Record-high rental rates coupled with a tight single-family house sector are contributing to make this one of the best years in at least a decade for South Florida’s townhouse market.
Promoted as a cheaper alternative to single-family houses but more spacious than condominium units, townhouses are a popular compromise for buyers, especially primary users, who find themselves financially challenged to purchase in South Florida’s increasingly costly housing market.
Adding to the allure for buyers, townhouses not only generally offer convenient parking and small-sized yards but are also reportedly easier to obtain mortgages for than condominium units in the current financing climate.
It is against this backdrop that buyers purchased more than 7,360 townhouses in the tricounty South Florida region of Miami-Dade, Broward and Palm Beach in the first 11 months of this year, according to data from the Southeast Florida MLXchange.
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The number of townhouse resale transactions that occurred between January and November represents more than a 6 percent year-over-year increase compared with the same 11-month period of 2014, when less than 6,925 properties traded in South Florida, according to the data.
Expectations are the trend will continue in the month of December — and beyond — as more than 1,300 townhouses are currently under contract and waiting to transact in South Florida, according to the data.
In a clear sign of the strength of the market, the increased transactions come at a time when the average resale price of a South Florida townhouse is up more than 8 percent on a year-over-year basis to $143 per square foot in 2015.
In previous years, the average resale transaction price for a South Florida townhouse was $132 per square foot in 2014, $114 in 2013 and $98 in 2012, according to the data.
This year is shaping up to be the busiest time in at least a decade — and possibly ever — for townhouses in South Florida. Unfortunately, townhouse resale statistics from the MLXchange are only readily available dating to 2006.
Prior to this year, the greatest number of townhouse resales in recent memory for the January-through-November period occurred in 2013 when buyers purchased nearly 7,150 units.
Before then, the most active time for townhouse resales was in 2011 when nearly 7,000 units were acquired in the first 11 months of that year.
To understand just how active the current market is, consider that less than 5,500 townhouses transacted in the first 11 months of 2006 at the peak of the previous South Florida real estate cycle.
A couple of years later in 2008 near the bottom of the last cycle, less than 2,800 townhouses transacted in South Florida between January and November, according to the data.
Since that time, the number of annual townhouse resale transactions has nearly tripled to the current pace being experienced in 2015.
Forecasting out, the townhouse resale market appears poised for sustained growth.
Currently, less than 2,625 townhouses are actively on the resale market at an average asking price of $199 per square foot. At the 2015 sales pace of about 669 resale transactions monthly, South Florida currently has less than a four-month supply of townhouses available for purchase, according to the data.
By comparison, the supply of other residential properties available for purchase totals more than four months in the single-family house sector, where the average asking price is $291 per square foot, and nearly eight months in the condo category, where the average asking price is $400 per square foot.
A balanced market is considered to have about six months of supply of units available for purchase. More months of supply indicates a buyer’s market and less months suggests a seller’s market.
Despite the growing demand for townhouse units, the number of new South Florida projects is thought to be relatively small compared with the tricounty condo market, where more than 410 new buildings with more than 49,000 units have been announced during this real estate cycle that began in 2011, according to the preconstruction condo projects website CraneSpotters.com.
(For disclosure, my firm operates the website.)
Reliable statistics on the pipeline of new South Florida townhouse projects are not readily available as this is a market that has long been overlooked.
Developers tend to focus their attention on constructing condos rather than townhouses on buildable land as more units — that generally sell at higher prices per square foot — can usually be built on vacant sites.
For their part, investors are generally resistant to buying units in townhouse projects despite the lower purchase prices as these residences tend to have more livable space and fewer amenities, a combination that usually results in lower rental prices — and profit potential — on a per-square-foot basis.
Consider that the median asking price per square foot in monthly rent in South Florida is about $1.25 for a townhouse compared with $2.25 for a condo as of Dec. 16, according to the data.
The unanswered question going forward is whether the townhouse resale prices will reach a high enough level to spur a development boom in this type of residential property category during the current South Florida real estate cycle.
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.
Townhouse resale market reaches new high
This is a year-over-year comparison of townhouse resale transactions and average prices per square foot in the tricounty South Florida region of Miami-Dade, Broward and Palm Beach between January and November of every year since 2006.
Resale unit transactions
Avg. resale price per sq. ft.
Source: CraneSpotters.com compiled this chart using data from the Southeast Florida MLXchange