Peter Zalewski: Miami Beach’s recovery shows signs of overheating

 

Special To The Miami Herald

Miami Beach — the barrier island city that features many of South Florida’s priciest residences — is showing signs of overheating following a rapid recovery in recent years from the devastating real estate crash of 2007.

Strong appreciation in condo and single-family house resales during the past two years has led to current asking price levels that are now higher than at the peak of the last South Florida real estate boom in 2006.

The aggressive pricing of late in Miami Beach is triggering the amount of condos and single-family houses on the resale market to grow to inventory levels that traditionally benefit buyers.

As a general gauge, many industry watchers claim a healthy residential market has about six months of resale inventory. Any resale levels higher provide an advantage to buyers while lower inventory benefits sellers.

Concurrently, nearly 600 new South Beach condos built during the last real estate boom — typically not listed on the Southeast Florida MLXchange database of resale properties — were still unsold for a third consecutive quarter as of March 31 even as 17 towers with nearly 1,100 new Miami Beach condo units have been proposed at prices that in some cases exceed $3,000 per square foot, according to Miami-Dade County records and marketing literature.

Rental inventory

Added to this, the amount of rental inventory — a key factor for investors who pay resale prices based on potential revenue generated from leasing out residential properties — on the market is also rising as more tenants lease newer units at lower prices on the mainland side of Biscayne Bay in Greater Downtown Miami.

The combination of conditions is making for an upcoming summer stretch — historically a less active time of the year for resales in Miami Beach — where prices for condos, single-family houses and rental properties are poised to potentially weaken given increased inventory levels.

To this point, the Miami Beach condos, single-family houses and rental properties currently under contract waiting to transact have a median asking price that is below the completed transaction amount realized in the first four months of 2013.

Condo prices in Miami Beach are up 20 percent to a median level of about $336 per square foot in the first four months of 2013 compared to about $281 per square foot in the same January-through-April period in 2012, which was up 19 percent from about $236 per square foot in the first four months of 2011.

The median asking price for a Miami Beach condo currently stands at about $490 per square foot — a level that is 12 percent higher than the $437 per square foot price achieved at the peak of the last South Florida real estate boom in 2006.

The increased prices have led to a growing number of condo resales listed on the market in Miami Beach.

As of May 20 more than 1,400 Miami Beach condos are on the resale market in an area where an average of nearly 225 units transact monthly. At the current 2013 sales pace, Miami Beach now has 190 days — more than six months — of condo resale inventory available.

Single Families

It is a similar environment for Miami Beach single-family houses where prices and inventory are headed higher.

Miami Beach has nearly 260 days — nearly nine months — of single-family house inventory on the resale market as of May 20.

In the first four months of 2013, buyers acquired 108 single-family houses in Miami Beach at a median price of about $384 per square foot.

Compare this with same January-through-April period in previous years when buyers acquired 101 single-family houses at a median price of about $316 per square foot in 2012 and 92 single-family houses at a median price of about $308 per square foot in 2011.

At the peak of the last South Florida real estate market, buyers acquired 43 single-family houses at a median price of about $462 per square foot in the first four months of 2006.

Currently, more than 230 single-family houses are on the resale market in Miami Beach at a median asking price of about $650 per square foot, representing a 41 percent premium compared to 2006.

A similar trend is occurring in the Miami Beach rental market.

Landlords are currently seeking a median price of about $2.70 per square foot monthly — or $2,700 monthly for a 1,000-square- foot residence — even though the units under contract waiting to transact have a median asking price of $1.94 per square foot — or $1,940 monthly for a 1,000-square-foot residence — monthly.

In the first four months of 2013, tenants leased an average of nearly 320 residences monthly at a median price of about $2.01 per square foot.

Compare this to the same January-through-April period in previous years when tenants leased more than 1,350 Miami Beach residences at a median price of about $1.92 per square foot in 2012 and nearly 1,100 residences at a median price of about $1.76 per square foot in 2011.

A bright spot

A bright spot for Miami Beach’s rental market is that 121 days — about four months — of residential inventory is available at the current leasing pace of 2013.

Going forward, the unanswered question is whether optimistic sellers and landlords will hold steady with their aggressive price expectations as inventory increases and other markets such as Greater Downtown Miami and Sunny Isles Beach compete for buyers and tenants in the hot and humid days of summer.

Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors.

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