Bloomberg has an interesting article today on the (apparently) impending real estate disaster in Miami. Here’s an excerpt:
“In the middle of the biggest glut of condominiums in more than 30 years, Miami developers keep on building.
The oversupply will force prices down as much as 30 percent, the worst decline since the 1970s, and help push Florida’s economy into recession as early as October, said Mark Zandi, chief economist at West Chester, Pennsylvania-based Moody’s Economy.com, who owns a home in Vero Beach, Florida.
“Florida is the epicenter for all the problems that exist in the housing industry,” said Lewis Goodkin, president of Goodkin Consulting Corp. and a property adviser in Miami for the past 30 years, who also foresees a recession. “The problems we have now are unprecedented and a lot of people will get burnt.”
Thirty-seven new high-rise condos and 20,000 new units are being built in Miami’s 1,040-acre downtown, where sales fell almost 50 percent in May, according to the Florida Association of Realtors. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC in Deerfield Beach, Florida. That’s the most unsold units since McCabe began tracking sales in 2002.”
And we think we have a supply/demand imbalance! The article points out that all of these projects were launched during the 2001-2005 mega-boom in Miami real estate and, since such projects can take as many as five years from conception to completion, lenders have little choice but to provide the funds to complete the projects, or lose their entire investment. Financing was generally provided on the basis of substantial deposits by prospective buyers-but since many buyers were ‘investors’ who sought to flip their properties in a then-rising market, it’s likely that most will simply forfeit their deposits, rather than throw good money after bad.
But local pols remain hopeful that foreign buyers, seduced by the Florida sun and the weak dollar, will bail out the overly exuberant (as Alan Greenspan might have said!) banks, developers, and investors…so don’t expect high-rolling Miamians to be pawning their gold chains any time soon.