Miami Condo Market is Far From a Bust: Response to the Wall Street Journal
I am sick-and-tired of news reporters writing “stories” about the Miami real estate market with inaccurate, misleading headlines simply to
scare capture the attention of readers, making them think that our market is going to tank, simply so that people click on their stories to help their respective websites rank higher.
I encourage everyone to please read the full articles and then look at
factual statistics about the market before believing the headlines. And,
most importantly, please understand that Miami and Miami Beach are
completely different places and completely different markets!
Miami Condo Market is Far From a Bust
A few weeks ago, the Wall Street Journal (WSJ) published a story with a headline predicting a “condo bust” in Miami, which is just flat-out misleading, has no basis in fact and although caught the attention of many around the globe, is wrong.
Let me first address a few things from that WSJ article:
#1 – “In the fourth quarter of 2015, the number of Miami Beach condo transactions declined nearly 20% from a year earlier.”
THIS IS FALSE! I have no idea where this reporter got her information from. Developers do not openly disclose how much inventory they have available or sold. So, I can only assume that she got her information from the MLS for resale inventory. This entire article is written from the perspective of developer inventory but she then tries to use numbers for resale properties to “pad” her negative figures??? Let’s look at the MLS data for Miami Beach that I just pulled for this article.
Q4 2015 Miami Beach Closed Sales: 522
Q4 2014 Miami Beach Closed Sales: 568
46 less units equals 8.1% decline, not 20%…mislead much?And, if I did have access to all developer sales statistics during these periods, units sold would have gone up in 2015, not down.
If you look at the entire year of 2015 vs. 2014, there was only a 5.3% decline!
If you were traveling 100 miles per hour and slowed down by 5% to 95 miles per hour, would you say that you have stopped…or just slowed down slightly???
#2 – “[Related] priced its new Auberge development, a 60-story project in downtown Miami, at $600 a square foot, compared with the $850 a square foot it might have asked a couple of years ago.”
GIVE ME A BREAK! First of all, a condo building that is NOT waterfront in Downtown Miami would never set prices to begin at $850 a square foot at any time during this cycle, let alone “might have asked a couple years ago”…PURE SPECULATION on the part of a reporter. Using this figure to compare to the $600 a square foot that Auberge is actually priced at only helps “support” this reporters opening paragraph that states “developers slashing prices.” Again, very misleading.
*Note, the article does mention that Auberge sold 20% of its inventory in the first 2 months of sales…which supports how strong the Downtown Miami market currently is!
*Also note, another project near Auberge in Downtown Miami that is NOT waterfront is Paramount Miami Worldcenter. At no time since Paramount Miami launched sales have they asked $850 a square foot. In fact, Paramount Miami launched sales with Tier 1 pricing starting at $533 a square foot (November 2014). If Auberge “might have asked $850 a square foot a couple years ago” then Paramount Miami would have definitely done so especially since Paramount Miami is a much nicer project and will be situated within the 2nd largest urban development in the entire country.
#3 – “Other Miami developers have put on hold or canceled more than half a dozen projects planned earlier in the cycle.”
So let me understand something…the opening paragraph of the WSJ
hit piecearticle, directly after “Miami is facing a condo bust—again” states that “developers have started canceling projects.” There are over 240 condo projects in Miami-Dade County either completed, under construction or in planning stages…and this article uses a mere 6 canceled projects as a basis to scream “the sky is falling” and that “developers have started canceling projects?” That is only 2.5% of all projects!
Key facts not mentioned in the WSJ article that rebut the so-called condo bust in Miami:
- 85% of the pre-construction condo developments (currently under construction) with a completion date in 2016 in the Greater Downtown Miami area (including Downtown Miami, Brickell, Edgewater, Midtown) have already been sold. What does this exactly mean? It means that buyers of these units have already put down at least 50% deposits. Do you think anyone in their right mind would choose to lose a 50% deposit by not closing? NO! This, as opposed to 2008, where buyers only had up to 20% of money down before the closing and depended heavily on bank financing.
- Greater Downtown Miami currently has approximately 7,200 units under construction which will be delivered over the next 3 years. Compare this to 2006-2008 when there were nearly 18,500 units under construction.
- Over 80% of all condo sales over the past 3 years were purchased “all cash” with no bank financing. In the resale market in 2015, the percentage of all-cash condo purchases was 73%. If buyers used financing, it was for 60% or 70% of a property’s value. Overall, this means there is an incredible amount of equity and very little bank exposure or default risk, i.e. foreclosures or short sales, which is what usually leads to steep price declines, the supposed “bust.”
So, let me just clarify, the WSJ led their story with a headline that is based purely on conjecture. At best, it is an opinion. A more accurate headline would have been “Can the South Florida condo market survive foreign currency fluctuations?” – But, that wouldn’t bring as many website clicks, would it?
A Few Additional Stats
I encourage you to look at the facts: Douglas Elliman just released their Q1 2016 Market Report for Miami and Miami Beach, and I hope that you read the full reports on my website.
In addition, the Spring 2016 Housing and Mortgage Market Review published by Arch Mortgage Insurance Company spells out that there is little chance that Florida home prices will drop. Further, the likelihood of home price declines across the United States over the next two years remains low at 5%, but for Florida the risk is even LOWER. The report tries to measure the likelihood that home prices will be lower in 2 years based on recent economic and housing market data. Regardless of the low overall risk of home price declines across the country, the report highlights the fact that Florida’s risk of a price decline over the next 2 years is only 2% in 24 Florida counties, including Miami-Dade and Broward.
Miami & Miami Beach are NOT the Same Place
I really want people to understand that Miami and Miami Beach are not the same city and are different real estate markets. The “Miami market” includes cities and neighborhoods such as Downtown Miami, Midtown, Edgewater, Design District, Brickell, Coconut Grove, Coral Gables, South Miami, Pinecrest and Palmetto Bay. The “Miami Beach market” usually includes such cities, islands and neighborhoods as Miami Beach, Bal Harbour, Surfside, Sunny Isles Beach, Fisher Island, Bay Harbour Islands, North Bay Village, South Beach, North Beach and Mid-Beach. When news reporters are speaking about the so-called “Miami” market, they are confused by the difference and are lumping many different categories of stats together to make the market in South Florida look bad, when that is not the reality. Please leave it to Miami real estate experts to use statistical data and who actually understand the distinctly different cities and neighborhoods in Miami-Dade County!
There are still amazing pre-construction condo developments in the Miami and Miami Beach real estate markets that buyers should consider. Definitely not all of them, but this is why it is crucial to work with a knowledgeable real estate condo broker who knows the condo market in this area like the back of his/her hand. It is even more so crucial to trust your broker.
Let me give you a scenario. I received a referral from a client and close personal friend. The referral toured single-family homes with me in Coral Gables because he was certain he did not want a condo. A different friend of his purchased at a condo building in Edgewater, so my referral then blindly purchased at the same building as his friend without knowing much about the project and decided he didn’t need me being involved in the transaction as he could get a better “deal” directly through the developer (always a big mistake…developers have their own best interests to protect, never the buyers…that’s why a broker is so important).
If he had used my guidance, I would have explained to him that this particular project, though appealing to the eye, was not the best fit for his lifestyle or long-term investment goals. I would have presented him with developments that will have better long-term value, i.e., One Thousand Museum, Park Grove, Eighty Seven Park and Paramount Miami Worldcenter, all with outstanding architects, developers, amenities and luxury residences.
It is crucial to find a condo development that fits your needs, but also your wants. It is not the same market as it was for the past 2 years, and yes, the condo market is stabilizing, but this does not mean that people should be scared of the market, just more cautious. And, whether you work with me or a broker that you already highly trust, just be more diligent.
Make sure that you are working with an outside broker (not an employee of the developer) who is honest with you about each project. If a broker has nothing bad to say about a project, they are probably just looking for their fast commission check. Like anything, there are always pros and cons to every project. For me, it is not about the quick check. It is about building relationships and building a referral network. This is why I am brutally honest with my clients.
Article Courtesy of MiamiLuxuryHomes.com