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