Canada joins the ranks of the top countries for foreign buyers investing in local real estate. Homestead surges as the most undervalued neighborhood in Miami-Dade County. Miami Beach is both the hottest — and most overvalued — part of town.
These are some of the key findings of the 2017 Miami-Dade Real Estate Study, conducted by the polling firm Bendixen & Amandi International and the Miami Herald. One hundred of the area’s top brokers, agents and analysts were interviewed on the condition of anonymity from June 5-July 6 to create an honest and credible portrait of the current state of the county’s housing market.
This is the third year the Miami Herald and Bendixen & Amandi have partnered on the survey. In order to better reflect current trends, 40 percent of this year’s participants specialize in the mid-range market. Previous studies have surveyed experts in the luxury sector. Because of that shift, this year’s study cannot be compared strictly to previous results. Surprisingly, on most questions, this year’s responses mirrored those of previous surveys.
Here’s a rundown of some of the main takeaways of the report. You can read the full version here.
Where the hype is
Trendy neighborhoods come and go, but property values are what truly determines a worthy investment. Poll respondents agreed that Miami Beach is the hottest area in Miami-Dade right now, as well as the place where they would buy a condo or apartment. (Coral Gables was their top choice if they were buying a single-family home.)
But Miami Beach also took the No. 2 spot in areas where respondents would avoid buying altogether — Brickell was No. 1 — and Miami Beach was also voted the most overvalued neighborhood in Miami-Dade. (Brickell and Wynwood placed second and third.)
Ron Shuffield, CEO of EWM Realty International, understands the perception of Miami Beach as being overvalued, but also thinks it’s somewhat misplaced.
“People are thinking about expensive condos that have been recently built and are now selling for significantly less than people paid a couple of years ago,” said Shuffield, who was also chosen by respondents in the study as the single most knowledgeable person in the industry. “There’s an oversupply of brand new luxury condos that have dropped up to 25 percent in value. But those sales are not reflective of the overall Miami Beach market of single-family homes under the $2 million price range, which remains strong.”
Homestead was chosen as the most undervalued neighborhood, with respondents saying “property values are very affordable” there and that it has “the potential to grow to a much larger entity.”
“I definitely agree that Homestead is undervalued,” Shuffield said. “We’ve seen some significant appreciation over the last two years there and I think we’ll see more. That’s the neighborhood where the median-home prices line up most accurately with the median household income. Many of the homes down there are essentially brand new and are located in gated communities. The city has been building up its restaurants and shopping, and Homestead Hospital has been a key catalyst of growth.”
Buy, sell or rent?
Timing is always critical, whether you’re planning to sell your property or are entering the market as a buyer. When asked if now is the time to buy or sell, 45 percent of respondents said buy; 29 percent said sell; and 25 percent said both.
More than 70 percent of industry experts think it’s time to own, while 19 percent said renting is best. At the same time, almost 70 percent said they are seeing a shift in the public’s interest in buying vs. renting: 59 percent said more people are interested in buying, while 41 percent felt people are looking to rent.
“Those numbers reflect an unusually high confidence in buying at this moment,” said Jonathan Miller, president and CEO of the real estate consulting firm Miller Samuel. “There’s a perception among consumers that the market is entering the next cycle. Consumers were much faster to embrace optimism than the brokerage community during the 1987 stock market crash, after Sept. 11 and after Lehman collapsed and the market plunged 30 percent overnight in 2008. These results are evidence that participants in the industry are seeing a shift in consumers toward buying.”
One of the motivators driving that shift may be an oversupply of inventory that favors buyers. Fifty-five percent of respondents said the current market is high, and a majority (38 percent) felt the value of that inventory was flat — neither good, poor or overpriced.
“This is the third year in a row I’ve been bearish about the amount of existing condos available and new condos under construction,” said Peter Zalewski, a principal at the real estate consultancy Condo Vultures. “Typically, if there’s less than six months of supply in the market, the seller has the advantage because there’s not that much to choose from.
“But Miami is definitely higher than six months. We have 34,000 condos in the pipeline in Miami-Dade County alone. There’s a ton of new condos being built at a time when the amount of existing condos on the market is already too high.
“If you think of a teeter-totter, the buyers are up in the air on one side and sellers are weighing it down on the other side — and they’re eating Twinkies and Ho Hos, so they’re only going to get heavier. As we go forward, the buyer is going to have negotiating advantage.”
But even if the market currently favors buyers, that doesn’t mean opportunities are the same for everyone. When asked to rate Miami-Dade’s affordability on a scale of one to 10, with one being not affordable and 10 being very affordable, the aggregate average of respondents was 4.6 — and some believe it should be even lower.
“When I think of affordability, I think of the working-class buyer,” said Neal Oates Jr., broker and owner of World Renowned Real Estate. “So I think the affordability is between two and three. Some people are comparing Miami’s affordability to other international cities such as Singapore and Dubai and London, but I don’t think we’re there yet. Our prices are affordable compared to them, but we don’t have the kind of income and salaries those cities have. They don’t equate dollar for dollar with our demographic. For people wanting to buy a home at $400,000 or less, it’s tough for them to find something right now. There’s nowhere for them to go.”
Real estate as an investment
When asked how residential home values will fare over the next 12 months, 36 percent said they will appreciate; 33 percent said values will remain flat; and 21 percent said they will depreciate.
“There are different sub-markets in South Florida, so it’s difficult to put them all in one basket when talking about investment value,” said Carlos Rosso, president of the Related Group’s condo development division. “Land values and construction costs have gone up so much that if someone wants to launch a new project, they have to come out at a higher price point. Whether or not this is the right time to launch is a different story. But in general, new jobs such as 444 Brickell or the Aston Martin residences will elevate the value of existing properties nearby. The areas where people really want to live will go up, because there are fewer of them.”
When respondents were asked which neighborhood they would recommend to an investor looking to make a good return five years down the road, Little Havana was the No. 1 choice, followed by downtown and Brickell/Miami Beach.
“People think of Little Havana because of a price perception: They’re thinking that land is cheaper there right now and that it will eventually get up to Brickell’s levels,” Rosso said. “But Brickell has a lot more to offer than Little Havana and will continue to be a very desirable place. Anything that is on the sand or the ocean will always maintain its value and continue to go up.”
Rosso points out that when new luxury towers south of Fifth Street on South Beach went on the market 10 years ago, they sold at square-foot prices ranging from $500 (Icon) to $800 (Apogee).
“Today, those units are trading for $3,000 per square foot,” Rosso said. “Even I’ve been surprised at how much they’ve gone up in value over the long run.”
Out-of-town investors have been a critical driver of local real estate values. But this year’s study shows the number of foreign buyers continues to drop, comprising only 29 percent of total buyers — down from 56 percent in 2015 and 33 percent in 2016. Locals made up 27 percent of buyers, up from 11 percent in 2015 and 23 percent in 2016.
Why the downturn? Some 88 percent of respondents said financial and political instability in places like Latin America and Europe are having a “significant” impact on the residential market. “The strong dollar is limiting foreign buyers,” said a Miami Beach agent surveyed. “A lot of people in South America who had cash stopped coming,” claimed another agent from Aventura. Their names were not revealed to the Herald.
Almost 60 percent of respondents said they didn’t think President Donald Trump’s administration policies are influencing the market, but 42 percent felt strongly that the president’s stance on immigration has had a chilling effect. “I could see it the day after the election,” said one agent from Brickell. “Local sellers rose and more international buyers paused, afraid of the effects of his policies.”
In a shift from the results of previous years, respondents said 50 percent of home buyers are using mortgages to finance their purchases, a sharp increase from 2015 (14 percent) and 2016 (27 percent). Meanwhile, cash buyers — who are often foreign buyers — fell to 30 percent, down from 68 percent in 2015 and 58 percent in 2016. Those shifts are partly attributable to the change in the sample pool to include mid-market experts.
Venezuela (16 percent), Brazil (16 percent), Colombia (13 percent), Argentina (9 percent) and other Latin American countries (17 percent) represented the majority of foreign buyers. Fourteen percent came from Europe. For the first time in the study’s three-year history, Canada made a strong showing, claiming 7 percent of foreign buyers.
“The ebb and flow of people in and out of the U.S. is a natural process,” said Jill Hertzberg, a broker-associate at The Jills. “When you start seeing a lot of people from another country, there’s always a reason. Real estate in metropolitan areas in Canada has gotten very expensive. People who live in Montreal and Quebec can’t afford to buy there the way they could eight years ago because a huge influx of Asian buyers has driven up prices. The Miami condo market is a good value for them and they love South Florida, especially in the winter. But they’re not moving here and giving up their Canadian residency. These are mostly second homes for them.”
Interestingly, while issues such as property taxes, windstorm insurance and traffic congestion were big influencers in people’s decisions on where to buy homes, respondents said the majority of their clients (64 percent) have not mentioned climate change and sea level rise as an issue when purchasing properties.
“It’s something I’m very concerned about myself,” Hertzberg said. “We have to be a city where people feel they will have value today and tomorrow. But Miami Beach is allocating huge dollars toward prevention, with pumps and streetwork all over the city. The government understands this is something they have to stay on top of constantly, and our clientele is well-read and informed. They feel it’s safe — not just for today, but also tomorrow. If the city wasn’t doing anything, we’d have a big problem.”