Has South Florida experienced its last boom-bust cycle?
BY PETER ZALEWSKI, SPECIAL TO THE MIAMI HERALD, Posted on Sunday, 03.24.13
A hypothesis is being bantered around high-level real estate circles that South Florida — a region with a long history of volatility typically triggered by domestic and foreign speculators — may have experienced its last dramatic boom-and-bust cycle.
Miami’s evolution, proponents contend, into an international center for business, arts, education and recreation, combined with a significant public investment in cultural facilities and transportation infrastructure in the last two decades has put South Florida on a path to attract a steady infusion of individual and corporate dollars from around the world for the long-term future.
Proponents credit the decade-long run of the Art Basel event that brings together some of the world’s top artists and collectors every December for exhibits, discussions and social events as the linchpin that introduced the globe’s most elite circles — with excessive investment dollars — to Miami.
This anticipated infusion of international capital, especially for real estate, is considered to be a sort of elixir that could ultimately inoculate South Florida against future real estate volatility.
Proponents refuse to say that prices will not go down in the future in South Florida, but rather that the market would be backstopped by wealthy investors with the capital to deter many of the dramatic swings of the past.
For many South Floridians who suffered through the 2007 market crash, the immediate reaction is to simply disavow the idea as optimistic hyperbole being pitched by developers or real estate professionals looking for business.
After all, South Florida has a long history of real estate booms and busts dating back to at least the 1920s.
Despite shrinking residential inventory in recent quarters, some could argue the tricounty region of Miami-Dade, Broward and Palm Beach — saddled by an unknown amount of shadow distressed real estate — is still in the midst of a bust that began in 2007 after four years of rampant residential development and condo conversions.
Proponents counter that South Florida has experienced a somewhat quick recovery — despite a difficult mortgage market — from a real estate crash that many projected would take a decade to recover from given the oversupply of new and resale residences available some six years ago.
As of the first quarter of 2013, South Florida’s resale inventory represents about 30 percent of the nearly 110,000 single-family houses, condos and townhouses on the market back in the fourth quarter of 2008, according to data from the Southeast Florida MLXchange.
As for the oversupply of new condo units, buyers — primarily from overseas with strong currencies — have acquired about 95 percent of the nearly 49,000 new condos created in South Florida’s seven largest coastal markets from Greater Downtown Miami to Downtown Fort Lauderdale to Downtown West Palm Beach.
With boom-era developer condo inventory on pace to sell out in early 2014, developers are now proposing more than 120 condo towers with nearly 16,400 units — some designed by world-class architects — for South Florida’s coastal region.
Nearly 40 percent of the planned condo units in South Florida are being proposed by developers who come from outside of South Florida from places ranging from New Jersey to California, Argentina to Canada, and Brazil to Malaysia.
It is unclear how many of the proposed towers will ultimately be constructed as the region learned from the previous boom-and-bust cycle. As of March 18 construction has already concluded on one condo project while an additional 16 towers are currently being built in South Florida.
Early on in this current cycle, units in the new condo towers are being purchased by Latin American inventors who are in search of value, wealth preservation, currency advantage and strong rents.
Foreign investment — led by Latin American buyers — accounted for an estimated $5.3 billion in South Florida residential real estate transactions in 2012, according to the Florida Realtors “Profile Of International Home Buyers In Florida” report.
Much like the Hispanic constituency played a crucial role in the 2012 U.S. presidential election, real estate players in South Florida are bullish that Hispanics — especially those originally from Latin America — will emerge as the cornerstone of Miami real estate going forward.
“Right now what we are doing is, we are really pumping cash from Latin America and bringing it to the U.S.,” Carlos Rosso, the president of the new condo development division of the Related Group, recently said about South Florida’s current real estate climate. “There is a transfer of wealth from all of those countries that have done great during the last years with commodity prices up the gazou and real estate prices up in the sky. They have transferred a lot of money into the U.S.
“They feel the U.S. is a secure place, that it is safe, and that they can buy a piece of the beach, the sun, and the lifestyle of Miami.”
It is impossible to argue decisively for or against the hypothesis of no more real estate boom-and-bust cycles for South Florida given that data necessary to prove or disprove the hypothesis will not be available for several decades.
The question going forward is, whether foreign investor preferences and buying power will be consistent and sizable enough to catapult Miami and South Florida into a safe enough place in the market that is immune to real estate booms and busts.