Looking to define trends in Miami’s shifting condo market
Written by Michael Lewis on June 30, 2015
You can’t spot a trend on day one. A deviation becomes a trend only if it lasts awhile. Otherwise, it’s just an anomaly, a blip on history’s radar.
That’s what economists said last week when we tried to assess a jobs record in Miami’s financial sector of 78,500, up 800 in just one month. Wait three months to see if it lasts or it’s just a blip, they said.
We’ll heed their advice as we assess our reports last week on a dip in downtown and Brickell condos under construction and a flattening of condo resale prices in those ultra-hot areas to decide if the condo rush has peaked.
Whatever is happening to condos isn’t affecting single-family homes, and it might never leap from condos to homes.
Several pieces of puzzle, however, are clear:
•Condo price and demand do not soar forever skyward without bumps. Some developers in our last condo boom a decade ago argued that a new Miami paradigm would bring only ups, never downs. They were quite wrong, as they learned painfully. Miami’s is a cyclical market.
•In condos we are not the masters of our fates. Most buyers aren’t Miamians moving from the suburbs or trading up. They hail from out of town or out of the US, and even as our economy gains – witness those financial jobs and others – that’s not true for some foreign buyers. Those at the ultra top always prosper, but how many $6 million and up condo buyers exist?
•Every condo we’ve built will be sold and occupied – at the right price. Within a few years we absorbed 24,000 condos left on the market by the great recession. But many sold low and then were rented at affordable rates. Then those purchases became bargains as the values soared.
So, what shift in the condo market is either the blip of today or the trend of the future?
As we reported, in Brickell and downtown 6% fewer condos are rising than a year ago. Hard as that is to believe as we drive under cranes in traffic-jammed construction zones, less is in the pipeline.
A report by Dodge Data & Analytics shows a change broader than just downtown and longer lasting. Future residential construction contracts throughout South Florida are down 19% from May 2014, Dodge reports, while nonresidential contracts rose 44%.
Word on the street is that one veteran developer sees a peak and is selling off all residential holdings.
The new construction market is hard to grasp. Many units and projects that have been announced are unlikely to rise even if sales remain strong and if signs we’re seeing are only a blip.
Developers have formally scuttled only one project of 330 units, we noted last week, but in Brickell alone where 1,317 units have opened in the past two years and 3,614 are under construction, about 5,000 more have been announced but aren’t yet started.
Knowing how many new units have truly sold is tricky. Many companies count sales when they collect receipts. But with condo developments, not every sale that’s claimed is paid for, and no central repository tallies new condo sales.
It’s easier to tally resales, for which a report from the Miami Association of Realtors is revealing.
Condo and townhome resales in Miami-Dade fell 2.6% in May from May 2014. Cash sales – telltale signs of foreign buyers – fell 7%. Pending condo sales dropped 10.1%. New resale listings dipped 7.1%. The mean sale price was off 6.7%. Resale condos took 7.5% longer to sell. The percentage of the list price received fell .2%. Listings for sale rose 11.6%. The months’ supply on the market rose 17.5%.
Every single indicator eroded – no disaster, not the bottom falling out or anything like it, just a slowdown in a hot market. Blip or trend?
But it was not a change in the housing market overall, just in condos.
Miami Association of Realtors single-family home figures showed a 5% May gain in closed sales, no change in time on the market, a 0.7% gain in percentage of original list price sellers received, a 1.1% drop in listings and a 6.9% drop in months’ supply on sale.
So while 9.1-month supply of resale condos is for sale, the supply of single-family resale homes is only 5.1 months. That looks like a sellers’ market for homes and a buyers’ market developing for resale condos.
Looks like, that is, assuming a trend and not a blip.
Even in a condo buyers’ market, those who own and live in them feel no pain. Pain only comes at sale time. Those most likely to feel that pain are investors, not residents – but most buyers of new condos are investors.
If so, the change in super-hot Brickell and downtown might concern buyers. Resale condos there have soared from $240 per square foot in 2011 as the overhang in construction from the last boom was being absorbed to $430 per foot today, a huge gain. But the pace of gain has slowed to zero, from a 27% jump in 2012 to 22% in 2013 to 16% in 2014 – and absolutely no gain in 2015’s first five months.
Is five months long enough to establish a flat line?
Every Miami real estate cycle has differed. Banks aren’t on the hook in a big decline – only because so many sales were cash and others required 50% or more from buyers. Buyers can lose, banks seem safe.
If this really is the end of the condo feeding frenzy, it comes as Miami’s economy is gaining, not fizzling. That makes any slowing or decline in condos a quantity and price correction, not a collapse.
Even that is far from certain. The economists are cautious.
But the signs tell us that if you’re looking for a condo to live in, this might be a good time to start thinking of making a sensible purchase. Some sellers are likely to be mighty anxious to please you.