it ain’t gonna take no time, ’cause stall speed is here.

      as britney spears would say: oops, i did it again.

    • William
      September 25, 2016 at 10:05 pm

      Buying condos at depressed prices is certainly profitable. I’m still holding one in CA.

    • MC
      September 26, 2016 at 6:53 am

      In 2012 the index tracking home prices in 70 Chinese cities finally “crashed” after years of insane increases. How much did it lose? An average of 1% for three months. By Fall the index was already in the black and by 2013 it was back at growing at over 5% per month.
      2014 brought another crash, and this time a proper one: for five months the index lost a terrifying (by Chinese standards) monthly 5%. Then it took off again and now the index is close to monthly 10% gains.

      Chinese authorities are central planners and like all central planners they pick winners and losers at a whim. In the housing market they picked as winners those already owning a house, whose asset value could only increase. They threw a bone to everybody else by making mortgages easier to obtain.

      I wonder how long it will be before housing markets outside of Asia (let’s not forget the Bank of Japan buys J-REIT’s directly) will start being directly manipulated in yet another desperate attempt to prop asset prices to even more unsustainable values.

  6. Kevin Beck
    September 26, 2016 at 5:03 am

    Please be careful about the use of the trademarked title, “Realtor.” Unless the individual referred to is a member of the National Association of Realtors, which owns the Realtor trademark, the proper terms would be either “real estate agent” or “real estate broker.” I don’t know if they are as vigilant about the misuse of the term as Taco John’s is about the term, “Taco Tuesday,” but I bring this up in the interests of accuracy.

    • September 27, 2016 at 12:48 am

      Thanks, Kevin. Fixed.

  7. borgb
    September 26, 2016 at 6:10 am

    We visited a new complex in Naples,Fl. last winter to view show homes and of course left our contact info.My wife just received an email from them offering $32,000 off the purchase price and free furniture.We have been going there for 7 years and were amazed at the new complexes being built last year.

  8. Ptb
    September 26, 2016 at 8:04 am

    Preconstruction resale? Does this mean that a unit is bought before it is built , and then resold before it is built as well? It almost sounds like a futures market.

    • September 26, 2016 at 8:16 am

      These units are bought preconstruction from the developer and sold later, usually as a completed unit. Investors/flippers are big into this.

    • Petunia
      September 26, 2016 at 8:18 am

      It is sold off the plans and resold before or at closing. There is a future’s market in the option to buy. Usually realtors are the professional investors, but not always. Many times when you get a good price on a new condo, it is a realtor on the other side of the sale.

      • Ptb
        September 26, 2016 at 9:03 am

        So it’s a true flip in the sense that there was nothing ever done to the unit? Besides being built. It was just traded before ever being occupied? Could it be traded multiple times before being built?

        • Petunia
          September 26, 2016 at 10:21 am

          I heard of one closing where the lawyer had clients in every office of his firm, at least 4 or 5 transactions. This was for a built property.

  9. Mike R.
    September 26, 2016 at 9:29 am

    Why would anyone want to retire in Miami or Miami Beach? I don’t get the appeal.

    • Petunia
      September 26, 2016 at 10:25 am

      Nobody retires to Miami anymore. It was cool in the 90’s for a weekend or vacation spot. I preferred it in the 70’s when it was run down and much more fun, because your money went a long way. Now it is an extension of Cuba and South America without the charm.

    • walter map
      September 26, 2016 at 1:12 pm

      “Why would anyone want to retire in Miami or Miami Beach? I don’t get the appeal.”

      The costs, the crowding, the crime, the pollution, the increasing ocean flooding – what’s not to like?

      Speculative opportunity correlates better with mania than it does with quality of life.

Comments are closed.