Miami 2016-17 Market Update

Current Status: BUY (Oversupply = opportunity for investors)

It shouldn’t be news to anyone that Miami’s real estate economy has failed to break free from it’s reliance on foreign investment. After all, the market is a melting pot of international developers who bring their newest design ideas to Miami to implement, test and refine before heading to other markets. The current development cycle led to a condo boom starting from early 2011 and Brazillian buyers poured into Miami to take advantage of exchange rates and the security of American assets. It should be no surprise that the Miami condo market is largely effected by the changing economic and political landscape in Brazil. As Brazil fell deep into turmoil in early 2016, the Miami real estate market stepped back to asses. How should investors play the market as we close in on Q4 2016?

Supply & The Developers:
South Florida currently has a 14-month supply, with a 6-month supply traditionally seen as the equilibrium. At this midway point in 2016, developers have completed 63 new condo towers, totaling over 4,900 units in Downtown Miami. 130 new buildings are currently under construction with 14,700 new units and another 221 condo buildings with 31,200 units are in the planning and pre-sale phase of development. As the market has seen a softening in early 2016, there have been at least 6 cancelled projects in Downtown Miami including Krystal Tower and Ion East Edgewater. 

Developers see the current cycle to be more stable than the 2004-2008 cycle which was spurred by easy financing and quick rising prices. Today buyers must put 50% cash down and developers do not start a project until it is 80% sold so that deposits can cover a large portion of construction costs. Developers are lowering their pricing for projects in planning and pre-sale phase to spur demand and make the units more attractive to potential buyers, lowering risk.

Demand & The Consumer:
Sales velocity has fallen by considerable amounts, influenced by a mix of over-supply and weakening foreign currencies. A strong U.S. dollar, dropping oil prices and an uncertain global economic outlook has caused foreign investors to hit the brakes. Many of these factors have effected not only Miami, but also other top luxury real estate markets such as New York and Los Angeles. The Brazilian REAL has dropped over 42% compared to the U.S. Dollar, as has the Argentine Peso. Additionally, new laws targeting money launderers will negatively influence local real estate as the international community cracks down. 

As South American buyers slow, a new group has visibly come out of the woodwork. There has been a significant increase in demand from New Yorkers and Chinese buyers who have began taking advantage of softening prices and investment opportunity. REALTORS have identified an opportunity to penetrate these wealthy markets that have historically not been amongst the driving force of the Miami Real Estate economy. While these buyers will not completely replace the loss of buyers from South America, it creates diversity in the market place and hedges against the loss of South American buyers. . 

Outlook:
Miami is the number one destination for Millennials looking to move. Plain and simple, Miami is a city for the future. If the last 5 years of commercial development has proven anything, it’s that Miami is evolving into a world-class metropolis. Most of the condos built between 2004 and today never had a chance to appreciate. Downtown Miami, Edgewater, and until recently, Brickell, were plagued with nowhere to walk, nothing accessible, no public transportation and neighborhoods overrun with poverty and homeless. In the last year, this has completely changed as “city centers” such as Brickell City Centre, Design District, Midtown, etc. have developed into places that people desire to spend time. Miami is now a full city, and not just a place on the water with a hospitality, cruise and party industry. It stands to say that the demand for Millennials to live in Miami will not be stopping soon, giving investors a great opportunity because even if Millennials can’t afford to buy, they will still need to rent to live.

Financially, with low debt levels amongst buyers and developers alike, the Miami Real Estate Market is in much better position to sustain itself opposed to the 2008 crash. As we see more developers cancel undersubscribed projects and supply begin to correct itself, prices and sales velocity should begin to stabilize. With high demand to live in Miami mixed with an oversupply of inventory from the last development cycle and weak foreign markets, now is the time to buy in Miami. The market softening has opened up tons of opportunity across all markets of Miami. Whether you are interested in purchasing a condo for any use, multi-family rental property, or luxury-waterfront estate, now is the time to keep your eyes open for deals.   

2015 Miami Real-Estate Market Recap

The numbers are in, and according to the Miami Association of REALTORS, Miami-Dade County single-family home sales set an all-time record high in 2015. Miami also had the third-most existing residential sales with 29,886 including homes and condos in its history. Single-family home sales rose 3.1% over 2014 the media price of closed sales rose 8.2%. This strong growth reflects the demand investors and residents alike have had for Miami's record breaking market. 

The strong market is attributable to population increase, a strong local jobs market and South Florida’s continued growth as a leading place to live and work. These factors are expected to continue positively effecting the Miami real-estate market through 2016 and beyond. Miami has also benefited from foreign buyers looking for a safe place to invest their foreign currency in the United States. Foreign buyers prefer single-family homes, which has caused a shortage of inventory, the pattern is expected to continue. 

Miami real-estate has also been selling very close to list price at 95.2% and cash deals have represented 51.8% of Miami’s total closed sales, more than double the national average. Cash deals made up 65.4% of condo sales in 2015 and distressed property transactions fell by 7% with short-sales fell by 40.5%. There is still lots of opportunity to take advantage of this strong real-estate market that Miami is currently experiencing as new construction sales continue to stay strong. Miami and the South Florida real-estate markets are a great place to invest whether you are American or a foreign buyer, Miami offers great investment opportunities at all price levels. 

Miami Condo Market Entering Correction

Just a few short years ago Miami's condo market was booming and foreign buyers were snatching up properties to add to their portfolios. This lead to South Florida becoming the hottest market in U.S. real-estate as it recovered from its 2007 crash. Condo prices have rapidly been on the rise over the past several years, but this stands to change as new supply prepares to hit the market to the tune of investors slowing down their buying spree as global markets enter a period of volatility. 

2016 will be a great time to keep an eye out for a new investment property in South Florida. With so much market volatility stemming from China, low oil prices, South American currency devaluations and tons of new supply hitting the Miami Condo Market, it appears that we are about to see a market correction. There are already tell-tale signs of a market slowdown including a slowdown in single-family home sales. While single-family home closed sale averages continue to rise, the percentage of closed sales has fallen year-over-year. Single-family home sales median prices rose 12% to $274,900 while the median condo price grew 7% to $203,000. 

Sellers are typically the last to accept that prices are beginning to fall. The original market recovery was fueled by foreign investors, who accounted for about one third of condo sales. Today, many of these investors have backed off adding to their portfolio as GDP from their native countries have dropped. Brazil's Real currency has fallen in value by more than half since the market correction and tough economic sanctions on Russia have slowed down Russian money coming to Miami. Both of these countries are also heavily exposed to falling oil prices and unstable governments. Additionally the large amount of new inventory has caused investors to be slower and pickier with their investments as opposed to a fast closing market. Venezuelans have stayed quite strong in their desire to acquire Miami properties as they try to get money out of their country and into the stable U.S. economy.    

To sum up, their simply just aren't as many buyers willing to pay the prices that sellers are asking. The market appears to be heading in the direction of 2014 pricing in order to stimulate buyers and get inventory moving. Areas that remain hot are where units are priced between $350,000 and $700,000. Higher priced areas such as South-Of-Fifth have begun to see a slowdown following a hot market that lead to some of the highest prices per square foot in Miami. The ultra-high end is also still strong above $3 million fueled by new buildings such as Faena House, Surf Club Four Seasons and Eighty Seven Park.  

If you are considering purchasing a property in Miami but have been weary of jumping into a hot market, 2016 is looking like it is the year to consider pulling the trigger. With unstable economies, prices should fall which will open up great opportunity to acquire prime property at discounted prices. Don't be scared by falling prices, seize the opportunity!  

South Florida Top 10 Metro Area Growth Market

South Florida's Metro Area has seen some of the largest increases in home prices in the country over the past several years. The price of a single family, 3 bedroom home has risen by close to 11% while condominium pricing rose 7.1% to $289,900 and $156,300 respectively. Additionally, the market has seen a 33.4% increase in the amount of transactions that took place in early fall 2015.

South Florida is well positioned to see increased growth over the next several years. Developments such as Paramount Miami World Center and Brickell City Center are ready to drive a new consumer demand for Miami. Investors worry that the growth rates are too high and may be unsustainable, with a more manageable growth rate closer to 3%. Prices have been driven up due to limited supply in areas, but a bulk of supply is about to hit the Miami market over the next few years. To separate themselves, some projects have chosen to focus on quality over quantity, upgrading to developing luxury units with more space to attract buyers. 

One interesting aspect of the South Florida Real-Estate markets growth over the past several years is that it has been investor driven. South Florida market has not yet seen many first time home buyers and those using FHA loans purchase properties in the past several years due to the competition within the market. Investors offers on properties are typically more attractive, and have made it hard for first time home buyers to take advantage of the discounted prices.

Miami 6th Worldwide Average Price Per Square Foot

Prime property prices in Miami have risen about 91% over the past five years and with many projects breaking ground, the growth doesn't seem to be stopping anytime soon. Miami now ranks 6th amongst cities worldwide in terms of average price per square foot at $1K, tied with Los Angeles. London leads at $3,800 sq ft followed closely by New York and Hong Kong at $3,200. 

Miami has rebounded from a 2008 crash which saw prices violently crash after a rapid rise that started in 2004. The banks fueled this rapid rise in pricing by approving loans that should never have been approved. Mortgages began to go into default causing mass foreclosures. This same knife that killed the Miami real-estate economy became the same fuel for it to recover. Slowly investors began to come back to Miami, snatching up inventory at bargain prices. This has led to a rapid rise in the market as Miami has become one of the hottest real estate markets in the world. 

The rise in prices this time around are due to large pools are international investors, wealthy american investors and hedge funds which should single stability as opposed to the bad loans. The city of Miami in its current form is still in it's infancy and much of it is under 10 years old. If you are looking for a great place to invest in real-estate, Miami is a great spot to consider for either appreciation or rental opportunity.