Miami’s housing market is now facing what amounts to a giant reality check, according to the newly released Elliman reports, as its overheated pace of sales falls like a ton of bricks to more moderate — albeit less sexy — levels.
But while the overall picture isn’t all doom and gloom, tough times are still ahead for those in South Florida’s real estate community, especially in the luxury sector.
“The market is transitioning from this irrational, hyperbolic period that was unsustainable to a market with a more moderate pace,” Jonathan Miller, whose firm Miller Samuel authors the quarterly reports for Douglas Elliman, told The Real Deal.
The most stunning figures in Douglas Elliman’s second-quarter report come from drooping sales in both Miami Beach, stretching from Fisher Island to Sunny Isles Beach; and Miami’s coastal mainland, which encompasses neighborhoods east of I-95.
For the mainland, sales dropped by 12.5 percent year-over-year, from 5,016 homes and condos sold last year to 4,390 in this year’s second quarter.
Miami Beach fared much worse with sales plummeting 24.7 percent, from 1,186 deals during 2015’s second quarter to 893 this year.
While condos were to blame for those drastic sales cuts in previous quarters, single-family homes dragged the numbers down equally this time around for both markets.
Miller said one major reason behind the ongoing sales slowdown is simple supply and demand: on the mainland, listing inventory for condos exploded by 35 percent to 5,120 active properties during the second quarter, while single-family homes saw an equally remarkable jump of 38 percent to 658 listings.
In Miami Beach, listing inventory for condos jumped 20 percent to 9,306 units, and inventory for single-family homes rose 8.3 percent to 3,537 houses.
All that new inventory means buyers — who are already feeling indecisive from factors that include the economy and presidential election — are taking longer to close deals.
Time spent on the market doubled for many neighborhoods, with aggregate numbers showing an average of 103 days listed on the beach and 76 days for the mainland.
“Everybody has to acclimate to the speed difference, and that impacts your perception of the market,” Miller told TRD. “There’s still a lot of activity, it’s just not moving as quickly as everyone is accustomed to.”
The other not-so-obvious factor is a quickly shrinking supply of distressed properties, which tend to trade quickly at smaller price points.
When the housing market crashed in 2008, distressed homes and condos made up a large chunk of the properties that traded hands. Now that stronger buyers have snatched up many of those properties, the share of distressed property sales is significantly lower.
The mainland saw 369 distressed condos sell during the second quarter, a reduction of 43 percent from the year before. Single-family homes saw a similar 45 percent decrease down to 363 distressed sales.
Miami Beach was much the same. The barrier islands saw 44 distressed condos trade during the second quarter, down 55 percent year-over-year, and a mere three distressed single-family homes — down 72 percent in that same time frame.
While a shrinking pool of distressed properties might be dragging down sales numbers, it could also be fueling Miami’s ever-growing home prices. Lender-owned homes and short sales typically carry significantly smaller price tags than properties with financially strong owners, so having fewer distressed properties means fewer discounted homes watering down the market as a whole.
Miller said you also have to take into account that most of the homes and condos trading nowadays are noticeably larger in terms of square footage compared to previous cycles, and therefore command higher prices.
When you peel back those layers, Miller said, price growth is already starting to become more conservative. Recent reports from research firm S&P Dow Jones show housing values in the tri-county area are rising by single-digits year-over-year. That’s a far cry from the double-digit appreciation in 2013 and 2014, when South Florida’s real estate market rocketed up from the recession.
On the mainland, median prices for a single-family home grew 10 percent to $330,000 in the second quarter. Condo prices grew by 5.4 percent to $230,000.
On the beach, however, condo prices seem like they’re gearing up for a correction. The median price for a unit on the barrier islands hit $383,750 in the second quarter, growing by only 3.2 percent year-over-year.
Single-family homes, however, saw prices spike 14.3 percent to an incredible $1.6 million — the highest median price recorded in at least a decade.
While the market as a whole is downshifting into a more sustainable place, the luxury sector is starting to get volatile.
On the coastal mainland, prices for both condos and houses in the luxe sector — defined as the upper 10 percent of all sales — fell significantly.
The median sales price for a luxury condo plummeted 16.7 percent to $1 million per unit. Single-family home prices in the upper echelon also dropped 4.9 percent to $1.25 million.
Sales were also down on both fronts. Luxury condos saw 231 sales, down 13 percent year-over-year, while single-family homes saw 211 sales, down 10 percent.
One look at the inventory numbers paints a clear picture as to why sales and prices are hurting: There were 3,103 condos of the million-dollar variety actively for sale during the second quarter, up a whopping 78 percent year-over-year. Houses fared a bit better with 1,124 homes on the market, marking an inventory increase of 28 percent.
“Inventories are clearly rising and rising. The increases are much more pronounced as you move up in price,” said Miller, whose firm is based in New York. “We’re seeing the same thing in New York, where the housing market is generally softer on top than anywhere else.”
On the beach, however, pricey is only getting pricier.
The median price of a luxury Miami Beach condo spiked 20 percent year-over-year to $2.85 million, while costs for the barrier island’s ritzy single-family residences grew by a more moderate 3.7 percent to $8 million.
Sales on the beach, however, were going anywhere but up. Only nine deals were cut for single-family homes in the second quarter, down 34 percent compared to the 14 sales made last year. Luxury condos had 83 trades, a decrease of 21 percent year-over-year.
And much like the mainland, inventory continues to stack up.
The second quarter saw 1,048 luxury condos and 193 homes go up for sale on the beach, marking an increase of 31 percent and 67 percent, respectively.
All those factors, from ever-increasing prices to a mountain of listings, spell trouble for the market’s most visible — and coveted — sector.
“There’s a lot of uncertainty; people are taking longer to make decisions,” Miller said. “It’s just not the same sense of urgency, and that’s not easy for Miami.”