Business Monday

Troubling signs emerge in South Beach condo resale market

Peter Zalewski
Peter Zalewski

Days before the winter buying season formally kicks off with the Thanksgiving holiday weekend beginning Nov.27, the condo resale market in the South Beach neighborhood of Miami Beach is showing signs of weakening across nearly every price range.

As South Beach condo resale prices have spiked by an average of about 57 percent since the bottom of the last boom-bust cycle in 2009, the number of units transacting in the first 10 months of 2014 has tumbled by more than 15 percent on a year-over-year basis compared to 2013, according to data from the Southeast Florida MLXchange.

Added to the slowdown in the pace of transactions is the fact that more and more existing owners are opting to list their South Beach units on the resale market in anticipation of the traditionally busy winter buying season that runs through April.

As a result, the South Beach condo resale market — which stretches from South Pointe Drive north to 24th Street, and the Atlantic Ocean west to Biscayne Bay — now has more than nine months of supply available for purchase.

A healthy market is considered to have about six months of inventory. Fewer months of inventory indicates a seller’s market and more months suggests a buyer’s market.

Contrary to the glossy marketing materials being distributed by brokers promoting the exclusiveness of their listings, nearly every price range of the South Beach condo resale market has been stricken by the troubling combination of slumping sales and growing inventory.

The price ranges experiencing the most dramatic slowdown in the number of condo resale transactions tend to be situated at the bottom and the top of the South Beach market.

Buyers acquired fewer than 500 condo units listed at or below $299,999 in the first 10 months of this year compared to nearly 700 units in the same price range during the same period in 2013.

The slowdown in transactions in this price range represents about a 29 percent year-over-year decrease.

Currently, the under-$300,000 price category has about 6.4 months of condo units on the resale market.

On the other end of the price-range spectrum, buyers acquired 12 condo units listed for at least $5million in the first 10 months of this year compared to nearly 20 units a year earlier.

This slowdown represents about a 37 percent drop in year-over-year condo resale transactions in South Beach.

The over-$5million price category now has about 58 months — or nearly five years — of condo units on the resale market in South Beach.

As for condo resales in the other price ranges in South Beach, the transaction results in the first 10 months of 2014 are less dramatic on a year-over-year basis.

The $300,000- to-$499,999 price category eked out less than one percent growth in condo resales in 2014 compared to a year earlier. The $500,000-to-$999,999 price category suffered a nearly five percent drop in deals this year. The $1million-to-$4.9million price category experienced a nearly three percent increase in condo resales in South Beach, according to the data.

Unfortunately for sellers in South Beach, the amount of available inventory is mushrooming in all three price-range categories.

The $300,000- to-$499,999 category has 12 months of condo resale supply currently available for purchase in South Beach. The $500,000- to-$999,999 category has nearly nine months of inventory on the market. The $1 million-to-$4.9 million category has more than 11 months of supply currently available for purchase.

To understand why South Beach is faced with increased market challenges, it is important to realize the condo resales prices have fluctuated from an average of $529 per square foot at the top of the last boom-bust cycle in 2006 to below $380 per square foot at the bottom of the market in 2009.

In the first 10 months of 2014, the average transaction price for a condo resale in South Beach was nearly $590 per square foot, or more than 11 percent higher than the price at the peak of the last cycle.

Added to this, the current average asking price for a condo resale in South Beach is rich at more than $885 per square foot as of Nov.7.

Prices aside, the inventory levels could also be growing due to sellers wanting to be the first to list their units on the market before the winter buying season begins.

For tax reasons, some buyers try to complete transactions before the end of the calendar year.

It is also worth noting that the South Beach resale inventory levels may also be growing due to increased competition from preconstruction condo projects that are now competing for the same buyers.

Unlike existing units that are typically listed for resale on the MLXchange, preconstruction condos are rarely featured anywhere except at the presale offices for the respective developers.

The unanswered question going forward is whether enough buyers will descend upon South Beach this winter tourist season to reverse some of the concerning trends that are emerging in Miami Beach.

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, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association of Realtors.

South Beach condo resales surge in 2014

This shows the average resale transaction price, January-October.

Price range of condo resales

2014

2013

2009

2006

2014 v. 2013 change

2014 v. 2009 change

2014 v. 2006 change

Total range: $1-$50 million

$589 per sq. ft

$525 per sq. ft

$ 375 per sq. ft

$529 per sq. ft

12.2%

57.1%

11.3%

$1-$299,999

$348

$325

$ 243

$ 414

7.1%

43.2%

-15.9%

$300,000-$499,999

$467

$448

$ 360

$ 465

4.2%

29.7%

0.4%

$500,000-$999,999

$634

$624

$ 440

$ 570

1.6%

44.1%

11.2%

$1 million-$4.99 million

$1,300

$1,146

$ 801

$ 949

13.4%

62.3%

37%

$5 million-$50 million

$2,519

$2,251

$1,407

$2,165

11.9%

79%

16.4%

South Beach condo resales slow in 2014

This shows the annual resale transactions, January-October.

Price range of condo resales

2014

2013

2009

2006

2014 v. 2013 change

2014 v. 2009 change

2014 v. 2006

change

Total range: $1-$50 million

1,160

1,373

730

814

-15.5%

58.9%

42.5%

$1-$299,999

495

695

368

285

-28.8%

34.5%

73.7%

$300,000-$499,999

254

252

156

263

-0.8%

62.8%

-3.4%

$500,000-$999,999

237

249

112

172

-4.8%

111.6%

37.8%

$1 million-$4.99 million

162

158

88

93

2.5%

84.1%

74.2%

$5 million-$50 million

12

19

6

1

-36.8%

100%

1,100%

Source: CraneSpotters.com compiled this chart using data collected from the Southeast Florida MLXchange on Nov. 7, 2014

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