Miami’s Epic Condo Boom Turns into Glut

Real estate agents see “looming” condo price correction.

Home prices overall are still rising in Miami and surrounding cities. The median price jumped 11.6% in January from a year ago, to $240,000. But according to real estate broker Redfin: unit sales plunged 11.9% from a year ago. The fourth month in a row of declines.

It wasn’t because the market was low on inventory: after an enormous and ongoing construction boom, 6,000 new listings hit the market in January, based on data on the Multiple Listing Service (MLS). This pushed inventory up to the highest level recorded in “at least” two years.

This already high number of “new listings” may be under-reporting the true number with a sleight of hand: the number of new condos, according to Redfin, “is difficult to measure and may be much higher than what is recorded in industry data, because developers tend to list only a sample of available units on the MLS.”

And most of these units “come in the form of high-end beachfront condos.”

Given the decline in sales and the rise in inventory (however under-reported), the supply of all homes in the Miami metro area has jumped to 6.9 months, and “the balance of power has shifted into buyers’ favor.”

But those overall numbers, as unpleasant as they may seem for sellers, cover up an ugly reality for condos.

After the housing bust, developers once again embarked on a new construction frenzy, this time not for the downtrodden, over-indebted, and underpaid American proletariat, but for wealthy foreign buyers, mostly from South America and Europe, who were lured by the then beaten-down dollar that made those units cheaper for them. And…

Developers were further bolstered by the fact that these eager foreign buyers were willing to put 50% down to pre-purchase new units, which was commonplace until late last year when foreign markets began to waver.

Now the dollar has risen sharply against these currencies, and condos have gotten a whole lot more expensive for foreign buyers. Buyers from oil producing countries are grappling with the consequences of the oil price plunge on their own wealth. The messy swoon of stock markets around the world doesn’t help. And now these folks have another worry: declining resale prices of condos.

So foreign buyers are staying away in droves, at the worst possible time, just when a flood of new units are nearing completion, and just when previous buyers are trying to cash out by dumping their units on the market. Redfin:

Inventory in the Miami market is an unusual combination of the remaining condo units that weren’t pre-purchased, and a large stock of condos already back on the market for resale by foreign investors looking to cash out on their investments.

“This cooling demand has pushed a few developers to cancel projects or turn them into rental properties, while others have lowered their deposit requirements in an effort to entice foreign buyers back to the market,” explained Redfin agent Aaron Drucker.

Now developers are trying to get the wealthy Chinese to show interest in the Miami market, which they haven’t so far. These are the very Chinese that everyone is expecting to prop up every housing bubble in North America, from Toronto to Southern California, where locals, with their limited means, have trouble even buying a starter shack. And now Miami developers too are trying to get on the buy list of the wealthy Chinese. But it might not solve the problem:

But despite developers’ efforts to secure new foreign investors and regain the ones who have retreated, Miami’s condo inventory will likely continue to grow as more projects reach completion and new properties sit on the market.

The problem is that there’s now a mismatch between where development is currently focused and where the demand is greatest.

Many of Miami’s condo buildings aren’t even an option for local buyers, who cannot afford the price point because these condominiums also require a large down payment of 25% or more. That’s pushing more local buyers to the single-family home market, but their options are sparse since new development in that sector has stalled.

So these local buyers that cannot afford any of these thousands of vacant condos built for wealthy foreign buyers are trying their luck in the single-family home market, where they’re confronted with tight inventories and soaring prices.

In nearby Hialeah, for example, inventory is down 14.4% and new listings are down 14.6% for the year, while prices have risen 15.4% to $180,000.

“What’s concerning is that on top of stagnant wages and slow job growth, a shortage of single-family inventory will continue to push the price of houses up this year,” said Drucker, even as the condo market is confronted with a “small price correction.”

So among Miami neighborhoods, for example, in Wynwood-Edgewater, inventory soared 60% year-over-year, largely due to a 64% jump in new listings of mostly condos. And in Upper Eastside, inventory soared 91% while prices plunged 15%.

Real estate is local. It’s happening neighborhood by neighborhood, market by market. Now the fabulous condo construction boom in Miami is turning into a glut. It’s not like this hasn’t happened before.

The events in Miami are not necessarily paralleled in Oklahoma City, Houston, or San Francisco. But as the last housing bust has shown, market after market is finding out that they’re not immune.

During the last housing bust, some markets saw prices peak in late 2005. By mid-2006, the nationwide average peaked. But prices in San Francisco didn’t peak until November 2007. It was one of the last cities to watch its home prices collapse, even as realtors were still trying to reassure potential buyers that San Francisco would be immune.

Now they’re at it again, confronted by two treacherous forces, with impeccable timing. Read…  This Will Crush the Insane San Francisco & Silicon Valley Housing Bubble

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  28 comments for “Miami’s Epic Condo Boom Turns into Glut

  1. Chicken says:

    Okay, that CUBA ETF should be reflecting this I’d expect….

  2. Julian the Apostate says:

    You mean it’s not different this time? Shazam!

  3. Michael says:

    No its quite the same…..

  4. Jim H says:

    Add another worry for those believe that sea levels “might” rise and what that would mean for Florida with it’s porous limestone foundation.

    • Bigfoot says:

      Jim H — So does this means the fishing will be great in years to come with all those new ‘reefs’ ?

      Thanks for the link. I’ve been I FL all my life & for decades I’ve seen futuristic maps of FL showing a huge reduction in size with about the bottom 1/3 rd gone under due to anticipated rising seas. Although I live on high ground to the north & far inland, one of my biggest concerns has always been salt water intrusion in the aquifer. I had previously lived in Orange County, near Orlando, & I knew of people on the east side of the county that had this problem.

      I spent a lot of time at the beaches as a kid & young adult. I always questioned the prudence of building right on the coast. If the scientist are correct about rising sea levels, this will have massive implications worldwide as they say about 40% of the worlds population lives within 60 miles of a coastline.

      • Chicken says:

        Good point, I don’t feel compelled to compensate the losses of those who hastened environmental damage by building on the beaches or those who allowed them. On the bright side, it’s coming nearer to you.

        The ice flows are covered in black dust, what about that and they’ve been melting for millions of years. POTUS ate his salmon dinner that was cooked over a hydrocarbon fuel.

        • walter map says:

          “POTUS ate his salmon dinner that was cooked over a hydrocarbon fuel.”

          Your POTUS sold out the world to the banksters. He didn’t even try to save the world from them. Apparently that was somebody else’s job. He just gives the speeches, the Mouthpiece in Chief. Alas, for The Audicity of Hacks.

      • night-train says:

        Bigfoot: As an upland Alabamian, I also spent much time in Gulf Shores, Alabama as a kid. Back in the 50s and 60s, beach houses were largely built back behind the dunes, on stilts, low end construction and furnished with second hand furniture, and on large lots. Because people understood the inherent natural risks of beachfront living. Now it is all high dollar stuff.

        And you are right to be concerned about salt water intrusion into coastal aquifers.

        • Chicken says:

          Not my POTUS, despite the poor choice of alternatives. Their motives have been clearly predefined by insider interests we discover after the facts are tallied.

          I distinctly recall the big “hip-hip hurray” celebration turned discontent, fully anticipated that due to the recurring theme.

      • nhz says:

        In the Netherlands with its epic housing bubble, some politicians are salivating about a future “Riviera on the North Sea” due to climate change. Just imagine, within 50 years 2/3 of the country might be living on the water, with their own yacht in the backyard instead of only virtually living below sea level. Always look at the bright side of life ;-(

        At the same time, the government is spending over 20x more money every year on keeping mortgages above water (with mortgage subsidies and all kinds of other crazy incentives and financial guarantees for homeowners) than for keeping the actual homes above water by improving flood defense. It’s obvious that they could not care less about the real world.

        If global warming doesn’t work to push up Dutch real estate prices, they can always ask Mutti Merkel to send some more migrants to the Netherlands. Migrants are entitled to a free home, a sure way to push up rents and homeprices especially as politics has been doing everything they can for years to limit new building.

        never underestimate what a politician can do for you ;-(

  5. chris hauser says:

    ain’t no brazilians, nor russians.

    that’s that.

  6. william says:

    Texas A&M provides stats for our state: 3.5 months of inventory (a decline from 4.0 last July, but up from 3.3 recorded in Jan 2015).

    I just bought a house in Hutto, where the metrics say there is 0.9 months of inventory (seems silly since it takes 1 month or more to close on a house.)

    My point is Texas is not crashing at this point. It may in the future, but the trend is still up.

  7. walter map says:

    You see the pattern here, don’t you?

    Boom -> bust -> banksters confiscate.
    Boom -> bust -> banksters confiscate.

    It’s not going to change, because there’s no longer any way to make it change. The global bankster cartel controls the global economy and most of its resources, governments, and militaries. There’s no longer any way to prevent them from running civilization down the toilet.

    What a waste, of otherwise a perfectly good species. Bad art.

  8. MC says:

    Very interesting.
    I have a distant relative who bought two seaside apartments in Dade County when the dollar was thrashed.
    Now he’s attempting selling one because, due to a resurgent dollar, he wants to cash in his chips: high valuations plus a favorable USDEUR rate would mean a very nice profit for him.
    He’s also worried about property taxes, insurance and junk fees: even renting out the spare apartment (the other he’s keeping for himself) would mean barely breaking even when ordinary tear and wear are factored in. Rents are nothing to write home about due to many owners now turning to the rental market to at least partially recoup their “investments”, and costs are high. Seaside is prime location, but tear and wear are much worse than inland and hurricane insurance is a large expense.
    But where are the buyers? Foreigners, who were the main driver behind the Miami housing bubble, are evaporating. The euro, the real and the loonie are all in the gutters and savvy people have taken notice rents are going down to increased supply.
    Many potential buyers are old enough to remember what happened in 2008: they rent at favorable rates, start window shopping and building up connections and patiently wait for the inevitable price correction. My relative should know it as he did exactly that.

    This correction will come about, but the driver will probably be not a mortgage crisis but European and South American owners starting flooding the market with old units (cashing the chips in while the going is still good) as new ones are coming into line at an accelerating pace.

    The beauty of the American system is that, as crooked as it is, is far more responsive to market forces than the European one. Prices raise faster, but they also drop much faster. No buyers mean you need to drop the price, unlike Italy or Spain where prices remain high and non-negotiable despite an epic glut and houses being on the market for years.

    As usual, the first to panic are the first to reach the lifeboat. Owners putting their house for sale right now will save their skin: they may not make as much money as they’d like, but is highly likely they won’t lose a dime when all is said and done. The supply of greater fools and people desperate enough to get their saving out of Brazil no matter the cost hasn’t dried up yet.

    • Chicken says:

      I was a slum lord at one time, the experience taught me Carpet and drywall manufacturing are a better place to be in the food chain.

  9. michael says:

    Once you know the game, then you can take advantage of it…..

  10. Ptb says:

    Developers seem to have a knack for getting the timing wrong. They’re a fair indicator of a market decline. Just whe. They get the most product on the market, it starts to slow down

    • Wolf Richter says:

      True. Part of the problem is that it takes years to plan and build a high-rise. Those that were started well into the boom often end up hitting the market after the boom has ended, thus accelerating the bust by adding more supply to an already oversupplied market.

      • Chicken says:

        Rinse and repeat alive and well, wonder who stashed the 100 year flood maps behind the coffee machine?

        • Captain KurtZ says:

          I loved that in the last California real estate boom before that collapse, one development, outside of Fresno, was built….

          …..IN the old river bed. Not flood plain, the river bed.

          ‘Muhrika, has been, from its inception, one large real estate play. The Founding Fathers, led by George Washington himself, played by example – build anywhere, at anytime.

          Just read the seminal book – George Washington and the Dismal Swamp.

          He put together a Virginia fighting force in the French and Indian Wars to protect his book – real estate development. That war was a blatant real estate grab of Indian lands, which had been negotiated by the English and the Indians to the West.

          And the long Dismal Swamp exercise, draining swamps for real estate, really includes all of coastal Florida.

          The future will not be kind to its old inhabitants down there.

  11. Petunia says:

    While you were writing this article, I was packing up the truck and getting out of Dodge. If you want to know when peak housing in Florida was reached, it is now. Our big corporate renter pushed us out of the market by raising our rent 6%. Our income was down 15% year over year. A neighbor, who use to rent from the same company moved out last November, and the house sits un-rented. They raised his rent $300 a month after the first year. Ours will probably sit empty for a while as well. At some point I would like to contribute an article on the saga of living a year in a corporate rental. It is a real eye opener.

    As far as the condo glut goes, much of it is hidden, in the rental and foreclosure mess. The entire coastline from Miami to Palm Beach, is condos full of renters because they can’t be sold and foreclosures bought back by the boards to hide the problem. In one building I have personal knowledge of, the renters are over 20% of the building, and foreclosures are 10% of the building. This building is considered to be in manageable shape.

    • Wolf Richter says:

      Petunia, I always find your boots-on-the-ground comments on Florida’s RE fascinating.

      When you have that article ready, send it to me (use the email in the “Contact Us” tab).


    • Bigfoot says:

      Petunia, the same thing is happening in the apartment industry. I travel to 2 cities in FL regularly & they are pricing people right out of the market. Very sad to watch & I see it inching closer to that tipping point. Simultaneously, I’m still seeing a great deal of new multifamily rental units going up in these same areas as well as new homes. There’s a lot of real estate in FL & some cities/regions seem to still be going strong. I have a few friends in various segments of the residential market (construction/sales/mortgages/apartments) & they are still doing well.

      I believe the topping process takes awhile & certainly doesn’t happen everywhere at the same time. I watched the prices in a small subdivision I was involved with in 2005-2006 (Orlando) nearly double in less than a year. That was the topping signal for me (& indeed was a price top for that subdivision), yet the market only slowly softened up in 2007 before the bomb bay doors opened in 2008. The topping process seems to take so long that I believe many just can’t recognize it (normalcy bias?) until it goes into freefall.

      I also have memories of 1974+ in Orlando when the market had collapsed. There were partially built apartments & condos that developers abandoned. Some of them sat like that for several years & eventually got demolished. I’ve never quite understood how/why these residential (& commercial) property owners would rather let a unit sit unoccupied rather than rent at a rate the market can bear. Heck, even go month to month so they aren’t locked in when things do improve & keep the home occupied.

      I knew a guy back in 2009 that had a business located in a good size strip center anchored by a Publix. He’d been renting there 12 years & had a thriving business before the downturn. Sales were way down & there were numerous vacant stores in the strip. The owners would not budge on rent (even shot for increases) & many of the existing small retailers were struggling. They wouldn’t negotiate & this guy said the heck with it & closed up shop. Most of the empty units could have remained occupied had the owner been flexible & reduced rates to reflect the current economic reality at that time. Isn’t a reduced income better than none?

      Care to disclose the corporate entity that was your landlord? I have some family down in Palm Beach County.

      • Petunia says:

        I won’t name them yet, but they own tens of thousands of homes. At this point, I wouldn’t want to be in any REIT holding Florida RE. They are valuing these houses at top dollar and I think the value isn’t there, I know the income isn’t there. The house I was renting was valued at 30%+ over 10X the rent roll. I think that is ridiculous.

  12. Alex says:

    As a renter in South Florida as well, I second Petunia’s Boots/Ground observations. I’d call it Peak Greed, they’ve pushed and pushed rents up past the tipping point and they have no place to go but down. I moved to West Palm from Los Angeles almost 3 years ago and the rental increases throughout S Fl during this period have been quite astounding. Like any bubble scenario, it seems to keep rolling of it’s own weight against rational analysis, i.e., ‘who’s paying these rents, with what money?’ The answer will soon return to reality, as in, ‘nobody is’.

    The Miami boom and coming glut was obvious to me the minute I took a drive through the Brickell area, with it’s huge flock of cranes building condos the avereage Miamian isnt close to being able to afford. The all cash foreign buyers would clearly dry up at some point, and the ones that bought would just as clearly want out before too very long. Think it’ll all come together in a perfect storm of hell in about 1-3 years.

    I feel very fortunate to rent from a very cool young professional couple with exactly one income property, the house I live in. Having spent a year in a corporate owned one a year back (the most incompetent, sleaziest pack I’ve ever dealt with, with exactly zero interest in maintaining the place) I wouldn’t wish that upon anybody.

  13. This winter has been really, really, slow. I have a feeling that all of 2016 will be the same.

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