Is Miami’s market in a bubble? One analyst offers an answer

by James McClister

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Is Miami’s luxury condo market in a bubble? Some will tell you it’s a stupid question to ask; that of course the market isn’t in a bubble; that the market has taken precautions this time around. But according to Jack McCabe, a Florida-based real estate analyst with McCabe Research and Consulting, those people are wrong. His answer to the “stupid” question is “yes,” according to Housing News Report.

During the buildup to the mortgage crisis in 2007, McCabe was ahead of the collapse, predicting the downturn. And looking at Miami’s luxury condo market today, he notices a few similarities – namely, a hoarding of inventory.

According to a new report from Douglas Elliman, in the second quarter of 2016, Miami’s luxury condo supply increased 78.3 percent year-over-year and average sales price increased 12.7 percent to $1.8 million. Alone, those figures suggest a radical jump in demand. However, that’s just not the case. Sales were down 13.5 percent over the same period and days on market more than doubled since Q2 2015, rising from 51 to 104.

“In the upper-end condo market, we are in the ninth inning,” McCabe said. “Sales numbers are dropping, prices are flattening, and we are starting to see the return of concessions by developers in the market such as private jet services spur sales.”

The big difference this time around

But one difference McCabe sees between Miami’s market today and the nation’s market leading up to the housing crisis is that the global economy is already in recession. Instead of the U.S.’s economic problems tainting global markets, this time it will be the reverse.

“This time, the global recession is going to cause a U.S. recession,” he explained. “Here in Miami, 70 percent of the sales are to foreign nationals, most of which pay with cash. Only 10 to 15 percent of home buyers are Floridians.”

International sales volume was down in 2015, according to the National Association of Realtors foreign homebuyers report, and McCabe’s worry is that the lost capital in Miami will see the city’s luxury condo market continue to inflate and then pop.

“South Florida is in a big bubble for high-end condos,” he warned. “We are at the end of the expansion phase and entering the hyper-supply phase, especially in condos.”

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