Has Miami’s luxe market lost its vigor?

Nov.November 01, 2015 10:00 AM
1485 South Ocean Boulevard on Palm Beach’s Billionaire’s Row

1485 South Ocean Boulevard on Palm Beach’s Billionaire’s Row

South Florida’s luxury residential market has led the charge in the region’s recovery from years of real estate stagnation during the recession.

But several factors are now prompting market observers to question whether the luxury sector in Miami-Dade County is starting to lose its momentum.

Analysts and industry members point to a buildup of inventory and a strengthening U.S. dollar that, in some cases, has more than doubled the costs for international buyers, who have played a big part in Miami-Dade’s recovery.

“South Florida’s luxury market is at a pivotal time in this cycle,” said Peter Zalewski, the founder of Condo Vultures in Miami, and a columnist for The Real Deal.

“Foreign nationals are still interested in luxury condos but are no longer excited about the price due to real estate appreciation as well as a strengthening U.S. dollar,” he said.

Miami-Dade, which leads South Florida in both sales and inventory in the $1-million-and-up price bracket, has seen a dip in the number of transactions so far this year compared with the same stretch last year.

The county is seeing a flood of condo inventory as new buildings open and more sellers are being drawn into the market by higher prices.

During the first eight months of this year, 9 percent fewer luxury units were sold in this category — 683 as compared with 747 for the same period last year. In addition, by the end of August, the number of condos for sale was 1,687 — 33 percent more than the tally at the close of August 2014.

From January to August this year, 705 single–family luxury homes ($1-million-and-above) were sold in Miami–Dade, according to Multiple Listing Service data. That’s a 3 percent decrease from 2014’s tally of 729 for the same time period.

Although the dip in volume is not huge, there’s also been a big influx of inventory in that category. As of August, sellers had listed 1,285 single-family luxury homes for sale, representing a 26 percent spike from last year’s  1,017 count.

Real estate observers tend to call a market “healthy” if it has six to nine months of supply available. For the higher price brackets, even an 18-month supply is still manageable, said Ron Shuffield, president of brokerage EWM in Miami-Dade and Broward counties. In August, Miami-Dade County’s $1 million-and-above sector had roughly 16 months of pent-up supply.

“It’s not something to be alarmed about yet, but there’s no question that we’re going to see values level out,” Shuffield said. “We’re advising our sellers to be patient; it might take a little bit longer to sell.”

Daniel-de-la-Vega-quoteWhile the buildup of inventory may have contributed to the dip in the number of sales, perhaps the most significant factor might be outside the region’s control: As international currencies weaken, foreign buyers may be losing interest in Miami-Dade County.

A March CNN Money report noted the U.S. dollar had gained 61 percent on Russia’s ruble and 43 percent on Brazil’s real over the preceding 12 months. Both countries serve as feeder markets for customers of South Florida’s luxury real estate.

In June, Brazilians dominated the Miami Association of Realtor’s list of foreign web surfers searching for local properties on its platform — for the 13th month in a row. In July, Colombians topped the list.

“We’re very reliant on foreign buyers,” said Jack McCabe, founder of McCabe Research & Consulting in Deerfield Beach. “A huge percentage of new sales, as reported by developers, have been to international buyers.”

And as buying activity by foreign clients wanes in Miami-Dade, experts are expressing doubt about the luxury market’s ability to sustain momentum.

“A lot of attention is given to the record high prices being achieved in the sale of luxury condos in South Florida,” said Zalewski, noting all the buzz about September’s $60-million sale of the Faena House penthouse in Miami Beach that broke the county’s previous sales records ($34 million for a condo and $47 million for a single-family home). “But we would argue it’s more important to pay attention to available inventory and the number of transactions.”   

Said Zalewski: “Unless the U.S. investor gets involved in purchasing luxury condos in South Florida, we would expect that sector of the market to underperform in terms of the number of transactions.” 

But while the luxury market in Miami-Dade has begun to slow, its counterpart in Broward County is not showing this weakness.

Broward County has seen an increase in sales and inventory, both of which Shuffield said are desirable for future growth. From January to August of this year, 394 luxury homes were sold. That’s a roughly a 21 percent increase from last year’s figure of 325.

And at the end of August, Broward County had 773 luxury homes for sale, amounting to a 9 percent jump in inventory year-over-year.

Shuffield said much of the activity in Broward’s luxury market comes from single-family homes. In August, 67 percent of the high-end sales were of homes while 33 percent were of condos.

Faena House penthouse

Faena House penthouse

Even so, sales of Broward County luxury condos (for $1 million or more) during the first eight months of this year rose 9 percent, with 151 condos sold compared with 138 in the same period a year earlier.

The story in Palm Beach County is very similar: Luxury sales have grown significantly in the past year, and real estate professionals see no sign that this trend is slowing.

Tom Davis, a Coldwell Banker agent of 27 years, said the inventory of luxe properties has decreased this year, and listings are selling quickly and close to their asking prices.

“We’ve been doing really well for the past 18 months, for sure,” Davis said. “Right now we’re just a little under what the prices were back in 2005 or 2006.”

Statistics from the Realtors Association of the Palm Beaches back his sentiments: The number of luxury condo sales in January through August this year climbed to 233 from 194 for the same period last year.

Luxury single-family homes are much more prevalent in Palm Beach County than are high-end condos. During this year’s first eight months, 768 homes sold — 15 percent more than 2014’s 666.

Carmen D’Angelo, a broker and part owner of Premier Estate Properties, has several theories about why Palm Beach County is faring better than Miami-Dade. Roughly 75 percent of his clients are domestic buyers. That means they aren’t as affected by declining currency values abroad.

Plus, prices for luxury residences in Palm Beach County are less than those in other ritzy hot spots of the United States such as the Hamptons, Los Angeles or Maui.

“Whatever economic climate is out there, you have a marketplace where people want to live in South Florida,” D’Angelo said.   

And Daniel de la Vega, president of brokerage One Sotheby’s International Realty, shared a similar sentiment about the Miami-Dade market.

“We’re still very inexpensive relative to the rest of the world, compared to other major cities; people see tremendous value,” he  said. “The market has slowed — I’m not denying that —  but Miami long term is still an amazing investment.”

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