On the surface, Miami’s condo market is in trouble. But beneath the surface, “the whole system is jammed up.”
Wolf here: Signs have been piling up that the Miami condo market, where luxury towers are still sprouting like mushrooms, is getting into serious trouble. This has not yet made its way into the overall house price indices for the vast Miami metro, such as the Case-Shiller Index for Miami, in part because it only tracks single-family houses and not condos. But it is showing up in the condo data for the sub-markets.
Back in 2017, I covered Miami’s condo construction boom, how it was turning into a glut, and how the preconstruction condo flippers were starting to run into trouble, down to the granular detail of condo tower by condo tower. These things take a long time to filter to the surface, as they’re now starting to. But beneath the surface, it has gotten a lot worse.
On the surface, Miami’s condo market is troubled enough:
Here is a sampling from the Q2 report on Miami’s condo markets by Brown Harris Stevens. These sub-markets are small, and sales volume in each market is relatively small, so the data can get volatile. While most of the sub-markets show price declines, and in some cases vertigo-inducing price plunges, there are some sub-markets were prices in Q2 have increased. All data is for Q2 2019 compared to Q2 2018:
South of Fifth:
- Closed sales: -40%
- Average sales price: -15.8% to $1,814,060
- Median sales price: -1.6% to $859,900
- Average price per square foot: -7.5%
- Days on the market: 169 days
Miami Beach – 5th St. to W. 63rd St.
- Closed sales: -14.1%
- Average sales price: -15.3% to $472,687
- Median sales price: -8.4% to $299,500
- Average Price per square foot: -5.5%
- Days on the market: 142 days
Bal Harbour
- Closed sales: -16.2%
- Average Sales Price: -15.2% to $1,592,032
- Median Sale Price: -19.6% $925,000
- Average price per square foot: -10.6%
- Days on Market: 155
North Beach 63rd St. to 86th Terrace
- Closed sales: -12.8%
- Average sales price: +31% to $568,231
- Median price: +35.7% to $380,000
- Price per square foot: 25.6%
- Days on the market: 174
Surfside
- Closed sales: no change
- Average price: -45.7% to $1,340,075
- Median price: +2.7% to $572,500
- Price per square foot: -18.7%
- Days on the market: 183
Key Biscayne
- Closed sales: -32.5%
- Average Sales Price: -36.2% to $1,107,305
- Median Sale Price: -18.0% to $845,000
- Average price per square foot: -13.1%
- Days on the market: 155
Downtown Miami – MacArthur Causeway to the Miami River and NW 1st Ave. to 5th St. to I–95
- Closed sales: -5.1%
- Average Sale Price: -6.1% to $388,698
- Median Sale Price: +5.8% to $317,500
- Price per square foot: -4.2%
- Days on Market 177
Edgewater
- Closed sales: -1.8%
- Average Sale Price: -9.8% to $408,913
- Median Sale Price: -7.7% to $300,000
- Average price per square foot: -2.2%
- Days on Market 118
But beneath the surface, it has gotten a lot worse.
Below is a riveting and funny article by Harris “Kuppy” Kupperman on the difficulties the market is now facing, as seen by an insider from beneath the surface, particularly the financing issues that are now ripping into Miami’s condo business.
By Harris “Kuppy” Kupperman, founder of Praetorian Capital, Adventures in Capitalism:
Miami has a highly cyclical property market where the magnitudes of the booms and busts dwarf anywhere else in the country. In my experience, trends in Miami real estate also tend to lead national trends by a few quarters. Therefore, smart guys always watch Miami.
Roughly a year ago, I noticed that Miami property prices started to decline after a two or three-year period of leveling off. The pace of decline has clearly accelerated recently. Most properties on South Beach (where I live) are off by 20 to 35% from peak prices, but that is nothing compared to the carnage across the bridge in areas like Brickell and Edgewater.
Why are prices dropping? It’s more than simple supply and demand—though the glut of new supply is clearly part of it. Rather, your typical condo has a carrying cost of 4-7% of fair value before financing costs (property tax/condo fees/insurance/maintenance/special assessments/etc). This adds up fast when a property is worth hundreds of thousands or even millions. It is pretty much mathematically impossible to have a positive yield from buying and renting out a Miami condo (trust me, I’ve done the math many times). The only way owning is viable, is if prices go up and allow you to extract capital to fund the carrying costs—though debt service then makes the monthly cash flow even worse. The basic law of Miami condo pricing is that if prices stop going up, they collapse due to the carrying cost. Suddenly, it seems as though a lot of owners are becoming financially distressed—forcing them to hit bids at a time when demand is somewhat lacking.
With all of that in mind, I got drinks last weekend with a buddy in the hard-money lending market to discuss the state of the market. For those of you who are unfamiliar with hard-money lending, these are loans made on the basis of the asset value, not the ability of the borrower to pay. In fact, in some cases it is assumed that the borrower will not repay the loan and through penalty interest, you rapidly chew through their equity and get to own a high-quality property at a great initial entry price. This works well in an up market. How does it work when things go no-bid?
Friend: Holy sh*t Kuppy, it’s about to blow!!
Me: You said that 3 months ago…
Friend: It’s different now, the whole system is jammed up.
Me: What do you mean?
Friend: Before, when a borrower would default, we’d put him into penalty default interest (which is 25% on loans over $500k in Florida). My business is to underwrite safe loans and to clip a coupon, not to own real estate. The lenders that ARE looking for big returns (and risks and headaches) on real estate watch the public records for notices of defaults and then barrage the distressed borrower with offers of 12-16%, interest only private loans… not any borrower’s idea of a good time but still better than 25% default rate plus legal fees. These offers often come with periods of prepaid interest that temporarily take some pressure off the borrower… but also help sharpen the axe for when it finally falls (larger, artificially inflated final loan amount). We could play these same games with the defaulted borrowers, but my investors want the defaulted paper off the books—we don’t want to re-possess the property and have to sell it. Our specialty is underwriting—not foreclosure. We’re happy when someone takes our problems away.
Me: So?
Friend: The story usually ends with a “fire sale” of the property by the defaulted borrower or by the lender (after foreclosure). End users are seeing that the “fire sale” price may very well be next quarter’s market price, and the units aren’t moving. Even the County foreclosure sales, which have been loaded with fix-and flip reality TV fans bidding 110% of value for the past 5 years, are seeing below market priced deals with no bids.
Suddenly, no one wants our defaulted borrowers. The shark lenders are all jammed up with loans they poached last year. They used to be able to recycle their capital by selling the assets, but now they can’t. This means that no one is buying the distressed loans off our books without demanding a discount on principal. The whole conveyer belt is frozen. Even a few months ago, there were still idiots from out of town, or kids with daddy’s offshore money who’d come down here with a new hard money-fund and make stupid decisions. Now those guys are jammed up too or at least they’re not coming down here anymore. This means that we need to now take possession of our defaults.
Me: How’s that going?
Friend: Lemme explain it this way. We underwrote this one deal two years ago for a $3.4 million purchase of a new construction condo, we leant $1.5 million against it. The guy defaulted and we’re up to $2.0 million in principal and default interest and we took possession—figuring we were plenty protected by over a million in equity left on the asset. Remember, our basis is $1.5 million. Well, it’s been for sale for 9 months now. It may not even trade with a 2-handle. Meanwhile, I’m stuck carrying the thing—which isn’t cheap. I have no idea how to even sell it. We’re on our 3rd broker now. No one has a clue what to do with it, yet these assholes keep building more product.
Me: Welcome to the Miami property cycle. If your build cost is $300 a foot and you think you can sell it for $700, you’ll flood the market. Once you’ve made a “go decision” you’re gonna finish the thing—even if you only sell it for $200 in the end.
Him: It’s even worse. Every month they break ground on hundreds of additional units when the existing ones won’t sell. Some of the most high-profile buildings have had less than 50% sell-through and the majority of what’s “sold” is immediately dumped onto the market unfinished and unfurnished, below the developer sale price for fear that the developer will drop his price and leave these guys even further underwater. Pretty soon they’ll all be forced into another round of price cuts. It makes no sense to build more, but they keep doing it!!
Me: Won’t the 50-bps the fed cut help clear the log-jam?
Him: Are you f*cking kidding me? I’m charging these guys 10% because they cannot get traditional loans. They can cut a few points off rates and it wouldn’t matter. Besides, the guys who qualify for real loans are all selling because they cannot hold onto their own properties. That’s why every third unit is suddenly for sale. Prices stopped going up and the whole thing blew apart and now there’s no buyers. Remember, the price for a whole building is set on the last trade. Banks look at the data and won’t underwrite new loans.
Me: So, what are you doing to clear these bad assets?
Him: I have no idea. I’ll probably smack the bid wherever it is and take the hit—before someone else does. At least I won’t have to keep making condo payments and 2% property tax payments. My fund has basically stopped lending on condos and is well below 50% LTV on everything else. We’re building cash. I don’t want any more of this crap on my balance sheet!! A surprising number of my existing loans are starting to go bad. I know what my competitors underwrote, trust me, they’re in MUCH worse shape. They underwrote all sorts of nonsense that I wouldn’t ever touch. I’ll be fine, but they’re toast.
Me: …and Bank of Ozarks? Haha
Him: They underwrote the stuff the local hard money boys wouldn’t touch at 15%, but those jokers got paid fed funds plus 3 to take the risk. We should build a fund to pick at their carcass in 2 years. Good thing they just popped down a new branch in Sunset Harbor. We can use it as the REO office. Haha
Me: Why isn’t any of this showing up in the data yet?
Him: Most traditional borrowers have money and are trying to hold on. Besides, property is a slow burn process. Guys are in extreme pain, transaction volumes have collapsed, properties on offer have exploded. Eventually someone blinks, people realize where the real marks are on their assets, then they ask themselves why they are paying 10% a year to hold onto something that they’re underwater on and dropping in price. It’s going to be just like 2009. Wait 6 or 9 more months. They can take rates to zero, it won’t matter. That’s not the key cost of holding these things anyway.
Me: Will it really be as bad as last cycle?
Him: Last time, a lot of the stuff that defaulted was upper middle-class product. It just needed lower prices and it eventually cleared. This time, the glut is fake “super-luxury.” 3,500 ft units with private exterior jacuzzies don’t ever clear. The property tax is $50,000 alone. Who the hell can afford this stuff? You can give it away for free. A middle-class guy cannot afford to hold it. Last cycle, it was a few hundred units of high-end that went bad. Now you have whole city blocks that are nothing but high end. 200 units per building. There’s thousands and thousands of these things. The property prices can halve and that means the property tax halves, but you’re still paying condo fees and remember, when your neighbors stop paying, you’re on the hook for their payments.
There aren’t enough rich Venezuelans and Russians to buy all these units. Besides, those guys aren’t buying here anymore. They’re scared of Trump and they’re broke anyway. This time it really is gonna blow…
Me: Sweet!! Lemme know when I can get a great deal on something nice. By Harris Kupperman, founder of Praetorian Capital, Adventures in Capitalism.
The record for house price increases among the 20 metros in the Case-Shiller House Price Index is held by Miami, where prices skyrocketed 193% in the six years through December 2006, before collapsing. The record for price increases between January 2000 and July 2019 is now held by the Los Angeles metro, where prices over the 19-year period increased by 186%. But Miami has been making up lost ground. Read…The Most Splendid Housing Bubbles in America, Sep. Update
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Live From Bejing! It’s Saturday Night!
In recent news, hundreds of Condos will be turned into a small crampy apartment’s as a clever way to pay less taxes and earn profit!
Not an unknown process at all; in the SF Bay Area lots of small crampy apartments got turned into condos.
In SF, condo conversions are limited to 200 a year. This was done to halt a wave of conversions some years ago, of rent-controlled apartments in older buildings into condos, which are not rent-controlled. In 2018, a total of 191 units were converted from apartments into condos, according to the SF Planning Department’s 2018 report.
There are two things here in SF, going into the opposite direction:
1. A “conversion” of an apartment into a condo. This is a process with the City that changes the legal ownership structure of the building, and is limited and hard to do these days for reasons I point out below.
2. Putting a condo on the rental market. Any condo owner can do that at any time, and many owners are doing that, no problem.
In SF, condo conversions (item #1 above) are limited to 200 a year. This was done some years ago to halt a wave of conversions of rent-controlled apartments into condos, which are not rent-controlled. In 2018, a total of 191 units were converted from apartments into condos, according to the SF Planning Department’s 2018 report.
It’s just as easy/hard to rent out a condo (item #2 above) as it is to rent out an apartment. But renting out a condo is NOT considered a “conversion.”
In theory, you can convert the whole condo building from the legal ownership structure of a condo to an apartment building, though I don’t know why anyone would do that.
Since condos are not rent-controlled in SF, the owner can raise the rent at the annual lease renewal date to whatever level. The tenant then decides to endure or move out. If the tenant moves out, the owner can figure out what the market will bear — which is the same for rent-controlled apartments.
In rent-controlled apartments, when the tenant moves out, the landlord can put the unit on the market at whatever rent the market will bear. After the new tenant signs the lease, rent control kicks back in and limits annual rent increases to a rate linked to CPI.
This annual limit on rent increases is the reason why owners try to jump through the hoops to legally convert rental apartments to condos. The unit stays the same, and it stays on the rental market, but now the owner doesn’t have to deal with rent control.
Rent control in SF applies only to older apartment buildings with two or more housing units that were completed before June 1979. It does not apply to condos.
Wolf – This would have been mid-2000s, involving those tons of sh!tty apartments in Sunnyvale along Mathilda Avenue.
Can you image the city tax revenue drop?
Pass the tax burden down the line I suppose…
I worked for a County government in Florida when the market blew in 2007. We had to cut staff by 20% over two years. Everybody screamed to raise taxes or the whole place would blow! After we made the cuts, everything was working just fine. Better in fact. Lots of very dead wood tossed overboard.
In Ontario, Canada, our new Premier cut in almost half the Toronto city councilors…
The media went nuts along with all the other party leaders and the majority of the councilors.
Trying to clean up the previous parties massive debts and bad policy commitments. Was told you can’t fire the CEO of Ontario Hydro due to some high penalty clause…
His ass was grass with just the required severance package by law.
Hydro was just about to buy Avista a US outfit but this was subject to Hydro being private. The firing of the CEO established that Hydro was govt controlled and this killed the deal requiring Hydro to pay a 100 million plus break fee.
For an outfit the size of Hydro a 6 mil salary scarcely seems unusual.
It’s always dead wood or trimming the fat when it’s somebody else losing their job. Wait until it’s your turn.
The way things sound these days it seems to be ‘take a number’.
You don’t get trimmed if your not dead wood. Not in my experience. I’ve seen plenty of layoffs at my company over the years and I’ve never seen an employee with above average productivity laid off.
Of course, as layoffs happen and the dead wood goes, the average productivity goes up, so some of the next set of people to get laid off will have productivity above the old average but … in the new, smaller, more efficient company, they are now the dead wood. The cycle continues.
I spent roughly half my work like in private industry, and the other half in public (if I include the Army).
Let me assure you, in both, management always takes care of it’s own.
A much stronger group than any union ever was, for damn sure.
And they get to decide who gets cut, and it won’t be their pals.
Imagine it’s even worse in outfits that just push paper, the can just “backfill” (as they say) with least popular or new managers until things get better.
They’re not jobs. They’re just apparatchiks hired so some manager can get a raise because more people ‘work’ for him.
From what I understand, once a builder gets a loan, the project goes to completion. This takes time, and if in the mean time the dollar gets stronger, and the foreign buyers dwindle, things can get messy. Now add a law where you cannot buy properties with dirty or laundered money through an anonymous shell corporation, and things get very ugly. Add in a recession, and you have a perfect storm. I’m sorry but I have no sympathy for the players in this game. It is pure speculation, combined with the greater fool theory.
And I thought momentum tech stocks were risky….
Speculative building….. But this time is different said the REIC shills. The interest rate cuts produce a dead cat bouncing… now the fun begins
A builder that doesn’t build isn’t a builder any more.
Buying a condo is a stupid idea 99.9% of the time. I will never understand why people do this. If you want to live in an apartment, rent one. Buying a condo which comes with insane condo fees always makes it a bad deal. And then as the condo ages, the fees increase to maintain a decaying building, while simultaneously the condo’s value decreases. More expenses for a depreciating asset. It’s a vicious cycle that every condo development goes through eventually.
I know. I don’t get the appeal of condos either.
It depends on the market, obviously. If you think the market is going to go up, and if all you can afford is a condo (or have preference for living in one for some reason), then it can be a good investment. Of course, who can know if it’s a great investment ahead of time? But it can be.
In the modern real estate market in growing areas, housing is partially a place to live and partially an investment. Condos, being a place to live and an investment, have a role to play.
It sounds like you’ve never visited any “rent vs. buy” sites or ever made a spreadsheet to calculate your expected future wealth in a buy vs. rent scenario. You really should, otherwise you may not be making the wisest choices about how to spend your housing money.
Zanetsu, rent vs buy? Gee what’s that?
The rent you pay for your apartment includes the owners financing costs plus the property taxes plus the condo fees and special assessments plus some profit to the owner. A 10 year lease for an apartment is rare. The advantage to an apartment is you can leave for greener pastures, typically within a year, or sooner if you break the lease. And if the market value drops you don’t take a personal hit. Then again, if the market value drops, how often do you see a decrease in your rent? There ain’t no such thing as a free lunch.
many owners seeking to rent out their units are negative cash flow because the pool of renters will only pay as much has the market will bear. Owners can’t automatically charge financing costs plus property taxes plus condo fees etc. Many rentals in large expensive cities are $1K per mo neg cash flow, and owners tolerate that because they are expecting big cap gains.
Can confirm. I ‘inherited’ a couple townhouses in Florida from a previous romantic relationship. They’re paid off so I book a nominal profit, but I’m subsidizing my renters to the tune of $200/mo each for the HOA (and a another couple hundred that goes to the property managers).
The next ‘housing bubble’ can’t come fast enough (though Miami isn’t helping much).
$4K/Mo in prop taxes plus HOA fees of prolly $2K/Mo BEFORE you contemplate the purchase price? Yikes. Luxury has a price. I guess I will always be looking at the condos 3 blocks from the beach.
The best solution is to have many trusted friends that have beachfront luxury condos. Preferably friends that spend a lot of time out of town and need a condo sitter.
No amount of money can buy happiness. Enough money can rent it.
The media still peddling ‘all is well’ story: https://therealdeal.com/miami/2019/09/26/in-a-sluggish-condo-market-these-miami-developers-find-a-sweet-spot/
…Now you have whole city blocks that are nothing but high end. 200 units per building…
High end.
Middle class has been made extinct and the duffers are building high end. Hoping to find buyers for high end. A high end buyer buying a unit in a 200 unit building. Sharing the pool and singing kumbaya with other high-enders.
Where do they think they are? Dubai?
The whole concept is just mad. What next for theses developers. Go onto the social media and get the silicone enhanced influencers to launch the high end Miami lots. Predicted to be under water (literally) before the mortgage ends.
It seems that homo highendicus dumbus is also going extinct. Very few left to buy these puppies, and diminishing. Call Mr Darwin.
Full disclosure. A few years back I was very keen on this great building in Meridian Avenue. Never got around to try anything serious with it. Very happy with that turn of events.
“Him” (His Infernal Majesty?) said it clearly in the piece: this is fake luxury.
Think of these places as the real estate version of the Vanden Plas 1500: an Austin Allegro with pretentious finish and a ridiculous price tag.
I have long drawn my conclusions about the folks who buy this stuff and they are better not printed, at least not on this fine website.
But just because it’s fake luxury it doesn’t mean HOA fees are any lower. And property taxes are based on how much the property is valued, not on the real value of the shoddy workmanship and poor materials sold for their weight in gold. Let’s say $35,000 in taxes and $25,000 in HOA fees per year? Sixty grands per years are not peanuts and come on top of the buying price. It remind me of all the people buying (leasing was still in its infancy) Bentley’s around 2005 and trying to sell them after six months because insurance and maintenance alone were eating them alive.
Finally allow me to say that having lived in Florida, and fled as soon as possible, I just don’t understand how somebody could pay that kind of money to live in Miami.
During the 90’s we vacationed often in Miami, 3 or 4 days was always more than enough. When we moved to Florida we hardly ever went there, actively avoided it in the 2000’s. Miami was cool in the 70s and 80s when it was a little run down, too commercial now.
Dubai is down around 15-20% this year I believe.
I am sure the Chinese government will be delighted to send a delegation of their finest statisticians to the UAE to show them how you can literally run out of buyers but still have a booming real estate market.
Greek, Italian and Spanish authorities can provide their expertise in keeping real estate prices sky high in face of declining sales and shrinking populations.
Finally newspaper editors and economists from Japan, Sweden and Australia can explain to the embattled Amir how merely slashing interest rates and buying securities can solve any problem, included (but not limited to) baldness, traffic congestion and even the common cold.
And then they say international cooperation doesn’t work!
That would explain very strange as I am seeing on social media sites and we have surprisingly affordable apartments in Dubai can be. As if I’d ever want to go there in 1 million years.
I felt exactly the same way until I spent time there on a cruise stop. My favorite sight was the reasonably-sized indoor, very cold, ski run at the luxury mall (the other mall has the world’s largest aquarium, and it’s fascinating).
Dubai is absolutely beautiful (though it helps if you enjoy the desert), everything is new, and, unlike NYC, it has a surprising mix of activities & restaurants that are reasonably priced.
One of the tour guides explained there’s actually a higher percentage of Arabs in Manhattan than in Dubai. Dubai is about 13% indigenous Arabs (citizens), the rest are various contractors (westerners & others) on strictly controlled visas. Contractors actually build & operate the place; Dubai citizens don’t do that.
Having said all that, I sure wouldn’t want to live there, Iran is about 30 miles across the water…
I rank Dubai as one of the worst cities in the world unless you enjoy 50 degree Celsius heat and shopping malls.
Last time I was there was a few years ago on my way to Yemen and I picked up a brutal dose of food poisoning.
Apparently Brits like Dubai for winter breaks because sunshine is guaranteed.
I wonder if this will spill over to the Gulf side of FL.
I live on the Gulf side. I am not sure about waterfront property, but things seem a little more rational over here. But, there is always speculation going on somewhere.
It started in Miami in 2006-2007 last time. Then spread to the gulf, eventually to the panhandle. Then the rest of the country.
I built houses on the panhandle in 2002-2006. It was gangbusters in 2005. After Katrina, things changed rapidly. Sounds like the same is happening again. Maybe not exactly the same, but it rhymes a bit.
I moved to Birmingham Al after the crash in Fl. It was still strong in that area up until late 2008 early 2009, then the bottom fell out there too.
Takes a while to reverberate through the rest of the country.
Full disclosure, just my observations.
we live in birmingham – we live in highland park and birmingham is booming- don’t know if it will last but its great right now- we moved here from greenville sc – we like it
Can I ask why you left Greenville? SC & AL are always on my list of places to look into moving.
We live on the Gulf side too — and what’s keeping our prices growing (slowly and steadily this time, we hope) is all the refugees from Miami-Dade and Broward Counties. They’re mostly Cuban or PR who can’t buy a house there, or NY/NJ/New England who bought there and then ruined it the way they ruined the Northeast.
We don’t need a wall at the Mexican border as much as we need one at the Broward County border on I-75.
What areas are most devoid of NE’ers? I want to look into Tampa or Jacksonville. Love water, heat, and sunsets…
Thanks.
Cheap and easy money always finds a place to die.
Zombie corporations.
Corporations that never had and never will make a profit.
Real Estate speculators assuming the greater fool theory…
It seems that the condo developers should have spent more time paying attention to geopolitical and financial events and less time watching football the property Bros. Lets examine the list of normal buyers of Luxury Miami condo’s; Rich Venezuelans–oops, Rich Russians–oops, Rich Chinese=oops, Rich Tech Unicorn Bro’s- oops, Rich Saudi’s-oops, and Rich Columbian Drug Lords- finally a keep group of buyers still rolling.
RE market is running on fundamentals. The ground floor on those condos is not far from sea level. Dys-location, dyslocation. People are starting to listen on climate change. When you own a treasury bond, you see NAV = 1 as far as the eye can see, but you look at RE you see who will be swimming naked when the water rises, who will be bone dry, and you bail out. One thing Wolf’s charts support is the fractured nature of this RE market. Insurance companies can walk away in the middle of your mortgage? What happens then? State and Feds step in? What does that do to bonds?
Yeah.
Like “hope and change” who just purchased a $16 million beach front house.
“People are starting to listen on climate change”
I’ve always been told to ignore sunk costs, AB.
Darn, where are all those manicured little lap poodles going to live now? Will they have to move back to New York?
That direction is too cold, they will likely migrate west along the coast. Maybe stop in Texas if they get that far.
I hope not.
Excellent article. It explains why RE prices are generally not going up when mortgage rates are trending down even through the spring and summer. Several of the comments posted also helped understanding.
Looks like another blood bath is underway in Miami’s condo market. They also impact adjacent markets in So. Florida
Data from some of Wolf’s earlier articles have been foreshadowing this in Miami. Wonder how many other markets in the US are in similar condition.
Keep up the good work folks
Could it be that prospective buyers of Miami or South Beach property have seen pictures of the streets of Miami and South Beach flooding when high tides occur, heavy rain days, etc.?
https://www.local10.com/weather/heavy-rain-causes-street-flooding-in-miami-miami-beach
Even more exciting, they have what they call “Sunny day flooding” increasingly every year where the water just comes strait up into their basement through the porous limestone ground the whole city is built on.
My god man…flooding. In a city 5 feet above sea level.
Quick. Raise taxes. Grow government. And ban something!!!!!!
Hey they could always just build a wall Seawall that is Doesn’t POTUS own property down there He’s an expert on wall building
The only cure for asset bubbles is a mercy killing by collapse.
Miami Beach is sinking, and the sea level is rising. Not good. The billions it’s putting into flood mitigation is merely kicking the can down the road.
It will eventually be bailed out financially by the federal government . The question is how to craft a bailout that would be politically feasible…
Most of New Orleans is built BELOW sea level.
But when it floods…it must be global warming responsible.
They don’t clean the sewers and those mardi gras beads pile up.
No it’s loss of marshland which serves as a buffer. That has to do with the immense dead zone in the GOM result of oil spills and stuff coming down Miss, excess fertilizer dumped on GMO crops in Midwest. Same thing with the algae bloom in Florida.
It will make for great scuba trips in a few years!
Am I crazy for wondering whether they’re building high end fully expecting them to get wiped out by the next hurricane?
Correct.
True and when I was building homes I heard the stories of my colleagues making zillions by borrowing more and doing bigger projects as I built one at a time Then as the markets imploded I heard the stories of how they were all crying, bankrupting and divorcing I just kept driving my old pickup to work every day and tried my best to ignore the noise
Rent, don’t buy. When then rent goes up, you move. Kapish?
Tell that to all the idiots paying so much to rent in places like San Francisco Raleigh is a great alternative with a growing tech industry and MUCH more affordable living
you move to a crappy neighborhood?
Please do another article on the repo market.
Condos ( and I live in one) are like everything else these days. They come with a ‘subscription’ in the form of the HOA monthly fee. I can accept that as a necessary evil. I don’t want to do the landscaping or clean the entrance. It’s why I bought one but this ‘business model’ has spread to everything else. I get prompts on my iPhone to sign in to the Apple store and ‘news alerts’ I didn’t request. I suppose I will soon get prompts for iPhones streaming service next. Now you can’t even buy an stationary bicycle without a ‘membership’ attached. I’m afraid to buy a new car because my dashboard video screen might soon display the latest offerings from Geico before it allows me to change the radio station.
In other news about banking security on the internet. I stopped by SunTrust today to see the status of my accounts. I was hacked and for security purposes SunTrust suggested I move everything but a deminimus amount into a money market account. I did and had alerts on all my banking accounts with the big three credit agenies, SunTrust and Chase. I was told my checking account was empty (I can no longer use on line banking) and $50,000 had been transferred from my money market account to checking to ‘recharge’ it on behalf of the hackers. Folks this is not going to work. Tommorrow I convert to cash.
I have noticed that too. One of the arguments people always make against communism is you don’t get to own your own stuff … increasingly the US system, whatever you want to call it, has everything on a subscription service so that you really don’t own your own stuff any more either. More subtle things than subscription too, like how “mysteriously” people’s iPhone slow down after a system update following a release of a new model – its why Apple already got sued by France which has anti-planned-obsolescence laws.
To err is human. To really screw things up you need a computer with an internet connection.
Between screen addiction, vaping, and the Surveillance Industrial Complex you have to wonder how long Millenials will be able to keep civilization going.
“I’m afraid to buy a new car because my dashboard video screen might soon display the latest offerings from Geico before it allows me to change the radio station.”
That’s exactly the kind of thing I fear as well.
And to be really cynical, look at the Boeing 737max fiasco. That’s a similar vein.
I converted to not only cash but goldand silver as well a year ago Sleep well at night now
Fredrick,
Where do you store your gold and silver? I’m interested in doing that too, but I don’t want to put it in a bank “safety” deposit box. And I’m not sure storing it at home would be wise either. Thoughts?
What will help prevent any sudden collapse are the happy-talk, buy-buy, articles like this one, explaining that “Developers continue to see an international clientele, especially those from Latin America, moving to the Magic City.”
https://www.miamiherald.com/news/business/real-estate-news/article235149742.html
Although it starts by admitting that although 34,000 people moved to the Miami area in a recent year, 58,000 moved (bye-bye) to another state the same year.
South Florida is one of those markets where foreigners are always invoked, either as a panacea for all ills or as a cause of all evils.
If the market is growing you “have” to buy right now at whatever price, otherwise you will be priced out by [insert the nationality fashionable among RE shills at the moment] desperately trying to bring their money out of their own country.
If the market is going down is it’s all the fault of those dastardly [insert the nationality that used to be fashionable among RE shills until a few weeks earlier] dumping their properties on the market at fire sale prices.
Part of the reason I could not stand South Florida is how so many people seemed real estate obsessed: I bet they were talking about it in their sleep as well. I’ve been told Australia is even worse, but I find that hard to believe.
Is Miami an extreme outlier? Are there any other local markets in the US this out of kilter?
Miami FL, San Jose CA, Seattle WA, Las Vegas NV all looking weak.
Forgot NY, NY
Las vegas booked YoY price growth..
Chicago, Hartford, Greenwich Ct etc ,etc, etc
San Jose CA – can’t keep a McDonald’s, a Ross, a Safeway, etc yadda yadda movie theater closed, Cafe Stritch down to operating 4 nights a week and may cut down to 3 (neat jazz club however long it can survive) the place is just getting dead, dead, dead.
What ends up happening to these condos that are new and no one wants or can afford? Do they just sit there and decay?
It sounds like the price of the unit can come down but the taxes and other fees still make the condo unaffordable.
If the market is allowed to work.
The developer or owner goes bankrupt. The bank forecloses. The condo gets sold at auction.
The buyer factors in taxes and HOA fees in the bid or offer.
The condos are rented out. Most of the condo buildings up and down the entire east coast of south FL are full of renters. When they go into foreclosure, the HOAs buy them and rent them out to keep the prices from collapsing.
I have a feeling many will turn to hotels or Airbnb units, which would be really bad for the hotel sector. I’m a hotel consultant and while the hotel business has been great in Miami, this year (like many other top markets in the US), Revpar (revenue per available room) is turning south. The main culprit is that demand Is not keeping up with the increase in hotel supply in Miami. The problem though is that the stats only track demand and supply from hotels and not all sources like Airbnb. I have a strong feeling more and more Airbnb units are hitting the market through owners using their condos for Airbnbs. This is turn could be causing the disappearance of demand from the hotel sector.
Sounds a lot like Vancouver over built no buyers and more units coming I feel we should see a major crash in Vancouver real estate it’s down 20 percent already we could use another 40 or 60 percent ratcheting before it settles . The real story is commercial real estate when that blows you will se REITs in canada locking funds get out while you can …just got back from delhi it’s down 40 percent as is dubaii and these places actually have real economies….the kids about to blow don’t get burned
No flood of foreign buyers this time, particularly from Europe.
Weak economy in EU and China along with stronger dollar and Trump limiting deductions to 10k is killing higher cost properties as well I’m sure
Perhaps the talk of wealth taxes is scaring off the wealthy foreign purchasers. Attach a 4% annual wealth tax to your property and see what it goes for.
Check out the data on property taxes compiled by Empirecenter.org. 4% or higher property tax rates have been around in some parts of NY state since at least 2017. http://www.empirecenter.org/wp-content/uploads/2018/04/Benchmarking_PropertyTax_2017.pdf
Example: In the village of Dobbs Ferry, NY (where Mark Zuckerberg grew up), the median value of a home in 2017 was $618,200 and the property tax bill was $24,760 ($40.05 per $1000 of market value).
Wolf, your table of various neighborhood stats is very interesting and helpful. I would also be interested to see the absolute $/sq ft price data in addition to the %change
Florida has a high rental vacancy rate (8.2%). The Fed counts vacation homes as vacant rentals, even though they are not rentals, as they are not used as primary residences.
https://fred.stlouisfed.org/series/FLRVAC
The Florida vacancy rate was much higher in 2009 after people had moved out of their rental units into new homes to try to strike it rich in the real estate market. I used to read about condo conversions. Have not been reading about them in this supposed bubble.
Florida orange groves are dead and dying because of the citrus greening disease. There used to be more jobs in the orange groves and juice factories. There are thousands of acres for sale inland. No traffic jams. More cows than people in some areas.
Florida has more vacation homes than any other state. I am not sure how the Fed counts them, or if they count them.
Gotta stick up for my state:
Fl’s 21.5M human population outnumbers the 1.1M cattle (who, contrary to popular belief, are allowed to neither vote or count votes).
However, Idaho, Iowa, Kansas, Montana, Nebraska, North Dakota, Oklahoma, South Dakota, and Wyoming have more cattle than people.
Heh. I got an add for “bank repossessed property Costa Del Sol”.
Very interesting article. I wonder what they’ll end up doing.
China would rather build empty cities with very slow sales transaction rates than let real estate correct downward.
Our policy makers will react to this somehow, they don’t like affordable housing either. Last time they let millions of properties sit empty on the banks books for years, while allowing them to pretend the loans were still good. This time, who knows.
John
US regulators are among the most aggressive in the world in terms of ensuring banks identify & charge off bad mortgages (which in 2008 so overwhelmed the system, taxpayers got stuck with part of the bill).
However, you are correct that foreclosed homes sat empty for years (in some cases) waiting for buyers. Even having fully written off a bad mortgage does not relieve the bank of owning & managing the foreclosed house.
Humorously, here in FL, about the only maintenance performed on foreclosed homes (copper pipes ripped out, mold on walls) was keeping the pool clean enough & stocked with mosquito-larve-eating fish. FACTOID: draining pools in high-water-table areas means pools might literally pop out of the ground & float…VERY EXPENSIVE TO REPAIR.
The original Florida land boom was followed by 1929 crash and depression….. Other 1920s Florida Real Estate Bubble Resources:
Wikipedia: Florida Land Boom of the 1920s
Market Crashes: The Florida Real Estate Craze
The Forgotten Real Estate Boom of the 1920s
The elephant in the room.
‘It’s over’: Miami Beach tries to outrace climate change’s rising seas
https://news.yahoo.com/its-over-miami-beach-tries-to-outrace-climate-change-and-the-rising-seas-160000886.html
I suspect similar situation applies to the Bay Area. If you buy a condo for $1.2 M in a relatively nice area with good schools, your property tax is about $1200 a month, $500 HOA fees, plus insurance and maintenance, your carrying costs easily reach $2500-$3000 a month before even the mortgage payments. That is Close to the rent you would pay for a comparable unit if you were renting from the owner.
Add to that the $4500-$5000 a month mortgage and all of a sudden it doesn’t really make sense to buy if prices are not going up any more.
With a stream of busted IPOs, a stock market that has not gone anywhere in over a year, there is no real incentive to buy.
Let’s see what happens next year.
As a Brit, these numbers are absolutely staggering. I own a 2 bedroom flat in England and rent a condo in Thailand.
For my flat in England I pay £75 per year ground rent, £1,200 per year maintenance, and £1,100 per year council tax – a total of about $250 per month.
For the condo in Thailand I pay 10,000 Baht (about $330) a month rent. The owner pays about 10,000 Baht per year condo fees.
I don’t think I will be buying or renting a condo in Miami any time soon.
seems you don’t have the funds to do so anyway! :-)
I didn’t say those were my only two homes…
Same thing in newer neighborhoods in San Diego. The property taxes plus HOA Fee plus Mella Roos Fee alone may cost you $2000/month . Now you need to pay mortgage on top of it..
Small world. I had just read the Kuppy article, then I came here. From memory, Miami real estate is very much Kuppy’s area. He set up a real estate company in Mongolia (YAK.V) when it was the fastest growing economy on the planet (2011-12???), but the Mongolian government mismanaged everything and the growth spurt came apart. Of course, commodities ran right downhill after the start-up as well. I guess Kuppy is mostly back in Miami these days.
Wolf, we will really appreciate your keeping us updated as to how this trend is spreading. I think we could say that Miami is “distinctive,” but not unique, and it’s certainly a trendsetter. And Petunia makes a good point…. Why, exactly, Miami, now???
In 1977 John D. Macdonald’s novel “Condominium” was published. It is really a must-read for everybody even remotely interested in what’s going on with Miami real estate. Spoiler: absolutely _nothing_ has changed in more than 40 years. I heartily recommend this book, a nice read, nothing literary but very enjoyable and uncannily predictive.
https://www.treehugger.com/climate-change/very-late-book-review-john-d-macdonalds-condominium.html
Bank of the Ozarks is into this development for a $600m loan, with a GDV based on over $1100/ sq ft. So their 50% LTV is $550 or higher….
Plus insane monthly HoA fees. Miami condo market makes no sense, you can buy a house in south miami for $250-350 a foot. A good house.
https://www.acqualinaresort.com/realty/residences/
Hey Wolf, I decided to email these guys for info, as below. At a 45-50% LTGDV $OZK is into this for up to $750/ sq ft.
Condos start at $4.2m? HoA is over $1/sqft/month, so tens of thousands a year plus property taxes.
At the right price someome will buy, but at $1500/ sq ft?!?
You can buy nice houses in South Miami/ Coral Gables/ Pinecrest for less than $300 with no HoA fees.
Estates at Acqualina video
https://www.dropbox.com/sh/8qnnqwg5zho8njq/AAARFIuQmqcZPIj_UpBqPNIba/Brand%20Video?dl=0&preview=The+Estates+At+Acqualina+Brand+Video.m4v
Estates Model Residence
https://my.matterport.com/show/?m=aN8UAcUPy9t&brand=0
Casa D’ Oro- Single Family home renderings
https://www.dropbox.com/sh/8qnnqwg5zho8njq/AAA7y72VWXX2PElefiFbyv-Ha/Floor%20Plans/Estates%20Single%20Family%20Homes/Casa%20D'%20Oro?dl=0
Casa D’ Oro $19,500,000
North Tower (fully furnished by Fendi Casa)
Maintenance $1.25 per sqft
Ravello (north tower) 4,364 sqft
https://www.dropbox.com/sh/y5pghsioi1qhkq3/AAD2aOcBPSqN0t15JFqSiU00a?dl=0
5th floor $6,120,000
14th floor $6,320,000
26th floor $6,620,000
Amalfi (south corner) 4,780 sqft
https://www.dropbox.com/sh/yivyqsn92vqczwe/AAByqwvmZvhAwo61mS4d8b4za?dl=0
14th floor $7,320,000
26th floor $7,350,000
Portofino (whole floor) 9,243 sqft
47th and 48th floor $16,000,000
South Tower
Maintenance $1.18 per sqft
VECCHIO FLOORPLAN AND RENDERINGS
https://www.dropbox.com/sh/8qnnqwg5zho8njq/AAA1D0f41aT8zfF0zzD3LQcaa/Floor%20Plans/Estates%20Residences/Vecchio?dl=0
6th floor $4,200,000
24th floor $4,800,000
UFFIZI FLOORPLAN AND RENDERINGS
https://www.dropbox.com/sh/8qnnqwg5zho8njq/AAAXV7TTM8lLpml9S7hy1zLIa/Floor%20Plans/Estates%20Residences/Uffizi?dl=0
22nd floor $6,400,000
24th floor $6,500,000
DONATELLO FLOORPLAN AND RENDERINGS
https://www.dropbox.com/sh/8qnnqwg5zho8njq/AABNBcPne_DQ3zqAzYcK0tiia/Floor%20Plans/Estates%20Residences/Donatello?dl=0
11th floor $6,600,000
24th floor $7,500,000
TOSCANA FLOORPLAN AND RENDERINGS
https://www.dropbox.com/sh/8qnnqwg5zho8njq/AACpM8nL3JeCAWtdmQ4awya5a/Floor%20Plans/Estates%20Residences/Toscana%20and%20Toscana%20Modified?dl=0
38th floor $7,900,000
42nd floor $8,300,000
Deposit Schedule
45% Contract (now)
55% Delivery 2020
The Estates at Acqualina, will be built in two phases beginning with the South Tower – also known as 777 Via Acqualina – and Villa Acqualina, its extraordinary amenity complex. The Phase One build-out will include many greatly improved floorplans, all with exquisite finishes, five-star services and unique amenities that distinguish the Acqualina brand.
Additionally, as a result of high demand for larger units and more customized features, 777 Via Acqualina will now be reconfigured to feature a total of 150 luxurious residences with square footage ranging from 2,910 to 5,595 square feet, with larger balconies and extra bedrooms. It will also offer two single family homes, as well as two two-story penthouses, all with private leisure pools.
Each estate in the sky will be delivered furniture ready, and equipped with the finest appliances, imported stone countertops, smart-home technology and soaring ceilings. Each master suite will boast his and her bathroom suites with imported onyx countertops and walls and marble floors, a steam mist shower, a free-standing tub, an ocean-view shower and elaborate his and her dressing rooms. The tower will also feature an exquisite lobby designed by Karl Lagerfeld, the first condominium project in the United States to involve the iconic designer.
Villa Acqualina, 60,000 square feet of remarkable amenities space, will also be completed in Phase I, and will house a world-class Spa and Salt Room, a private Nightclub, Wine Lounge and a celebrity chef restaurant, as well as Circus Maximus, offering residents a world of games and activities including a Wall Street Traders’ Club Room, a private skating rink and bowling alley, all in a private gated community on the ocean.
Wolf, thanks for including the dialog. It is spot on.
Two things are often left out of the RE status summaries on condos including your summary:
1) monthly carrying costs – condo fees, RE taxes, local govt fees
2) any pending or active legal cases against builders or condo assns
Often these have a bigger impact on buy decisions than price and usually take a little work to dig up..
Informative article Wolfe.
Googling OZK bank did not turn up any offices being
opened in the Sunset Harbor recently.
The latest one that came up was in 2017.
How recent was this convo?
2017, as far bank branches is concerned, is new. The branch I got to looks like it’s 100 years old.
So this dialog (convo) above is from 2017. Right?
No it’s not. The bank branch may be from 2017. Your question is nuts, in a best-case scenario.
After reading I had to check the calendar, it is exactly as it was in 2007.
After reading the comments, I guess I am not alone in this observation.
Listen to Shirley Bassey”s song: “History Repeating”
“… And I’ve seen it before
And I’ll see it again
Yes I’ve seen it before
Just little bits of history repeating..”
“Even the County foreclosure sales, which have been loaded with fix-and flip reality TV fans bidding 110% of value for the past 5 years, are seeing below market priced deals with no bids.”
This is totally inaccurate. I follow the foreclosures and tax deeds religiously. Check the Miami dade clerk of the courts website and see how many foreclosures are out there, and look and see how many were administered daily back during the crash and after. There are almost no foreclosures to speak of right now, it is a dry market, and people are bidding outrageously high amounts for foreclosures. Condos are not getting foreclosed yet. Not sure the fire sale side has failed at all.
This is good information but makes me want to puke as my brickell condo which I thought I overpaid for might tame a further bath if/when I sell . I love MiAmi but im too practical to get gouged daily on almost every purchase and activity . I agree with many of the other readers better to rent . I buy investment properties for passive income but bought in brickell for future retirement home .