As always our Miami condo update will help you to make a Miami condo investments.
The condo market is more cyclical and more investor-driven than the single-family home market. That is why we are always more cautious with the condo market and like to discuss it separately from the single-family home market. Miami condo prices are nearing their peak level seen in the 2015 Miami condo market. Inventory is down, product is sold rapidly and we are seeing record sales prices.
Many people are comparing this market to the 2008 market, but there are several factors that make today’s market very different than the 2008 market. History doesn’t repeat itself but it rhymes. Some of the most important differences is that inventory is much lower, there are less condos being built, banks are stricter with their requirements and there is a 20% down payment needed. All signs of a better controlled market, but there is still something that concerns us.
As mentioned above, the Miami condo market is more investor-driven and with the current buying trends, more and more investors want in. The problem is that Miami is becoming more and more expensive. Rent has gone up with 30-50% because of the high demand from relocating tenants. What used to rent for $3/$4K is now renting for $5K. Miami has indeed become a world-class city, but its price levels have also climbed to the very top. Miami has just become the second, just behind NYC, most expensive city in the US. Ask anyone in Miami and they will tell you that life has become much more expensive, yet Miami salaries have not gone up exponentially. We have welcomed many CEOs and high-end execs, but they made their money elsewhere and they are not the ones renting these units. Cities like LA, San Francisco and NY have more skilled entry level and mid-level professionals, which creates the engine to make their industries more successful. Their labor force is highly educated and often comes from the Ivy League universities. Those 20 something year olds often enter the labor force at $150K, which isn’t the case in Miami.
Will the Florida Housing Market Continue to Increase in Value in 2022?
Brickell’s median income is $80K per year and the highest percentage of people (31%) falls in the $75K-$150K household income bracket. Only 25% of Brickell’s population earns more than $150K. A household that earns around $100K/$125K per year will have at best $83K/$100K left after taxes. Take the 30% rule for renting and this household’s rent should not exceed $3K per month. This means they would have to rent a 1 bedroom, because from the 275 Brickell units that rented in the last 90 days only 23 were 2 bedrooms. Imagine this couple or person would like to live in a newer, amenity-rich condo and rent for $5K, the yearly costs would be 50% or more of the household’s total income. With other words, people are renting units and live a lifestyle they cannot afford.
The problem is that these rental returns will anchor the future appreciation of a condo. Right now these units rent for $5K, making it go up in value. It’s an income producing mechanism that was originally making $3K per month and now makes $5K, so now that property appreciated with 40%. At one point this market is no longer sustainable and the local market cannot afford these high rents anymore. The demand for rental units will decrease, values will have to come down and units will depreciate. A unit that goes from $5K back to $3K per month is suddenly not such a great investment anymore and will be offloaded. Insult to injury is that new product coming into the market is sold for approx. $1,000 per SF. All of these highly priced units will need a much higher rental return and Miami simply does not have the work force to sustain this. As always the most generic units are the ones that are most dangerous and we see a big threat for the $1M-$4M units in the more generic buildings.
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