Slumping sales and falling prices tell one story: downtown Miami’s condo market is headed for hibernation.
While South Florida’s economy depends partly on a booming real estate market, lower rents could help make Miami more affordable for downtown residents. The city consistently ranks as one of the least affordable in the country.
Now a new report from Miami’s Downtown Development Authority points toward relief for a market as overheated as August temperatures. The big news: for the first time in five years, resale prices for downtown condos fell, declining 4 percent to $438 per square foot through the first half of 2016. (The analysis looked at condos built after 2001. Older buildings faced steeper price cuts.)
4 percentDecline in resale prices for downtown Miami condos built after 2001
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Meanwhile, inventory is rising while demand sputters: Listings are up from roughly 1,900 in May 2014 to 3,000 in May 2016. Over the same period, monthly sales fell 43 percent.
But don’t expect those cranes to disappear anytime soon: Nearly 7,500 condos were under construction in the second quarter of 2016, with another 1,550 being marketed for sale. Those units coming down the pipeline will keep prices down.
Since many condos are leased out, the new inventory is shifting the rental balance in favor of tenants. There’s evidence landlords are already trying to keep up. Condo rents have slowed so far this year, rising 3.7 percent to an average of $2,677.
“We’re at that point in the cycle where things are going to slow down and there’s going to be some winners and some losers,” said Anthony Graziano of Integra Realty Resources, the report’s author. “We’re in the eighth, ninth inning. We’re starting to see pricing normalize. ... From my perspective, slow and steady is good.”
The news is no surprise. Analysts, including previous DDA reports, have pointed to a slowdown since last year. Construction financing is harder to come by as banks grow cautious.
“It’s been coming for some time,” Graziano said. “We saw the resale inventory building in the summer of 2015.”
The DDA report covers pricey downtown neighborhoods, including Brickell, Edgewater, Midtown, Wynwood, the Omni and the central business district. But its conclusions hold true across much of Miami-Dade County: A strong dollar has meant foreign investors are backing off local real estate. Two of South Florida’s biggest feeder markets, Brazil and Venezuela, are in political and economic turmoil.
But unlike the housing crash of 2008, foreign buyers aren’t walking away from their units, said Alicia Cervera, managing partner of Cervera Real Estate and a board member of the tax-funded DDA. That’s because developers asked for 50 percent deposits when they saw the market coming back in 2012. Few investors are willing to walk away from that much money down.
“Four or five months ago, brokers and [investors] were calling me and saying they would buy up any units that didn’t close,” Cervera said. “[But] everything is closing. The tendency is to compare this market to what happened nine, 10 years ago. The truth is, it’s extremely different.”
Even so, new buyers from abroad have been hard to come by. Last month, a developer blamed the slowing market for his decision to suspend sales at Boulevard 57, a luxury project in Miami’s Morningside neighborhood. Federal regulators are also taking a hard look at South Florida real estate for money laundering.
In the absence of foreign buyers, several developers have targeted the rental market, especially younger workers.
“Everyone knows we need more affordable units for the rental market,” said Carlos Melo, whose development firm Melo Group opened a 497-unit rental tower next to the Adrienne Arsht Performing Arts Center this spring. “Everyone wants to build rentals for this market that has not been satisfied.”
A one-bedroom apartment at the tower, called Melody, rents for about $1,600 a month.
“We’re focusing on people making $55,000 to $70,000 per year,” Melo said.
SoMa, Brickell View Terrace and Met 3 also opened this year, adding more than 950 units.
“I think the demand is pretty compelling for those kinds of units,” said Chris Finlay, chairman and CEO of Lloyd Jones Capital, a real estate investment firm. “The job growth downtown and in the Brickell area is driving the market.”
An additional 5,500 rental units are under construction downtown, according to the report. As inventory builds up, rents are slowing for apartments, too. The average one-bedroom unit rented for $1,772 in the second quarter of 2016, roughly the same as in 2015, Integra found. Rents had jumped 10 percent the previous year.