Sometimes, news reports are so unusually odd that it is just plain hard to accept face value. Now, I’m not talking about three-headed frogs or anything like that, but straight-forward economic news.
Take the case of the recent news release from the Miami Association of Realtors that reported existing condominium sales in August spiked 59 percent compared to August 2009 and a walloping 77 percent versus August 2008.
Those were such outstanding numbers that I gave a call to my two best sources in South Florida to see what was up.
"It’s a combination of reduction in inventory and repricing," said Peter Zalewksi, a principal with the Bal Harbour, Fla., consulting firm Condo Vultures LLC. "Remember when gas was $1.75 a gallon and then shot to $4. Now it is $2.50 a gallon and it looks like a pretty good deal. People now know what real pricing is for Miami condos and are starting to buy again."
This in no way means that the disaster that was the Southeast Florida condominium market is anywhere near solid ground.
Look at it this way. In Florida’s Gold Coast counties of Dade, Broward and Palm Beach, there are currently 731,000 condo units, of which 185,000 were built after 2003. That latter number can be broken into 100,000 condo-conversion units and 85,000 brand-new condos. About 25 percent of the latter was built in downtown Miami.
According to Zalewski, about 80 percent of the Miami condos were sold, with some 8,600 remaining.
Jack McCabe of Deerfield Beach, Fla.-based McCabe Research and Consulting is a little bit more optimistic, reporting 6,500 new Miami condos remain unsold.
However, he would be the first to warn that this number is inherently unrealistic because it strictly refers to new units and doesn’t have anything to do with REO (real estate owned) properties or even units being sold by owners, which if taken into consideration would mean there was an actual overhang of 16,000 units. That translates into a 17- to 20-month supply of condos on the market.
What it takes to unload all those condos — and we are just talking Miami here, because everywhere else in Southeast Florida is worse — are severely diminished prices.
Back in August 2005, before the financial crash, according to data produced by the Florida Association of Realtors/University of Florida Real Estate Research Center, the median sales price of a Miami condominium was $258,500. In August 2010, the median sales price had plummeted to $104,800, down 28 percent from the year before.
Interestingly, average sales prices for all Miami residential properties, which had increased consistently over the last few months, rose in August for single-family homes but dropped for condominiums, plunging 35.3 percent from August 2009 to $174,470 in August 2010.
"Sales have increased in Miami because prices have dropped so dramatically since the height of the market at the start of 2006; for some, condos prices have dropped 70 percent to 80 percent," McCabe said.
What’s unique about the Miami condo buyers is that they have mostly been foreigners, usually Latin Americans. "About 70 percent to 75 percent of sales are to foreign investors who pay with cash," said McCabe. "For some foreigners, Miami prices look like a bargain, while Latin Americans from countries such as Venezuela are looking to shelter their wealth."
Crucial international buyers are fueling a Miami market recovery, reiterated Oliver Ruiz, residential president of the Miami Association of Realtors. "We continue to see strong demand from international buyers at all price points, including the high-end market. These buyers are willing to outbid competing offers and are 89 percent cash, a factor that automatically expedites their transactions."
The heavy weighting to foreigners not only can be attributed to an ability to be able to shelter money in the United States more cheaply than in the past, but also to the lack of Americans making purchases.
While American investors and second-home buyers who might have once been interested in Miami are more cautious, there are probably an equal number who now see the Florida Gold Coast as a bargain and would like to get in play there but can’t because they don’t have the assets for a cash payment.
Unless a buyer qualifies for FHA or Fannie Mae, it’s almost impossible to get a mortgage loan for a Florida condo from conventional sources — the market is still considered to be over-saturated and subject to further price erosion.
Outside of Miami, interest by foreigners and even U.S. investors drops off significantly. Partly this is due to the fact that, for foreigners, they can get to Miami on a direct flight from most places in Europe and Latin America.
Secondarily, Miami boasts an urban density that can only intensify since it has a development boundary to the west that was imposed by the state and federal governments to protect water flow from Lake Okeechobee to the Florida straits through the Everglades.
Broward County’s biggest city is Fort Lauderdale, where, according to the Florida Association of Realtors/University of Florida report, the median price for condominiums hit $204,300 in August 2006 only to collapse to a median price of $73,300 in August 2010.
The story was not much different in West Palm Beach/Boca Raton, where the median price of condos climbed to $220,300 only to fall back down to $84,900 in August 2010.
The sharp declines in condo pricing throughout the Gold Coast and everywhere else in Florida has a lot to do with the epidemic of condo conversions the state experienced prior to the country’s financial turmoil.
Exploiting a hot real estate market, developers bought up existing apartment complexes, tossed paint on the walls, planted a few trees and tried to sell the former rentals for $150,000 to $200,000. Today, those same units can be had for as low as $25,000 to $50,000 — and still no one wants them.