The Miami Neighborhood Economic Health Meter | An Exclusive New Tool to Measure Your Area’s Economic Health
What is the Neighborhood Economic Health Meter?
The David Siddons Group developed this tool as an index to measure a neighborhood’s economic health. Using the human body as the perfect metaphor, you can measure a person’s health, but you cannot guarantee someone will always stay healthy. This neighborhood health score indicates the current economic health of an area and its likelihood to fall ill or to be susceptible to illnesses. So this score does not predict the future, it merely provides the current status of a market and provides you with an indication of the market’s defense mechanism aka: its strength to process future hits. It is not about bear or bull markets. It’s about the market’s elasticity; about robustness and resilience of the market against economic change. A low score can present a world of opportunities at the right offer.
We used the below real estate indicators to measure the Neighborhood’s Economic Health Score:
Real Estate Indicators Explained
Below we explain for each indicator why that indicator /category is important for the health score and how me measure the category
Months of Inventory
The months of inventory is a very important indicator in real estate. It shows the relationship between supply and demand and therewith it indicates how fast a market can digest or absorb product. This is basically the market’s metabolism. If a market cannot absorb new listings for sale, this would be equal to a slow metabolism in the human body. The more bloated we get, the less we can burn, which adds to one’s decreasing metabolism.
Months of Inventory are calculated by dividing the current amount of listings by the average amount of sales per month (Based on the last 12 months). The final amount of months of inventory was then given a score on a metric scale between 0 and 100
Changes in Sales Prices per SF
Prices can go up and down, just like your hear beat. Small price changes, just like changes in your heart rate, will not impact a market. If other market conditions are optimal, these changes will correct itself. If the rest of the market is not in equilibrium, the prices are less likely to correct themselves easily. An increased heart beat can be handled easily by your body, but if your heartbeat goes up a lot and you are obese (High inventory levels in a market), then this might lead you to collapse or get a heart attack. There is a optimum range for everything and extreme high or low price levels, supported by other healthy variables, will be able to correct themselves. Miami is known for its dynamic cycles, with booms and bursts. Some markets go hard, reach the top and they explode.
Moral of this story: It is ok to have an extreme high heart rate or price increases as long as you have a fast metabolism (low inventory levels). Increasing prices and no demand or high supply are a deadly combination.
This category is measured by looking at the price changes between 2018 and 2017. The percentage of change is then given a score to be included to the health score
On another note: Exploding markets also provide us with the opportunity to step in low!
Ratio of Owners to Renters
The ratio of owners to renters is important as this is like your body’s immune system. Neighborhoods occupied mostly by home owners (primary markets) tend to be healthier than markets occupied by renters. Imagine an economic crisis, would you sell your primary property, where you live with your family? Or would you first sell your investment property? Investment-based markets tend to suffer most from economic turmoil and therefore it is important to know the owner to renter ratio in order to establish a health score. Primary markets have a better immune system than investors-based markets.
This number is calculated by dividing the amount of active sales by the amount of active rentals.
Months of Inventory for Rentals
The months of inventory is a very important indicator in real estate. It shows the relationship between supply and demand and therewith it indicates how fast a market can digest or absorb product. It is important for the sales market but also for the rental market. This is basically the market’s metabolism. If a market cannot absorb new listings for rent, this would be equal to a slow metabolism in the human body. The more bloated we get, the less we can burn, which adds to one’s decreasing metabolism.
Months of Inventory are calculated by dividing the current amount of listings by the average amount of rentals per month (Based on the last 12 months). The final amount of months of inventory was then given a score on a metric scale between 0 and 100
The Final Score; The Neighborhood’s Economic Health
The score card goes from 1 till 100. 100 Will be an impossible number, this will never happen and the market is too good. A market with score 75 is a really good market worth buying into. In less healthy markets we still have healthy product and it all depends on the price. For many investors, these markets offer excellent opportunities to get top product for a discounted price.
The score provided here is an average of all the different scores within a neighborhood. We gave each of the 5 price ranges per neighborhood a score and took the average from these 5 scores. The different price ranges might vary significantly in score. Furthermore, each score comes with an explanation to put things into perspective. Please sign up for our 2019 Miami Real Estate Forecast to receive all the details on these different health scores.