ASouth Florida’s sluggish condo industry looks poised to benefit from the widespread volatility experienced by investors this summer in the U.S. stock market.
During the last 90 days, investors active in the stock market have had to endure an eventful summer of widespread volatility on what almost seems like a daily occurrence due to concerns about the health of the global economy, falling commodity prices and an imminent rise in U.S. interest rates.
Economic uncertainty about China, Greece and even the island of Puerto Rico have dominated financial headlines all summer, contributing to rapid rises and dramatic falls in the stock market since summer began on June 21.
In the weekly trading between June 26 and Sept. 11, the three key U.S. stock market indices — Dow Jones Industrial Average, NASDAQ Composite and S&P 500 — have each fallen by more than 5 percent, wiping out billions of dollars in paper wealth along the way.
Prior to the Federal Reserve’s September meeting last Thursday, the Dow Jones Industrial Average was down more than 1,500 points, or 8.4 percent, in what represents the biggest loss of the three key indices. The S&P 500 was down nearly 141 points, or 6.7 percent, followed by the NASDAQ Composite’s loss of nearly 260 points, or 5.1 percent, according to Yahoo! Finance.
Besides the overall pullback during the three-month span, stock market investors have also had to endure dramatic swings on a daily and weekly basis.
For example, the Dow Jones Industrial Average lost 5.8 percent of its value on a week-over-week basis for the week ending Aug. 21 but gained nearly 2.1 percent for the week ending Sept. 11, according to the data.
For the NASDAQ composite, the swings have ranged from a 4.3 percent gain for the week ending July 17 and a 6.8 percent loss for the week ending Aug. 21, according to the data.
The S&P 500 enjoyed a 2.4 percent gain for the week ending July 17 only to be followed by a 2.2 percent loss for the week ending July 24, according to the data.
At times of dramatic stock market volatility, investors are said to typically look at parking their money in less riskier assets such as public utility stocks, bonds and precious metals.
Real estate had been one of these lower risk options for many investors until the recent market crash at the end of the last decade.
Now that the U.S. stock market is experiencing one of its most volatile times in recent memory, investors are said to be once again considering opportunities in “brick and mortar” assets that maintain their values and produce consistent annual returns.
For investors who are not interested in — or financially qualified for — costly commercial real estate ownership, residential real estate, especially condos, is often considered to be a viable option as the properties can generally be leased out relatively easily to tenants, especially at this time when rental rates are at record highs and would-be buyers still face challenges in obtaining mortgages.
The timing of a possible residential real estate market focus comes as condo transactions are decreasing and the supply of new and existing units available for purchase is growing east of Interstate 95 in Miami-Dade, Broward and Palm Beach counties.
Currently, nearly 11,400 South Florida condos are available for purchase east of I-95 on the Multiple Listing Service database as of Sept. 15, according to data from the Southeast Florida MLXchange.
The units available for purchase represent more than nine months of supply of condos based on completed transactions between January and August of this year, according to the data.
A balanced market is considered to have about six months of supply available for purchase. More months of supply suggests a buyer’s market, and fewer months indicates a seller’s market.
Added to the supply of existing units available for purchase, developers have announced plans to develop nearly 375 new South Florida condo towers with more than 43,850 units east of I-95 as of Sept. 15, according to the preconstruction condo projects website CraneSpotters.com.
(For disclosure, my firm operates the website.)
To date, 43 new condo buildings with less than 3,700 units have been completed and 110 new condo towers with nearly 10,900 units are under construction as of Sept. 15, according to the data.
An additional 221 new condo towers with more than 29,300 units are currently in the planning and presale development phase.
By comparison, developers created more than 245 new condo towers with nearly 49,000 units in South Florida’s seven largest coastal markets during the last real estate cycle that occurred between 2003 and 2010, according to an analysis of government records.
The unanswered question going forward is whether the stock market investors who are anxious to diversify their portfolios in the wake of the volatile summer will consider the South Florida condo market a less riskier alternative given the tricounty region’s recent past.
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.
A summer of stock market volatility
This is a week-over-week comparison of the key stock market indices during a volatile summer of trading.
Indices at close on final trading day of each week
Source: YAHOO! FINANCE