08/19/11– Miami Beach– Pietro Belmonte, Managing Director, Associate Broker, Douglas Elliman Florida, stands in front of condos South Beach. (J. Albert Diaz)
Last time, I analyzed the top real estate stories of 2013. Now, it’s time to dust off the crystal ball and look ahead at what I foresee will happen in our market this year.
Prices will continue to rise but at a slower pace.
According to real estate association data, South Florida single-family home prices increased by 21 percent last year while condominiums skyrocketed by 28 percent in market value. Our residential price gains, similar to last decade’s boom, were among the highest in the nation, according to the Standard & Poor’s Case-Shiller Index and other credible sales data providers.
Historically, in normal market conditions, residential real estate prices appreciate by 3 percent to 5 percent per year. In 2013 alone, South Florida real estate increased by the equivalent of seven to eight years of what is considered normal.
It’s my forecast that single-family home values will increase by 6 percent to 8 percent during 2014.
Hedge fund and high net worth South American investors will slow the pace of acquisitions.
After the real estate bust began in 2007, hedge funds swooped into South Florida and bought tens of thousands of unsold condominiums in bulk and entire project purchases. Initially the funds bought distressed properties at bargain basement prices and discounts of 50 percent to 75 percent off of 2006 top-of-the-market values.
Around the middle of 2011, hedge funds and other corporate buyers changed strategies and began acquiring large numbers of single-family homes in South Florida and several other U.S. population centers. The funds bought foreclosed homes at huge discounts. But in 2013 their strategy shifted again as the funds began buying homes at full price and above on Multiple Listing Services, artificially inflating values similar to last decade.
High net worth individual investors primarily from South America, Canada, and Europe followed the hedge funds and started investing in South Florida.
South American investor purchases have dominated submarkets in downtown Miami, Miami Beach and Coral Gables.
More than 70 percent of properties available for sale in these submarkets have been to South Americans. According to the latest Census Bureau American Home Survey, 80 percent of new household formation in Miami-Dade County is of Hispanic origin. Buyers from the Northeast United States, Canada and Europe have focused the majority of their acquisitions along the eastern corridor of Broward and Palm Beach counties.
It’s my opinion the economic turmoil in many South American countries coupled with the price explosion of South Florida residential properties will slow the flow of residential purchases by Latin investors this year. The Brazilian real devalued by 40 percent inflation in the last year. Additionally, Argentina has lowered the value of their monetary system.
I also believe the majority of wealthy South Americans that would or could buy new condominiums have already bought the majority of existing inventory and placed deposits on most of the newly announced projects in the Brickell area and eastern Miami-Dade submarkets. The new projects and those yet to be announced in Miami face the strong possibility of increased competition for a dwindling supply of buyers.
Appreciation To Taper
Hedge funds and private equity groups also have slowed the pace of acquisitions in South Florida and now are looking for discounted properties in smaller, secondary markets that may offer more profit opportunity.
The decrease and withdrawal of corporate and foreign investors would normally have a negative effect on South Florida’s market and current boom. I believe price appreciation will taper, but residential market values will still increase in the single digits. Why?
Mortgage-qualifying criteria will ease in 2014, and mortgage capital will become more readily available, ushering in a return of the owner occupier and the local and U.S. buyer to South Florida.
Without a doubt, banks overreacted to the crash in market values and historic foreclosure mess by stopping the flow of funds.
Only the most affluent buyers have been able to qualify for a mortgage to purchase a property. Condominium mortgage financing has been relatively non-existent. First-time and move-up buyers in South Florida and around the country have been blocked from homeownership by investors and funds overpaying above market values. “Cash is king” has been the mantra in South Florida.
It’s my opinion criteria for mortgage qualification will continue to be eased. I also opine larger pools of mortgage money will become available in 2014 as banks and institutional investors provide funds to fill the void. With less competition from investor buyers and greater availability of financing, retiring domestic and foreign baby boomers will replace the investor purchases.
Flood insurance could change market values in single-family homes along Florida’s coasts.
The Biggert Waters Act was one of the few bills our Congress could agree to legislate in 2012. The law requires commercial and residential property owners to pay their fair share of insurance determined by age and type of construction, proximity to flood plains, foundation height above sea or flood level and other determining factors.
In theory, the law states if you choose to live or operate your business in an area that has flood problems, you should pay a higher rate of insurance than those who live and own inland businesses away from water problems.
The unintended consequences will be severe. Second homeowners and commercial property owners’ rates are increasing now, with primary owner occupiers to get hit with the new rates in October.
Floridians and other Americans affected in qualifying areas are getting increases of 400 percent to 700 percent. Imagine seeing your flood insurance bill changing from $3,000 to $21,000 overnight. It’s happening.
Millions of Floridians living in coastal and river areas will see flood insurance costs skyrocket and, correlatively, property values decline.
Millions of Americans and our elected representatives in Washington thought this was a good idea and a fairer sharing of risk. Guess what? Citizens in Muncie, Ind., may be faced with paying off mortgages immediately or losing their home. Truth is, most of them thought it would decrease their bills while folks in Florida and other eastern, gulf and west coast locations would pay the price.
This ridiculous piece of junk should be terminated immediately, and national disaster insurance covering all types of natural disasters for everyone, paid and shared by everyone, should be enacted.
At this point, legislators are beginning to realize the folly of this bill and are discussing a suspension of enactment. If this law goes forward on schedule, it will derail U.S. housing markets and national economic recovery. It’s that serious and that dangerous.
Population growth, not job growth, will drive South Florida’s real estate markets—for sale and for rent.
According to Census Bureau data, Florida’s population increased by 225,000 last year, following nearly a 200,000 gain in 2012. I’m predicting population will increase by 250,000 this year. Some of the more optimistic analysts are predicting 360,000 new Florida residents.
Without a doubt, the massive baby boomer generation has begun a long predicted trend of retiring and choosing Florida for full- and part-time residency. The baby boomers are the most affluent generation ever both in the United States and abroad.
South Florida’s unemployment rate has been greatly reduced over the last two years. Miami is at 7.5 percent, while Broward and Palm Beach’s unemployment rate were 6.8 percent at the start of the year.
The unemployment rate is misleading regarding job creation, but, even more importantly, the compensation paid for jobs does not support the cost of housing in South Florida.
Population growth and the current limited supply will continue to drive prices higher in 2014 both for sale and rental product segments.
Beware: the hucksters, self-promoting experts; cattle-call investor bus l tours and market hype and fluff are back.
We’re back to boom time South Florida, and it’s deja vu 2005 all over again. The unreal real estate reality show stars are back giving lessons on how to become rich using other people’s money. Realtors are hyping the market again, enticing family and friends and the general public to get rich through real estate with them.
The bus tours of foreclosed properties have given way to bus tours of new condo projects and retail centers, some by the very same folks. The grandiose sales parties, celebrities and wannabe’s are back in town. So are the developers that cut the financial legs out from under previous buyers in the last boom. More than ever, it’s buyer beware.