The 2022 Miami Real Estate Forecast | Part 1: Is this Market Sustainable?

Where is the Miami Real Estate Market Going in 2022?

In this first part of our 2022 Miami Real Estate Forecast, I sit down with Ana Bozovic. Ana is a Miami real estate analyst and the owner of Analytics Miami.  We had an in-depth conversation discussing today’s market and its sustainability. We went in-depth on what drives this market, and what can potentially weaken or strengthen it. We discuss whether this market can keep growing and how to identify deals in such a strong market.

I sat down with Ana in Q3 of 2020 when we discussed the Miami real estate market at the start of Covid-19. Back then we reflected on the market and discussed what was likely to happen in the months to come. Therefore we decided to get together again to discuss the enormous roller coaster ride we have experienced and what we expect will happen in 2022.

Is this Miami Real Estate Market Sustainable?

The most pressing questions of buyers and readers are “Can we sustain this market?” and “Is this a bubble about to collapse?” What is most important to remark is that this is not just a momentum for Miami’s real estate market. Miami is growing as a city and we are experiencing a fundamental shift from which there is no moving backward. In today’s world we are experiencing a complete shift in human behavior; the way we work and the way we look at life. Miami is reaping the rewards from this shift. Miami or Florida has always had the advantage of presenting a favorable tax climate and now we add several other aspects to the mix such as the appreciation of personal freedoms, lifestyle, job growth and safety. This in combination with crime concerns in other states is fueling the mass migration into Miami. There is a shift in the world order and Miami is very well in the center of it all. We are living in a new reality and this is the new normal. According to new Census data released earlier this week, Florida is now attracting more new residents than any other state in the U.S. with in total 220,890 new residents entering the states between July 1 of 2020 and 2021. While Miami is receiving many people and money flows, other cities are loosing people because of increased crime, political polarization and increasing taxes. We do not see these feeder jurisdictions change course any time soon. Miami is no longer a city for tourists, it is a city that attracts families, businesses, the tech crowd and major financial institutions. There is a business shift and it is having a cascading effect. As hundred of thousands have paved the way, more people are now inclined to make that move. There is a shift in the world order and Miami is very well in the center of it all. We are living in a new reality and this is the new normal.

Is the Miami Real Estate Market in a Bubble?

In an effort to get people to read their articles many media outlets are postings about a potential Miami real estate bubble. We would not like to call this a bubble and here is why. Bubbles are typically created by debt. Debt drives asset prices up and if assets decrease in value the market can no longer sustain the debt, which leads the market to crash. That is most definitely not the case in this market as this is not a debt-driven market, in fact 62% of the $1M+ purchases in Miami Dade, Broward and Palm Beach County were cash purchases. Additionally, lenders are stricter than ever with their requirements for a mortgage and we are not dealing with subprime mortgages. For those referring to the “last real estate bubble” it is important to recognize that this is not the same market as the one in 2008, rather the exact opposite of that market.

Historically the market has experienced bubbles and having worked as realtor in Miami for 15 years we have experienced this first hand, but it is important to know you can’t just extrapolate the past real estate cycles, assuming every peak is followed by a drastic drop. Of course there will always be a peak of the market followed by a correction, but just because we are at a peak right now does not mean we cannot go higher or sustain this level.

Are Prices Likely To Continue Increasing?

With the high amount of people moving into Miami, prices have gone up considerably. Some of the more luxurious sub-markets have seen 50%-60% increase in prices. The question is of course whether buyers will continue to pay these record prices and how much further they are likely to go up. Miami won’t defy the law of supply and demand and looking at the current situation in Miami, we have a supply that has dropped considerably since two years ago. Most of our markets have dropped between 50% and 100% in inventory, which are extreme drops. In part 5 of our report you will see some of the extreme market shifts. So with a decreasing inventory and increasing (mostly cash) transactions where would the downward pressure be coming from?

Demand is high and supply is low so there is no other option than for prices to go up. Of course prices cannot keep rising at this speed, but we still see prices increase at this moment, just at a much lower speed. It seems we are settling into our “new normal”. We should also not forget that Miami still offers relatively affordable prices in some markets compared to other cities.

On the demand site we are convinced people will continue to move to Miami. We have a positive momentum going on and Miami is growing sustainably. There is a real appetite for people to be in Miami, which used to be all about the taxes and is now about so much more. Part of the movement is also caused by a negative momentum that is happening in some of the States from which most relocation buyers are coming from. There is a significant enough percentage of people moving to Miami and we do not see anything that might change this any time soon. To give you a concrete example, I still have many families calling me on a daily basis to make the move. In addition to this, I now get many calls from investors and large funds looking for properties.

The only threat for today’s market is really the lack of inventory. The extreme low supply can cause a decrease in velocity of sales, which we are already experiencing. I have many buyers ready to go, but there is simply no product to sell them. We cannot sell what we don’t have and our ability to purchase has slowed down by virtue of supply.

Going Off-Market

The lack of supply is the reason we are speaking to our colleagues on a daily basis. Almost every day I call other top agents to ask if they have something in the pipeline. I drive around to speak to developers and I just hired an agent specifically to reach out to owners of good quality homes to see if they are willing to sell. In a market without inventory you have to create your own.

An overview of the $2M-$5M home market in Coral Gables, Coconut Grove and Pinecrest. Sine 2019 inventory has dropped from around 180 listings to 5o. That is a 72% drop in inventory. The biggest threat in the Miami real estate market is now the lack of inventory. You simply cannot sell what you don’t have.

The Miami Condo Market

The condo market has always been very cyclical and investor-driven, which makes it more fragile in nature. The Miami condo market is also experiencing a massive shift, with rapidly decreasing inventory and rising prices. Ana and I have experienced two condo cycles and we saw and predicted corrections in the 2015 market as supply was exceeding demand. Today we are experiencing an emergence of new condos and increasing sales prices and rents. There is a new wave of pre-construction condos coming such as Baccarat, The Waldorf Astoria, St Regis Brickell, Five Park and so on that are selling well in excess of $1,000 per SF where typically it was $500 per SF. Is there really an appetite for this product and will renters still be able to afford these units? While most Miami condo markets are investor driven markets, there are off course healthier condo markets that are less cyclical and therefore less fragile. Call me at 305.508.0899 to learn more about which condo markets to avoid and which to focus on.

While David is skeptical about the sustainability of the rental market and therefore the sustainability of most of the condo sub-markets (mostly the Brickell condo market), Ana is more bullish on this market. The world is shifting and Miami is one of its new capitals. So from a perspective that this is the new reality, she predicts the urban core to become a legitimate primary place to live and not just an investor-driven rental market. We have all the ingredient in place; the airport, enough businesses are moving, a healthy lifestyle, a capital friendly environment, great schools and a wonderful lifestyle. So why wouldn’t more people embrace the NYC-inspired condo lifestyle in Miami.

How do we find deals in this market?

In a market that is moving so fast how do you find deals? Prices are really unpredictable these days. What is trading for $10M today might as well flip for $15M tomorrow. Even for brokers it feels unclear what something is really worth. Prices keep changing and a record price is the most expensive price paid till it’s not. Today something is the highest dollar price per SF and tomorrow someone is more eager to move and that person will pay a new record-breaking price. As long as there is a demand the prices will continue to increase or at the very least remain stable. If the market offers no alternative for a better price then properties will keep trading.

So what is a good price to buy now? With prices blowing up and inventory at record lows the deals will be presented by product that is selling at previous (near) peak prices. If you look you can still see that the condo market offers some properties for prices that were just below the level of the previous peak. Those are today’s deals.

In part 4 of this report we discuss appreciation rates and cap rates. Deals might be harder to come by, but the return on investment is certainly there if you are looking for an appreciation asset that also brings you yield.