After a nerve-racking week of waiting and watching, South Florida was spared the worst of Hurricane Irma’s 185 mph winds.
It’s too soon to tell if Irma will have any substantial impact on South Florida real estate. Empirical evidence will take a few months to show whether the storm scared away potential buyers in significant numbers
But the images of the storm’s destruction beamed around the world could have a chilling effect on the local real estate market, which relies heavily on foreign and out-of-town investors, according to real estate experts. Home and condo cash purchases account for 20 percent of all Miami-Dade real estate transactions — double the national average.
“We have an affiliate based in Paris who promotes sales in Miami for us,” said George Jalil, president of Real Living First Service Realty in Miami. “She called us to find out what was going on over here because the press in Europe were devastated, saying Miami had been completely destroyed. That kind of news gathers speed.”
But some analysts think that Irma could prove to be a boon to the stagnant luxury market, scaring sellers into lowering their asking prices to move pricey properties before another major hurricane threatens the region.
“You can go back and look at what happened with Hurricanes Rita, Wilma and Katrina,” said Ron Shuffield, CEO and president of EWM Realty International. “We had three hurricanes in one year, and those storms were similar to this Irma — disruptive but not destructive. The storm interrupted everybody’s activities for a couple of weeks. But this is going to encourage many of our high-end sellers to further evaluate their pricing. We still have more pent-up demand for luxury real estate than ever. People still look at Miami as a place to have second or third homes.”
Although at least 42 Floridians died as a result of Irma, everyday life is getting back to normal for most South Florida residents.
Home and condo prices keep rising
For the real estate industry, the question is whether the market will follow. According to the August home sales report released by the Miami Association of Realtors on Wednesday, the number of mid-market single-family home sales (priced between $300,000-$600,000) jumped 9.5 percent over the same period last year, from 462 to 506 sales. Mid-market condo sales (from $200,000-$600,000) went up 9.8 percent, from 509 to 559.
But year over year, the county’s total number of residential transactions — including single-family homes and condos — went down 9.7 percent, from 2,389 to 2,158.
Coral Gables Realtor Christopher Zoller, the 2017 chairman of the Miami Association of Realtors board, said the August figures were incomplete, due to disruptions caused by Hurricane Irma.
“Miami-Dade September housing statistics will also be impacted as some area closings will be delayed due to power outages and minor damage from the storm is repaired,” he said. “Nevertheless, August data shows a continued rise in mid-market home sales.”
In Broward, sales of single-family homes went down 8.1 percent in August over the same month last year, from 1,658 to 1,524, according to the Realtors of Palm Beaches and Greater Fort Lauderdale. Condo sales also fell 10.6 percent, from 1,522 to 1,360.
But year-over-year median sales prices in both counties continued to climb.
In Miami-Dade, single-family home prices jumped 12.5 percent in August 2017 year over year, from $300,000 in July to $337,500 continuing their 69-month streak. Prices of existing condos rose from $215,000 to $225,000 in August. Condo prices have increased in 72 of the last 75 months.
In Broward, the median sales price of single-family homes rose 7.7 percent year over year, from $325,000 to $350,000. Condos and townhouses climbed 7.8 percent, from $144,755 to $156,000.
Will the upward trend last? Maria D. Ilcheva Ph.D., a senior researcher at Florida International University’s Metropolitan Center, conducts an annual hurricane survey of South Florida residents. She says history has proven people have short memories when it comes to hurricanes, and the region’s transient population means that in five or 10 years, a new generation of young professionals who have never been through a hurricane scare will be inhabiting the condo canyons of downtown Miami.
“Every year we have a hurricane, there’s a spike in awareness and preparedness,” she said. “But a couple of years later that spike disappears. It’s very dangerous — the case of Irma in particular — when a storm is predicted to make landfall here and then it doesn’t, because it gives people a sense of false security. That’s always a big danger.”
Another danger, according to some analysts, is the real estate industry’s willingness to continue to build in flood-prone coastal areas.
In an article for vice.com titled “Miami’s Close Call with Irma May Make Climate-Blind Developers More Reckless,” Stan Cox, a senior scientist at The Land Institute, argues that the “fatalistic logic of Miami’s real-estate business” means developers will continue to build luxury condos that sit three inches above the Biscayne Bay waterline, despite growing evidence of the vulnerability of coastal construction.
“We got the impression that everyone is thinking, ‘We’ve got a good 10 years before things turn bad,’” said Cox, who co-wrote the article with his son Paul, based on sea-level rise research they conducted in Miami in 2015. “As time goes by, those 10 years [get pushed back] to another 10 years — plenty of time to make more money. But those 10 years will [eventually] run out. If there’s never another 1926-size storm surge, then it will be a question of what Miami loses first: Its water supply, its property insurance, or long-term mortgages. It’s just a matter of time.”
The authors say this kind of blinkered optimism is not just a South Florida phenomenon.
“This is by no means a unique brand of capitalism local to Miami,” said Paul. “Everything is just in the starkest terms there. And as we said in our Vice piece, it proves that this sort of thing can keep rolling on even when everyone knows where it’s headed in the long term.”
FIU’s Ilcheva says she understands both sides of the argument — and believes the key to the future rests in acting now.
“We’re dependent on growth and development, because they are revenue generators,” she said. “The problem with growth is if you don’t grow smart — if you only grow for the revenue — you will encounter problems. Local governments need to think about drainage and elevation. They need to think long-term. Politicians and developers don’t care what will happen in 10 years, because they will either be out of office or will have sold out their buildings. We can’t rely on the private sector to solve this for us.”
Ken Russell, Miami City Commissioner District 2 and Downtown Development Authority chairman, has been a vocal proponent of the “Miami Forever” bond, which would leverage a new property tax on Miami property owners in order to allocate $400 million toward infrastructure capital improvement — including $200 million dedicated to resilience, sea-level rise, storm water and roadwork improvements.
“There’s nothing we can do about whatever short-term impressions Irma may have left,” Russell said. “But long-term is where we have an opportunity to do something. Every part of the world has natural issues to deal with. As long as our infrastructure keeps up with our development, it will feel less risky and less like overdevelopment. Investing in sea level rise and flood mitigation is a high priority. As long as the real estate industry sees us addressing it, I don’t think we’ll have a long-term problem in Miami.”