In Downtown Miami sales volume and prices are decreasing. Should we expect Miami to hibernate for a while or is it too sunny down here for a cool down of the market? For the first time in 5 years condo prices declined 4% to $438/sqft. Should we be worried about the current situation? Isnít it normal to go thru a slow down after so many years of growth? Does a slowdown predict a crash?
Letís investigate a little further to properly answer these questions and the reason behind the 43% decrease in sales volume.
First of all, the condo inventory is increasing and the demand is slower so this creates a drop in volume of sales since there are less buyers, they have lots of choice and time to choose. In fact the condos listed in May 2014 were 1,900 while in May 2016 there were 3,000 condos so thatís a huge surge in inventory and itís just the beginning. In the second quarter of 2016, 7,500 condos were under construction and another 1,550 advertised for sale.
Then, since there is also a high inventory of rentals in Miami, tenants are negotiating harder on the prices which slows down the rental market. As a consequence rental prices have not increased and buyers are shifting to rentals. As matter of fact, condo rents have increased only of 3.7% last year to an average of $2,677/month compared to a 10% increase in 2014.
In addition, the dollar currency has become stronger and since most of investors are foreigners, they slowed down their investments in South Florida. Brazilians and Venezuelans have decreased their purchases due to the economic situation in their respective countries.
Finally South Florida is watched closely by Federal regulators for money laundering so that might have had an impact on sales as well.
However we think a slowdown is healthy for the market. Moreover we are nowhere near the 2008 market crash. Buyers are going to close on their units since theyíve already put down a 50% deposit unlike they did in 2008.
Nevertheless, it is still difficult to attract new buyers. Boulevard57 , a luxury project in Morningside, decided to interrupt the sales of the project. Auberge , another project in Downtown Miami has postponed its construction to 2017. Other developers have decided, in view of this slowdown, to convert their condo tower to a rental building. In fact, Downtown and Brickell are the business centers of Miami and the job growth is fast. This creates a new young population interested in renting a condo. Definitely, we need more affordable units for this kind of target. For example, Soma, Met 3, and Brickell View Terrace focused only on the rental market creating 950 units. Another 5,500 rental units are under construction in Downtown.