Miami Condo Market: Here Comes the Sun?
As far as new construction goes, Miami is the archetype of a real estate boom gone bust. A historically cheap market for decades, Miami saw massive appreciation during the last real estate boom that many developers saw as an opportunity to monetize in a very big way.
Oops! Rising interest rates the housing crisis they contributed to made it difficult for new buyers to afford new beachfront condos, while a decline in values led many pre-construction or early buyers/speculators to sell. The beach in South Beach is now festooned with vacant art deco buildings that are as unlit at night as they are during the day - completely vacant.
Peak-to-trough prices on new constructions in Miami arguably demonstrate that Miami has taken the biggest hit of any city during the latest bust: somewhere between 45-55% of value has been lost, depending on whose estimates you trust. Is this punishment justified? Buyers of vacant and foreclosed properties at Miami real estate auctions don't think so, and there are a few reasons why.
Many present-day buyers aren't looking for a rebound as quickly as those some expect to see in markets like New York or Chicago. But the values are too good to resist. Consider that a one-bedroom beachfront condo in a brand-new building will regularly sell for $125-150k at auction.
The mortgage on a property like that will run roughly $1200/mo, just 20% more than what the going rent for such a property. So today's buyers are essentially able to buy 100% equity for 20-30% of the cost. High vacancy rates and a slower-growing population mean that inventory isn't likely to be fully cleared for quite some time.
But the economics of renting, let alone the economics of owning for such a low monthly payment, make buying at today's prices compelling even without the prospect of appreciation.
But appreciation may not be too far off the horizon: here comes the sun. Many buyers at today's Miami real estate auctions find Miami compelling on the basis of national demographics.
Such relatively affordable housing in such a fine climate in a state with no state income tax is bound to induce senior citizen buyers, many of whom won't want or won't be able to afford to live where they live now once they do retire.
That demographic, whose growth is accelerating as boomers age, was once destined for Palm Beach; these days, there is good reason to believe that they will quickly sop up excess inventory and restore equilibrium to the Miami market to buy a better life for themselves - and certainly their grandchildren.
