Half Empty Buildings
To really understand what is happening in a marketplace, you often need to be there. And that’s why I am in Miami today… so I can see first-hand the effects of the real estate bust in one of the most overbuilt areas in the United States.
Is it really as bad as the media portrays it? Here’s the scoop from what I see today:
During the property boom times in the U.S., condos sprouted up like dandelions from Palm Beach County to South Beach and downtown Miami. Today, you can still see cranes finishing the buildings that were started two years ago. Trump and partners are here big-time with six buildings in Sunny Isles alone (monstrous buildings up to 40 stories high.) Other buildings did not get started; most have been cancelled for now.
The rumor has it that more condo units were built during the Florida property boom that ended in 2005 than were sold in the previous 10 years. And like every property boom that goes bust, the people holding the bag at the end of the line (when the market peaks) are the ones that get hurt.
I find property prices in this mostly “second vacation home” area having fallen drastically in price inland. Condo and home prices on the beach have held their value — in most cases having not fallen at all. This makes sense, because properties on the ocean are the most valuable and sought after. Those that bought inland bought secondary location properties because they could not afford beach properties in the first place. (Remember, in real estate it’s location, location, location!)
The newer the building, the more units for sale. One condo building I was in yesterday, right smack on the beach, has 102 of its 265 units for sale. This is a luxury building with units varying in price from $800K to $2.0 million — and the individual condo owners are not lowering their prices to sell. In newly completed buildings inland, prices are falling because of the poorer location.
Is the bust here in Miami affecting the economy?
Most definitely. Once the city with the most number of would-be realtors trying to get their licenses, realtors have now left the profession or changed careers en masse. Restaurants are not as busy as they used to be. One restaurant I’ve visited in South Beach that regularly did 500 people a night on the weekends is down to half that some nights. A manager at a popular uptown restaurant I have known for years told me that this is the worst March break for business he has ever seen in Florida.
Fed Chairman Bernanke sure is pulling out all the stops to turn this economy around, but here in Miami, it will take a long time for the excess inventory of homes and condos to be washed out. Last week, the U.S. Federal Reserve Board reported that U.S. homeowner percentage of equity in their homes fell below 50% for the first time since 1945. That means that for the first time since the end of World War II, homeowner debt is greater than their equity. Not a pretty picture… especially here in Florida.