A number of real estate investors and second-home buyers traveling to South Florida for this year’s long Thanksgiving holiday weekend that symbolically kicks off the start of the busy winter tourism season are sure to develop a case of indigestion that is not related to overeating.
The root cause of this anticipated uneasiness is the realization that the South Florida residential real estate market has apparently not only bottomed out but is rapidly strengthening beyond the imagination of locals and out-of-towners alike.
Residential resale inventory is tight; prices are rising; rents are spiking; and a new building boom is underway in Miami-Dade, Broward and Palm Beach counties.
For the past few years, many of these prospective investors and second-home buyers have made their annual pilgrimages from the Northeast United States, Western Europe and Latin America to the tricounty South Florida region in search of rest, relaxation and real estate.
Inevitably, most of these visitors departed South Florida without purchasing deeply discounted properties by rationalizing to themselves that the tricounty region’s residential real estate market had not yet bottomed from the latest crash brought on by the usual: overbuilding, overleveraging and overblown optimism.
Some five years ago this month as the U.S. financial system teetered on the edge of collapse, South Florida’s residential resale market was flooded with nearly 108,000 single-family houses, townhouses and condos available for purchase in Miami-Dade, Broward and Palm Beach counties.
At the time, Miami-Dade represented the largest share of South Florida’s residential resale inventory available with nearly 41,000 properties on the market. Broward was second with nearly 37,000 residential resale properties available, and Palm Beach was third with nearly 30,000 residences on the market as of Nov. 24, 2008, according to data from the Southeast Florida MLXchange.
As federal officials and Congress worked overtime to pass the Troubled Assets Relief Program in an attempt to save the nation’s largest financial institutions from insolvency, nearly 61,000 condominium and townhouse units were available on the resale market in South Florida, according to the data.
At the time, only 9,300 residential properties were under contract waiting to transact as buyers headed for the sidelines out of fear of the unknown.
Fast-forward to the present: South Florida now has 37,600 residences on the resale market with 14,400 properties available in Miami-Dade, 11,800 residences in Palm Beach and 11,400 properties in Broward as of Nov. 18, 2013, according to the Southeast Florida MLXhange.
Condominiums and townhouses still account for the majority of the available resale inventory, but today the total number of units on the market is less than 21,650. This is a decrease in condo and townhouse inventory of nearly 65 percent from 2008, according to the data. Total pending sales in South Florida currently stand at nearly 22,150 properties, representing a nearly 138 percent spike in contracts compared to five years ago.
The difficult part for visitors to understand about the South Florida market is that the dramatic changes in residential resale inventory levels have occurred despite continued challenges for buyers in obtaining financing to purchase their primary residences.
Banks are increasingly willing to lend to qualified borrowers for residential purchases in South Florida, but many of the prospective buyers have less-than-pristine credit as a result of slugging through the recent market crash.
Fortunately for South Florida’s residential real estate market, the area has benefited from a significant influx of cash buyers from abroad with strong foreign currencies.
Investors from foreign countries including Argentina, Brazil, Canada, France, Italy, Russia and Venezeula have been beating out domestic buyers for residential properties in South Florida.
The heightened competition for residential properties in South Florida is leading to a number of bidding wars that have resulted in residences selling for more than the asking prices.
Besides the strengthening resale market, the influx of foreign buyers has also propelled a new condo-building boom in South Florida.
Developers have already proposed at least 175 new condo towers with more than 23,000 units for the coastal South Florida region. At least four of the proposed towers have been completed and an additional 41 towers are now under construction, according to the preconstruction condo project website CraneSpotters.com.
As condo construction financing is still relatively challenging to obtain, South Florida developers have adopted a Latin American funding structure of collecting 50 percent deposits from preconstruction buyers to pay for the building of the proposed towers.
Contrast this with the last South Florida condo boom where developers collected 20 percent deposits and relied heavily on construction loans to cover the cost of building.
Early on in this latest boom, domestic buyers have been resistant to committing to hefty 50 percent deposits for proposed condo towers — but not the foreign buyers, who are betting their money on South Florida preconstruction condo units.
The unanswered question going forward is whether today’s foreign buyers will have their own bout of indigestion in the near future as a result of South Florida residential real estate.
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. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.