Sunday, September 17, 2017

Supply & Demand in Miami-Dade & Broward Residential Markets / Pre & Post Irma

Britt J. Rosen, CCIM
With the passing of Hurricane Irma, real estate markets are also turbulent in South Florida.  Prior to the hurricane, a tremendous amount of inventory had built in both counties with a majority of it in the luxury housing market.  

Developers have made large profits on both land and buildings. In the rush to cash in on profits, there has been lot of new construction adding to the existing housing inventory.  As of this post, there are approximately 21,000 listings in Miami-Dade and 12,000 listings in Broward for both condominiums and single-family homes, totaling 33,000 listings.  Pre-recession, the total was 75,000.

Further, per a study by Cranespotters, there are approximately 36,000 other new units in South Florida condominium developments on the drawing board, or nearing completion. They are likely not part of the 33,000 real estate listings (depending on if the developer hires a Realtor to market the properties pre-construction or elects to market them though their own sales teams / web sites).  This does not include owners that are selling properties without Realtors (FSBO's) circumventing the MLS system (the South Florida Regional Multiple Listing System). 

Trendgraphix, a data reporting service collecting the MLS data (Facts & Trends) shows monthly listing vs. sales for both single-family homes and condominiums in various segments of the markets. Overall, they indicate a tremendous supply of listings in the luxury markets, as if there is an endless demand for these properties.

This imbalance comes at a time where South Florida, and particularly Miami-Dade County, has a lack of foreign investment, due to the strong US dollar, and also at a time when many economists predicted a decline towards a recession, prior to the recent presidential election. 

In the more affordable markets under $1,000,000, marketing times for properties are more stable. This sub $1,000,000 price range in both counties indicates supply and demand is much more reasonable and tighter, with shorter marketing times, often less than one year.

This is what the other markets above $1,000,000 should look like.  Marketing times for luxury properties exceed one year or more in many sub-markets, including both condominiums and homes. An exposure time of approximately six months is historically what defines a "healthy" real estate market, according to Realtors I have interviewed.  
Many of those upper-end purchases may not be “users” (i.e. investors, and foreigners “safe harboring” money).  For instance, many Venezuelans fled to the US and bought property here.  At one time, Brazilians had a huge buying advantage due to their strong currency, and it created a large demand for housing. With the strong dollar, foreign investment has been curtailed, eliminating the buyers which condominium builders anticipated when their architects first envisioned these high rises under construction today.

In fact, this demand from several years ago has contributed to the 47,727 units per the Preconstruction Condo Project Rankings per the study by Cranespotters of November 13, 2017, of new units since 2011. (this number is greater than noted above as it includes completed units.)

Miami-Dade has 71% of these total new “pre-construction” units in some form of proposal, planned, under construction or completed since 2011.

The extremely low interest rates have spurred investment in both residential and commercial properties compared to the high interest rate environment of the 1980's.

Even though I am cautious about our oversupply in certain higher priced residential markets, I believe in South Florida real estate and that people will always want to live in South Florida with the beaches, business, banking and its diverse population.

It will be interesting to see the aftereffects of Hurricane Irma on supply and demand.  Will many owners list properties for sale that were not on the market previously in the higher end price ranges? The “high end” markets for both condos and single-family homes are coincidentally located on the coast and are susceptible to storm surges and flooding.  

If supply goes up and demand goes down, price will decline quicker than normal, as price is "elastic", a basic economic theory.  My prediction is that the upper end will correct resulting in lower list prices until an equilibrium is met rather than a total collapse of the upper end housing market.    

According to Lawrence Yun, PhD., Chief Economist and Senior Vice President of NAR, one can take the curve of supply vs. demand and reasonably extend it into the short term future.

I predict that total listings for Miami-Dade will grow from 21,000 as of  May 7, 2017, to 30,000 in the last quarter of 2017.  This does not include "for sale by owners" (FSBO) or properties advertised on Zillow and other web sites without a Realtor.

The number of listings can possibly approach the height of the market of 41,000 listings (rounded), pre-recession in Miami-Dade (the Trendgraphix time period May to July, 2008).

Broward County could also increase from 12,000 total listings to 20,000 listings for both condos and homes.  It will be interesting to observe. The height of the Broward listings pre-recession was 34,000.

I will be conducting a review and postings in this Blog tracking the trends in the market.  

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