There was a time, only two years ago, when Miami’s condo market seemed like an ever-expanding balloon. South Florida was the nation’s biggest real estate comeback story. Miami became a go-to destination for luxury buyers looking to add to their property portfolios.
But like most things filled with hot air, eventually the balloon starts its gradual descent back to earth.
For those who have been waiting for the drop, 2016 may well be the year when softening demand—fueled by stock market volatility in China, low oil prices, currency devaluations in South America, and a heck of a lot of new condo units coming on the market—becomes too much to overcome.
As 2016 begins, signs of a slowdown abound. While prices continue to rise for single-family houses, fewer are selling. The market for condos, which many consider a health indicator of vacationer-heavy Miami Beach, is also showing early signs of stagnation.
The number of single-family home sales that closed dipped by 6.7 percent in November compared to the same month in 2014, while new pending sales fell by 15 percent, making it the fifth straight month of decline, according to the Miami Association of Realtors. Nevertheless, median home prices rose by 12 percent to $274,900—the third straight month of double-digit increases.
The condo market told a slightly different story. Overall, closed sales inched up by 1.9 percent, reversing a two-month slide. New pending sales slid by 16.5 percent, year-over-year, the second highest month of decline in 2015 (October being the highest, at 17.9 percent). Median prices grew by 7 percent to $203,000.
While overall the median days on the market for condos fell by 12 percent, units selling for $300,000 to $999,999 proved particularly sluggish, with homes from $300,000 to $399,999 spending 72 days on the market, a median increase of 50 percent, according to Miami Real Estate Association.
In the condo market especially, there seems to be a growing disconnect between sellers’ expectations and market reality. And local brokers say they are seeing mounting frustration. “We are seeing a lot of sellers calling us saying, ‘What is happening? Nothing is moving,'” said Mark Zilbert, president of Brown Harris Zilbert in Miami.
How did this happen? Blame the foreigners. In 2012, developer Gil Dezer publicly said “obrigado” (thank you) to the many Brazilians who were scooping up condos in Miami and Miami Beach. Dezer, who has been developing the 60-story Porsche Design Tower, credited the Brazilians for almost single-handedly turning around the depressed condo market. Other groups followed suit, including Argentines, Venezuelans, Colombians, Russians and other Europeans, and many Canadians.
Today, much of that interest has disappeared. “We are seeing a lower intensity of demand from foreign investors, comprising an estimated one third of the condo market sales” in Miami, said Jonathan Miller, president of Miller Samuel, a real estate appraisal and consulting firm in New York.
Miller cited a stronger U.S. dollar, volatile financial markets, and “sharp declines in GDP in source countries that fed Miami demand” as the biggest reasons for the turnaround.
He added that the “significant volume of new housing stock” that is being added has “provided a lot of information for investors to process and removed the sense of urgency from the market.” Also contributing to the general slowdown has been a decline in distressed sales in 2015, which previously helped skew overall prices higher. Foreclosures and short sales both dipped by double digit percentages in November.
But problems abroad are clearly at the heart of the Miami slowdown. Brazil’s currency, the real, has fallen off by more than half since Dezer gave thanks, and the country’s economy is poised for a second straight year of contraction. Economic sanctions on Russia are finally taking a toll on Miami buying at all but the billionaire oligarch level. “Rubles? We don’t see much of those any more,” Zilbert said.
Falling oil prices have hurt Brazil and Russia as well, and compounded problems even further for Miami’s biggest foreign buying group: Venezuelans. Despite government restrictions on how much money they can pull out of their country, Venezuelans continued to buy in and around Miami in 2015. But the restrictions “have had a huge effect on the flow of business,” Philip Siegelman, a principal at real estate marketer ISG, told me late last year.
Venezuelans and Brazilians, it can be argued, are smart to play the currency game. In a downward economic spiral, waiting can end up costing them more, as inflation rises and currencies continue to decline at home. Brazilians that paid hefty deposits in 2014 for pre-construction Miami condos look brilliant now. Their money has more than doubled in Brazilian currency terms.
But there is too much of that new development coming on line to keep the market surging.
The result is that, while a lot of Americans and foreigners continue to show interest in Miami, “There is a shrinking number of people willing to pull the trigger,” Zilbert said. “And the sellers are starting to notice.”
What is especially troubling to brokers is that the expected surge of buying in the last quarter of 2015 didn’t pan out. The bottom line: Many buyers are no longer accepting the price increases that sellers are pushing for.
“I think we are going to see pricing slip back to 2014 levels in order to attract the buyers,” Zilbert said.
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