Miami Market Works Overtime With Latin Investors Sidelined
Once upon time in South Florida, more specifically Miami, the luxury real estate market was booming, as Latin American investors, looking to add to their property portfolios, bought hundreds of millions worth of swank condos and waterfront estates.
You see, just a handful of years ago, Latin American currency was exceedingly strong against the U.S. dollar, fueling a significant amount of purchasing power, coupled with a Latin willingness to pay record-breaking prices for luxury residences. Skies were sunnier, smiles bigger, and wallets heavier, one sale after another.
However, the heavily overbuilt luxury real estate market in Miami has entered a nebulous period, now that a robust dollar has risen, and Latin America’s recent bout of governmental instability, and devaluation of its currency has sidelined thousands of Latin buyers.
Yes, Latin money had brought Miami back to life, so to speak, but not without some concessions, namely, the market is now somewhat handicapped in two respects — the present loss of the Latin luxury buyer, and the consequences created by driving up overall real estate prices throughout the Miami real estate market.
What does this mean? In addition to the softening luxury market, local buyers are having a hard time finding affordable single-family homes, creating quite a quixotic situation.
The Latin American Departure.
Well, let’s start with the facts. “Due to the recent advance of the U.S. dollar versus most South American currencies, the advantageous buying power of foreign investors has been diminished significantly since 2011,” according to a first quarter residential market report released by the Miami Downtown Development Authority.
While the dollar was gaining in strength, Brazil’s currency had lost more than half its value amidst volatile financial markets, while Brazil’s economy shrank for nearly two years due to falling oil prices and sharp declines in gross national production.
The Latin well has seemingly run dry for the moment, the number of foreign buyers has taken a downward trajectory, and every report issued depicts declining number of investors from Latin countries.“A lot of South American currencies are weak compared to the U.S. dollar,” Meland Russin & Budwick real estate attorney Mark Meland said. “That’s why we are seeing a slowdown in the Miami real estate market.”
Back in 2012, Brazilian buyers had purchased enough luxury estates and condos in Miami and Miami Beach to radically upswing the depressed market, enticing Argentines, Venezuelans, Columbians, Canadians, Russians and other Europeans to invest heavily as well.
Their currencies were then strong against the dollar, and Miami real estate was seen strategically, logistically, and financially to be an intrinsically safe and profitable way to invest.
Today, much of that activity has stagnated, and the lower intensity of demand from Latin investors is clearly a result of problems abroad, which has exacerbated the Miami slowdown.
Result? The Latin buyers have dropped out of the Miami market in droves.
The Luxury Miami Real Estate Market Cools.
Everyone assumed the luxury market would continue surging. With no crystal ball, Miami developers thought the huge number of high-priced properties and condos they were building would be barely enough to fill demand, and luxury sellers believed their estates would close quickly.
“We have more luxury inventory than we’ve ever had in our history,” President and CEO of EWM Realty International Ron Shuffield said, “And sales are as low as they’ve been for several years.”
According to a recent report from brokerage Douglas Elliman and appraisal firm Miller Samuel, the number of Miami Beach luxury sales fell 22 percent, and mainland sales dropped 13 percent year-over-year in the fourth quarter of 2016.
“The market is not weak or in tailspin. What we’re seeing are price adjustments by sellers to account for the explosive growth we’ve experienced since the last recession,” Douglas Elliman CEO Jay Parker said.
“The increased inventory is helping us to bring those sellers to a point of acceptance. ... It’s a buyer’s market.”
But some damage has been done, principally to real estate pricing, and there is fresh evidence of this all over Miami — pointing to the tie between Latin investors, real estate, and economic market conditions.
Latin Immigration, Investment Affects Miami Market & Economy.
According to new census estimates analyzed by university researchers in Miami, population growth has shifted dramatically, chiefly driven by Latin Americans moving in, with exceptionally expensive housing costs causing locals to move out of South Florida.
Economist Jed Kolko said the census data further shows that Miami’s immigration population increased 1.1 percent from 2015 to 2016, the highest of any U.S. metro area, and net international migration has overall increased 397 percent during the census period.
And domestic migration, which has always been price-sensitive, has all but ceased. No one from say, Ohio, is moving to Miami. The analysis shows net domestic migration has dropped 2,670 percent since 2010, and 106,591 former Miami-Dade County residents have departed, seeking cheaper pastures.
Various recent studies and reports rank Miami as one of the least-affordable housing markets in the country, in part due to the record numbers of Latin Americans and other foreign investors settling in Miami, who are also driving up real estate prices across every spectrum, which has in turn affected the local buyers market.
Miami has now become quite unaffordable, as wages have not risen to compensate in any fashion. The wealthy are not affected, as they either own or rent property, but the average person working for a slightly above minimum-wage job cannot afford current rental and mortgage rates. It is true there are many houses for sale, and buyers have a lot of options, but only if they have a half million bucks or more to spend.
Miami Herald reporter Debora Lima agreed, noting “Median home prices across the market continue to outpace wage growth— a 9 percent jump year over year, while wages have grown by a mere 4 percent.”
Are rising real estate prices necessarily bad for the region? This happens in many larger cities functioning as major epicenters, like New York, Washington D.C., and San Francisco, for instance. The problem in South Florida is there are not nearly the same opportunities for enfranchising employment.
“It is not that demand is weak, but rather that there is a growing disconnect between what sellers want and what the market can support," said Jonathan Miller, President of New York real estate appraisal and consulting firm Miller Samuel.
The Rise of Miami’s Single-Family Homes.
While prices continue to rise for single-family houses, the middle ground is heating up, and bidding wars are erupting for the shrinking number of affordably-priced homes available.
According to realtor.com, Miami’s median listing price is around $305,000, in contrast to a luxury property, usually priced well over a million dollars. Obviously, both the luxury market and the ‘normal’ housing sector are currently priced far beyond what an ordinary wage earner can afford.
Leading indictors are dropping due to poor availability and high median prices, making the affordable single-family home a rarity, and a highly sought after prize.
In a telling metric, number of single-family homes for sale between $250,000 and $600,000 has fallen roughly 18 percent, although median home price rose by 12 percent to $274,900, the third consecutive month of double-digit increases.
“Low supply and high demand for Miami single-family homes have fueled five-plus years of residential price growth,” Miami Realtor’s Association Chairman Christopher Zoller said.
Experts see the market gradually returning to ‘normalcy’. The question is whether prices will continue to rise, or will gradually soften. It is a pincher-like situation for the residential sector at the moment, and another burden for locals contending with the 2014 Latin buying frenzy fallout.
The Return of The Latin Buyer.
There’s no question, at least for the meantime, real estate prices will remain high, with sales sluggish, affecting segments of the population, and in turn, disrupting some portions of the Miami economy.
Is there redemption and resurrection on the horizon for the regular and luxury markets?
In a June 2017 analysis, World Bank Group officials stated a Miami regional recovery is expected to gather pace in 2018 and 2019 as Latin American growth picks up.
“In Argentina and Brazil, reforms implemented over the past two years to stabilize government finances are expected to begin to yield dividends, as will efforts in Argentina to improve the business climate,” World Bank Group said.
In a recent CBS4 Miami news article, HB Roswell Realty Broker Sep Niakan summed up the market situation, noting affordable residential real estate will be sought after by local buyers, and will continue to move, while the luxury market will take some recovery time.
As for locals struggling to stay in Miami, and buy a home, Niakan sees a brighter future, advising residents “Wait it out, and you are going to be happy you did.”
Deborah Lima conceded that although residential housing is tight, and the luxury condo and housing market has softened, Miami real estate experts “don’t expect a hard landing.”
“The market will return. Make no mistake — Latin and other foreign buyers are still very much around,” Lima said.
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