Market Activity & Neighborhood Reports by Zip Code for the Miami Beaches
As the Spring ended and Summer began, the month of May saw some interesting changes in data. For example, the prior month, Miami Real Estate searches on the Internet were topped by foreign nationals in Brasil, but this month, Colombia has taken the top spot. I asked a friend of mine why this might be, as only a couple of years ago it was my understanding Colombia was exploding with business opportunities. He believes the country is likely to be the next nation is South America to follow Brasil, Argentina, and Venezuela in terms of shifting to a more socialist system, and by consequence, likely substantial corruption. We will see how that situation unfolds, but one thing is clear, there is a lot of Colombian nationals searching South Florida for real estate opportunities presently.
Also in the news, after Memorial Day violence, there is a growing demand by locals and the politicians to do away with Urban Beach Week. This has been an ongoing issue as seemingly every year there are dozens of dozens of arrests (in 2012 there were 431 arrests), dozens of guns confiscated, etc. It is unfortunate that those who come here for that weekend seeking only music, sand, sun & fun are accompanied by armed, gangster-like ( I would not want to insult gangsters, particularly those of the days of Capone, who were reputedly gentlemen…murderers, yes, but well-dressed and well-mannered gentlemen overall). I am all for putting an end to this weekend as it is common knowledge many locals, both renters and owners, literally flee the area ahead of this week/weekend for no other reason than this event.
I continue to try and improve the format of my articles. If you have any suggestions (or requests), please let me know! Now, onto the data!
MLS Sales Volume is at a 3 year low. Listing Volume is at a 3 year high.
There is a lot of construction in South Beach (and I will be covering these projects in a forthcoming issue); luxury, ultra-luxury, and a more “affordable” upper-end (500K+) class of assets being built and many of these are being listed the moment the building comes online, further driving listing volume to the upside. Sales Volume has decreased, in large part to the well-known Summer Slowdown in real estate sales. Also, people are not willing to overpay anymore just for the privilege of being on South Beach. The Buyer’s Market continues and I am beginning to see some good opportunities come, and go quickly while overpriced assets languish on the market for an average of 4 months (twice the national average).
33140 – Mid-Beach, Bayshore, Sunset Islands, La Gorce & La Gorce Island
MLS Sales Volume is at a NEW 3-year low. Listing Volume is stalled at a 3-year high.
I love this area of the Miami beaches and recommend it highly. The west side of this area is one of the most beautiful and family-oriented neighborhoods in all of the Miami Beaches. A median listing price of 390K warrants any logical buyer to start viewing properties NOW as I do not see this phenomenon persisting for very long.
33141 – North Beach, Normandy Isle, Normandy Shores & North Bay Village
MLS Sales Volume is at a NEW 3-year low. Listing Volume is at a NEW 3 year high.
Median List price is also at a NEW 3-year low. I have been urging customers to consider buying in this area as I believe it represents the best and most affordable area-of-opportunity for an average family to own a piece of the Miami Beaches, and frankly, the location is superior for the working person who has to commute on a daily basis. At $200-$300 per existing square foot, you cannot build anything for that cheap anymore! I do not expect the market to move lower. For some time there were assets selling in the low 200s per square foot for Class B condominium units, but those have grown fewer and more far between. This is a Buyer’s Market and I think the waiting is over. If you are waiting for lower prices on the retail (non-distressed) market, you will be both disappointed and be living elsewhere.
33154 – Bal Harbour, Surfside & Bay Harbor Islands
MLS Sales Volume is at a NEW 3-year low. Listing Volume is at a NEW 3-year high.
Despite a spate of buying in the prior few months which drove sales volume higher (albeit to the 3-year average), it appears Bal Harbour is not immune to the Summer Slowdown, posting a new 3-year low in sales volume and a new 3-year high in listing volume. Keep in mind, the median list price is well within its 3-year range AND Bal Harbour continues to be one of the most sought after places to live in the United States.
33160 – Sunny Isles Beach, Eastern Shores & Golden Beach
MLS Sales Volume is at a NEW 3-year low. Listing Volume is at a NEW 3-year high.
I have called Sunny Isles Beach “Home” for nearly 8 years and I am looking forward to having many more years as a resident here. The City of Sunny Isles Beach has been undergoing a massive transformation since 1997 when the City first incorporated and was no longer part of the City of North Miami Beach. I am looking forward to, hopefully sooner than later, enjoying some years here without an endless stream of construction vehicles and lane closures; and, in approximately 2 years, when the City completes its endeavor to sink all the power lines under the A1A and replace the ugly streetlamps with more aesthetically pleasing, and perhaps innovative lighting along the corridor.
Sales Volume is down and Listing Volume is up, however, more than HALF of all homes sold in the past year (over 300) have been under 600K. There are still plenty of existing construction bargains (in my opinion) to be had.
Is it a good time to buy or sell?
This is the most commonly asked question of me. It should be noted that the average time on market for listings ticked down by as much as 12% in all zip codes. This could be an indicator that certain asset classes have reached their inflection points in the market, the point where Sellers have become more realistic with their asking prices and Buyers are coming back into the market as a result.
The overall market continues to correct slowly, and it remains to be seen whether or not this trend will worsen; as it stands right now it has been very slow and gradual; but painful enough to drive many Realtors from the Beaches in search of more active/easier markets to compete in; or, in some cases, move on to greener pastures in other fields. However, if the US Dollar should weaken against the major currencies of the world, expect a jump in prices as Foreign Direct Investment will likely become resurgent as it did between 2010 and 2013. As of late, the Dollar is well off its post-election highs, and some economists are predicting the Dollar will see new historical lows in as early as the next 1-2 years.
I believe that in some markets where the trend is up, if you are considering selling, it is always better to sell into a trend (or “too early” as Warren Buffet says); and if you are looking to buy, I would consider looking at markets that have corrected to their 3+ year averages or below to look for opportunities AND also consider price per square foot to buy versus to build. There are a great number of opportunities to buy in the Miami Beaches, right now, to buy for a lot less than the cost to build new.
The Miami Association of Realtors Market Update: Single Family Homes in Miami-Dade County showed another increase in sales in April. As I have been commenting, the Condo Market is a mess, and this is weighing down the numbers for the Beach-centric reports I publish monthly, but single-family homes are a very strong market (56% jump in Luxury Single-Family Homes Sales!!!) right now making it a Seller’s Market for that asset class. http://www.miamire.com/news/news/releases/2017/05/24/miami-single-family-home-sales-increase-again-in-april
The Miami Beaches Market Pulse is a monthly market analysis by Christopher J. Lazaro, MBA & Licensed Real Estate Broker, featuring professional commentary, data & statistics, downloadable market reports & neighborhood reports, of the five zip codes of the Miami Beaches: 33139 (South Beach & The Venetian Islands), 33140 (Mid-Beach, the Sunset Islands, Bayshore, La Gorce & La Gorce Island), 33141 (North Beach, Normandy Isle, Normandy Shores, North Bay Village), 33154 (Surfside, Bal Harbour & Bay Harbor Island), 33160 (Sunny Isles Beach, Eastern Shores & Golden Beach).
The first half of the year has begun to demonstrate a substantial shift towards a spike, and potentially continued growth, in the Distressed Market. Note that I am saying “spike”, as at least one to two more data points would really be needed to see a marked change in the inclination of the overall foreclosure trend (and by then, it will be too late though to do anything about it). In this dataset I go back to as far as my Tax Record Application, provided by the Miami Association of Realtors, allows: 2008. Prior to 2007/2008, either the computer’s database records do not go back that far, or Lis Pendens filings were not specifically tracked until then. Regardless, with nearly 10 years of data, covering the very beginnings of the prior distressed market until present, there is a disturbing increase in filings throughout the Miami Beaches.
For the most part I am displaying data and encourage my readership to draw their own conclusions, but I have provided commentary in places so as to properly set the context (as best as I can for the purposes of this article) of the time period as a backdrop for the actual number of foreclosures occurring in, what are, 5 of the wealthiest and most desired zip codes in the United States. Please note I have pulled data on many other areas in the Southeast Florida area; with few exceptions thus far in my experience, the results for those areas parallel those below.
To provide a better frame of reference, and perspective, to the data-by-zip code below, I am providing this Historical Key, chart of the US Dollar, and Commentary to historical & present events in the Macro Economy:
Year | Event(s) & Commentary
2008 | The single biggest set of financial beatings in history begin! Unprecedented institutional actions are implemented in an effort to restore confidence in the financial system and prevent a global financial system collapse. By comparison, the Savings & Loan Crisis of 1985-1995, + the Dot Com Bubble + the Enron / Worldcom disasters of the 2000-2002 era, combined, pale in comparison! The largest bailouts and bankruptcies in US history begin with the failure of two of the most storied US based investment banking firms, Bear Stearns & Lehman Brothers.
2009 | Asset purchases by the Federal Reserve begin with extreme prejudice. By the end of the year, 1.75 Trillion USD are on the Federal Reserve’s books, and more debt in the history of mankind is monetized than all previous civilizations combined….and they are just getting warmed up!
2010 | Scandal (“robo-mortgages” / “robo signings”), unprecedented backlog of foreclosure filings, nationwide, in the courts, loan modifications, and tons of cheap money slow & dull the pain! This drives the Dollar into the depths of Hell over the next couple of years, setting a new historic low exceeding the lows of the late 1970s, the mid-1990s and, of course, 2008; 2008 being a period of what nearly amounted to a complete loss of faith in the financial system and fiat currencies virtually everywhere.
2011 | By the end of 2nd quarter 2011, nearly another 600 Billion Dollars worth of defaulted assets were purchased by the Federal Reserve The Buying spree continued through the year while loan modifications (and related businesses) popped up everywhere. Whole real estate brokerages became founded upon Short Sales & REOs. Special access to Fannie Mae, HUD and Freddie Mac portfolios were granted to large institutional buyers leaving a multitude of smaller investors out in the cold and only able to select from what was getting listed by licensed brokerages.
2012 | The economic stimulus (economicheroin), and massive backlog in the courts as a result of both volume and scandal, continued to slow the number of foreclosures. Globally however, money pours into the United States in the form of foreign direct investment. With the resulting “cheap Dollar” coming off of a historic low, real estate in the USA, especially Florida, looks “cheap” and the wealthy of other nations, many of whom were seeking to escape Socialism, Communism, and Austerity Measures of all kinds in their own home countries, flee to US Assets and begin driving the Dollar up, along with asset prices across all industries.
2013 | Continued talk of “improving economy”, and of a forthcoming “tapering” of the Quantitative Easing from the Federal Reserve, build confidence in the Dollar driving it higher well into 2014, simultaneously beginning a driving up of actual carrying costs, via currency risk,of US Assets by foreign investors who borrowed.
2014 | The 3rd round of Quantitative Easing ends in October…the money printing subsides…(for now).
2015 | After nearly 24 months of talk by the Federal Reserve, in order to maintain confidence in the US Dollar, the Federal Reserve raises interest rates in December 2015 by 25 basis points (0.25%) despite worsening, lackluster economic data.
2016 | Talks of additional rate hikes continue, however, by mid-2016 this appears to be a non-starter rate-hiking cycle. Economic data continues to worsen, with record lows in the Workforce Participation Rate & the manufacturing indexes, an obvious spike in foreclosures, and what appears to be a looming sovereign debt crisis which, if a recent Federal Reserve Paper in favor of a 4th Round of Quantitative Easing comes to fruition, is a likely scenario. As of right now, we as a nation are painted into a corner it seems. There is a high probability, if the Federal Reserve chooses to do another round of Quantitative Easing (printing more money), a currency crisis will ensue (the value of the Dollar i.e. the Dollar’s purchasing power), will diminish in potentially spectacular fashion. At the same time, if the Federal Reserve chooses to raise interest rates, this will crash the stock market and absolutely obliterate the bond market; it may also push the United States into a Sovereign Debt Crisis.
In the first scenario, more Quantitative Easing, Dollar Prices of real estate will increase substantially, but the purchasing power of those Dollars will simultaneously be diminished (i.e: while prices may rise, the cost of living will increase at a dramatically faster rate); this is bad for both prospective Buyers as well as Sellers. In the second scenario, and this has happened throughout history, if interest rates are raised, real estate values will decline commensurate with the interest rate, and with respect to both Sellers and prospective Buyer-Investors, higher capitalization rates will be required in order for any particular asset to clear the market (this is very bad for Sellers who may end up under water as a result of declining prices).
33139 – South Beach & The Venetian Islands
Year | Number of Foreclosure Filings
2008 | 10
2009 | 21 – 200% increase over the prior year.
2010 | 63 – 300% increase over the prior year.
2011 | 21
2012 | 12
2013 | 33
2014 | 27
2015 | 28
2016 | 55 – UP 196% YTDversus the same time period in 2015! Uh oh…the drugs are wearing off…More “stimulus”?
33140 – Mid-Beach
Year | Number of Foreclosure Filings
2008 | 4
2009 | 18 – 450% increase year over year.
2010 | 26
2011 | 6
2012 | 8
2013 | 8
2014 | 16
2015 | 23
2016 | 21 Slightly down – but this could be considered within a certain standard deviation models as normal or, at best, “a slight downtick”.
33141 – North Beach & North Bay Village
Year | Number of Foreclosure Filings
2008 | 5
2009 | 31
2010 | 44
2011 | 12
2012 | 26
2013 | 27
2014 | 21
2015 | 20
2016 | 31 – Up 150% from 2015!
33154 – Bal Harbour, Bay Harbor Islands & Surfside
Year | Number of Foreclosure Filings
2008 | 4
2009 | 5
2010 | 21
2011 | 3
2012 | 5
2013 | 13
2014 | 7
2015 | 9
2016 | 11 – Up, but this could be considered within a certain standard deviation models as normal or, at worst, “a slight uptick”.
331460 – Sunny Isles Beach, Golden Beach & Eastern Shores
Year | Number of Foreclosure Filings
2008 | 14
2009 | 37
2010 | 79
2011 | 12
2012 | 28
2013 | 27
2014 | 18
2015 | 21
2016 | 46 – Up over 200%!
New foreclosure filings are up substantially on the Miami Beaches, and while I do not publish reports for other zip codes, I have performed these same analysis across three counties for my customers & clients. There is A LOT of this going on. I have nearly 100 short sale listings on MLS; only last year I had none. It is a growing business again. 33140 and 33154 have not seen much action, yet, but I will be keeping tabs on them as I expect the tide to start sinking all ships at some point.
If you are a property owner and had plans to sell within the next 3 years, I strongly urge you to SELL NOW and immediately trade out of Dollars for either real estate (real estate of the same class, but perhaps a different location), that can fetch a higher capitalization rate if you were to rent/lease it, or plan to do so (view all purchases, even if it is your own home, from an investor’s perspective) or physical currency in the form of Gold and/or Silver, or a combination of the two. Every situation is different, and I am happy to advise you.
If you are a Buyer/Investor, the distressed market is expanding once again. Buy/Rehab/Flip and Buy/Rehab/Rent/Flip continues to be a working model. What you need to be careful of is the potential loss of purchasing power of the Dollar. I believe that locking in low interest rates at 50-75% Loan-To-Value, and thereby strategically increasing your Cash-on-Cash Return, is the best path to follow to protect yourself from the potentially damaging effects of inflation. Thus, If inflation begins to kick in substantially, the only real estate you want to be left holding is that which is in a fantastic location; as you will continue to be able to raise your rental rate commensurate with what is appropriate for the location of Demand. Following the same strategy; if Deflation occurs, your financial leverage will work against you on paper, however, as long as you are able to continuing to leasing your real estate at or near current rents, your return on investment should continue to provide substantial returns despite the value of the property declining; and income should really be your primary goal as a long-term investor in real estate; not property appreciation.
I also like certain REIT (Real Estate Investment Trust) investments, Gold/Silver and other niche areas & industries where money can best be shielded from the consequences of the long-standing poor monetary & fiscal policies of our government. Call me to discuss!
Forthcoming – I will be publishing July’s & August’s data on the Miami Beaches over the next few days as I am winding up for a close of 3rd Quarter Edition of the Miami Beaches Market Pulse coming in October.
Christopher J. Lazaro, MBA
Licensed Real Estate Broker at Metro International Investments
The Miami Beaches Market Pulse – February 2016 versus February 2015
Welcome to this month’s edition of the Miami Beaches Market Pulse! I apologize for the delay, as it was my original intention to publish the January results circa the middle of February, however, recent business did not allow for the time and concentration required to perform a reasonably decent analysis; and THEN I seemed to have lost all the data files for the month of January!
Recent evidence suggests that the 16+ month long market correction on the beach has even impacted the luxury market. I witnessed & read an article in February where the both famous & beautiful Anna Kournikova sold her Miami home for a tremendous 2 million under ask price! See Details of this here! Even the famous “Jills” (arguably the de facto sales associates for the rich & famous) are feeling the pain (from a “typical” commission of 3-6% perspective) of a $60,000-$120,000 dollar “loss” in projected commission revenue! This saddens me, of course, as every Realtor® wants to be participating in a thriving market and given the usual Co-Broker nature of the business we generally all want to see each other succeed and make more money. They are great agents with an excellent reputation, so if you choose not to use me, I would definitely look into using them for your luxury residential real estate needs.
Over the past month I have been speaking to a number of experienced real estate investors and brokers. The general consensus is that a larger dip in the real estate market is forthcoming after the election. I will not, at this point venture to guess the future as I am a data driven individual; however, I do see certain underlying, and as-of-yet, unquantifiable threats to the residential real estate market. These “threats” are, admittedly, in one respect, conjecture; only because none of us are omnipotent, but the possibilities are significant enough to, at the very least, justify maintaining a watchful eye and remain cautiously optimistic at best. In this issue I begin with the usual publication of the comparative numbers (February 2016 versus February 2015) by zip code, and provide commentary. Then I go into what I perceive to be the top 4 threats to the South Florida Real Estate Market, something I should have probably expounded upon some time ago.
Reports by Zip Code
33139 – South Beach
Median Est. Home Value: $385K, Up 0.3%; Median Est. Listing Price: $275K, Up 1.8%; Median Days in RPR: 117, Down –7.1%; Sales Volume: 80, Down –27.3%
As I published in the December Report, I saw the market, specifically in Bal Harbour, showing signs that the Beaches were reaching an inflection point. It does not surprise me that the downward trend in the data has been leveling off, after all, how low can it go? This is Miami Beach! However, let us keep in mind that the data you are seeing is suggesting that Sales Volume (for MLS related sales only) is down 27% year over year, and it is currently at a 3 year low. Last year, this number was showing a drop (from 2014 year over year) as well, into the -30-50% range. This indicates the Market Sales Volume is actually off by as much as 75% when compared to the Sales Volumes of the years 2013 & 2014. The long and short of it is: yes, we are seeing an uptick; but to get back to normal conditions we need to see a sustained surge in transactions on existing home sales, which is the benchmark for home valuations. Valuations being supported at lower volume, to me, indicates weakness in the market and market vulnerability to surges in new inventory. Current Listing Volume (see the Neighborhood report for this) has passed the 3000 mark, a 3 year high. So we have the most supply in three years, and the least demand in three years. For sure, I believe prices are susceptible to further correction, especially if any of the “threats” I discuss later in this article begin to weigh on the market more heavily than they already have.
33140 – North Beach
Median Est. Home Value: $484K, Up 5.3%; Median Est. Listing Price: $426K, Up 20.9%; Median Days in RPR: 114, Down –20.3%; Sales Volume: 35, Down –41.7%
Following suit with 33139, Sales Volume for 33140 is down a whopping 41.7%, a 3 year low; and Listing Volume is at nearly 1500, a 3 year high! I do not think much commentary is needed given my commentary for 33139. We are certainly seeing an uptick, which arguably could be seasonal, or due to an influx of retirees etc. One thing remains certain, the market is nowhere near it’s recent “healthiest” which we saw in 2013 & 2014.
33141 – North Bay Village
Median Est. Home Value: $270K, Up 9.8%; Median Est. Listing Price: $245K, Up 1.7%; Median Days in RPR: 101 Down –17.2%; Sales Volume: 35, Down –66.7%
I stand by my comments regarding this area from my December analysis; this area, I believe, has the greatest potential for long-term gains. It is ideally situated, and a wonderful town to live in. It is also the most affordable housing in the Miami Beaches by far.
Following suit (I rarely repeat myself as a practice of good writing, but I have a feeling I will be saying that statement another two times in this article; and I cannot understate, therefore must emphasize, the market action of the past 16 months plus), 33141’s Existing Home Sales Volume for MLS listed homes is off by a massive 66.7%. Considering that is circa how much it was off this time last year as well, it means the sales volume is off by as much as 80-85% versus the 2013 & 2014 numbers. The Realtors in the area must be hurting! Sales Volume is currently at 35, a 3 year low, and Listing Volume is over 1500, a 3 year high!
This begs the question why so many people, when they find out I am in real estate, say “Oh, you must be doing great then!”. It is truly amazing how long the sentiment created by the bounce of 2010 into 2013/2014 is lasting; and I find it surprising how many are simply unaware of the more-than-a-year-long correction in the Real Estate Market…even other agents & brokers (surely they have to notice they are not making as much money?!). The fact is that my real “bread & butter” is commercial real estate. I practice in residential real estate because I truly enjoy it; and residential Realtors® throw parties! Nothing like a good Broker’s Open House 🙂
33154 – Bal Harbour
Median Est. Home Value: $665K, Up 22%; Median Est. Listing Price: $469K, Up – (flat); Median Days in RPR: 119, Down –7.8%; Sales Volume 31, Down –44.6%
Incredibly, the Median Estimated Home Value is up a tremendous 22% year over year. How this is possible against the backdrop of a market correction evades me (for right now). I am going to call my reporting company and see if they can tell me how they are calculating Median Estimated Home Values. As of right now, I do not know; but I will. Regardless of this, the same thing holds true in Bal Harbour as it does on the previously reported zip codes. Sales Volume is at a 3 year low (down by 44.6% year over year) and Listing Volume is at a 3 year high with just under 900 units currently listed on MLS.
33160 – Sunny Isles Beach
Median Est. Home Value: $345K, Down –0.3%; Median Est. Listing Price: $285K, Up 10%; Median Days in RPR: 115, Down –11.5%; Sales Volume: 132: Up 11.9%
Sunny Isles Beach is where I call home. Surprisingly, Sunny Isles Beach has bucked the trend of the rest of the zip codes on Miami Beach! Sales Volume is actually up, a first in more than a year of looking at these specific reports. I believe this may be due to something unusual skewing the data, such as Pre-Constructions and unsold New Constructions being listed on MLS, and therefore when the sales of these new projects ultimately close, they get logged. Most pre-constructions and new constructions are never listed on MLS as they are typically absorbed by the market via the Builder’s own sales office.
Listing Volume is at a 3 year high, and Sales Volume, while not at a 3 year low, is close to the 3 year low. Median Sales Price has spiked, markedly from the low 200Ks to the high 700K range. This tells me that one or more VERY expensive properties sold this past month. Regarding Sales Volume, please keep in mind that most of last year (you can check my May 2015 report and others) regularly demonstrated, month after month. Sales Volume being off by 50+% every month year over year. While this spike in activity is encouraging, as I said before, we will need to see a sustained surge in market activity before anyone can begin declaring the market correction is over.
Lastly, I do not believe that Home Values have truly begun to reflect the market correction. When I find more on how this is being calculated, I will update this article further and, with any luck, have something cogent to share regarding Home Values respective of actual market activity.
Potential Market Threats
First and foremost in my mind is the result of the appreciation of the US Dollar against virtually every other currency in the world; and in many respects, currency appreciation is a good thing (unless you are and exporter or producing goods to sell abroad, which equates to your goods & services being more expensive than similar goods and services produced in a nation with a weaker currency). However, after the mortgage crisis, foreigners “ran towards the blast” (Peter Schiff, Las Vegas Money Show Lecture – 2013). As a result of this substantial foreign direct investment, our currency has been enjoying a “propping up” effect. I will explain further but for a really good (and funny) analysis, I recommend clicking the Money Show Link above. I do believe that this recent boost in the dollar is temporary as our increasingly socialist policies have put the Dollar in a downtrend starting as far back as the 1960s. Here is a long-term chart of the US Dollar:
Several years ago there was a deluge of foreign direct investment into the United States (especially in South Florida) as foreign nationals sought to:
1) take advantage of the distressed asset market which was the result of the 2008-2010 mortgage crisis,
2) expatriate capital from more socialist countries where the government risk to their capital is greater (reference the austerity measures in Cypress, where nearly every wealthy citizen with more than 100,000 USD equivalent on deposit in the country saw an overnight, and substantial, haircut out of their bank accounts), and escape ludicrously abusive tax policies to fund their extraordinary entitlement programs,
3) gain permanent resident status (“Green Card”) via the United States EB5 program (or other methods) by investing substantial (at the time, 500K and 1M dollar investments) amounts of capital into the United States.
Threat #1 – Currency Risk: In many cases, international financing was used, typically 50% equity & 50% financing. When this occurred (for example purposes we will use a Canadian citizen using Canadian Dollars), the Canadian Dollar was par with the US Dollar (meaning one US Dollar was equal in value to one Canadian Dollar. This has changed significantly over the past couple of years. Now, the Canadian Dollar is approximately one half the value of the US Dollar. Understand that US Dollars were borrowed, and now it takes nearly 2 times the number of Canadian Dollars to pay for each US Dollar that was borrowed. In this non-fiction example, the drop in commodities prices, specifically oil, has crushed the Canadian Dollar versus the US Dollar over the past several years.
The example is +/- true & valid with numerous currencies throughout the world, such as the Russian Ruble (right, which “fell out of bed” in late
2014 into early 2015), Brazilian Real (right, major political upheaval in progress as a decade plus of corruption and embezzlement is being exposed AND the fall in commodity prices, especially sugar, has weighed substantially on their currency, which has also moved into double digit inflation!), the Argentinian Peso (below, where long standing socialist policies have made the currency virtually worthless), and the Venezuelan Bolivar (below, whose chart clearly demonstrates the effects of communism).
To make matters potentially darker, these international loans have a 3-7 year lifespan. They are NOT 30 year mortgages! At the very least, even if only 5% of all international borrowers get
hammered by the result of the Currency Risk they are now getting burned by, we are still looking at thousands of distressed assets flowing onto the marketplace nationwide; especially here in Southeast Florida, which has rapidly grown into a top international destination that has attracted billions of dollars in foreign direct investment!
I should note that my firm’s best opportunities & customers are Argentinian and Venezuelan groups who are, for lack of a more accurate term, “Crowd Funding”, and bringing large amounts of capital into the United States. These investors are doing everything they can to expatriate money from their home nations and invest in the United States; which begs the question in our own political forum; “If Socialism works so well, why are so many people trying to come to the United States to escape it?”. It should be obvious in the charts that socialism is not healthy for a nation’s currency. This leads me to my next “threat”.
Threat #2 – Our Government: The Democratic Party candidates, Hillary Clinton and Bernie Sanders have either stated (Bernie) or all but stated (Hillary), they wish to lead our nation down the same path (to ruin it would appear). This year is an election year, and I believe that the United States is at a precipice, and never before has an election carried such weight on both the near and far future of our economy; and socio-economic stability. These two candidates wish to create and expand entitlement programs, to be fueled by greater taxation and use of our nation’s printing press. Members of the Democratic Party and Congressmen have floated ideas on doing away with your ability, as a homeowner, to deduct the interest you pay on your mortgage from your taxable income. To do away with it entirely would be catastrophic to average households throughout the United States! Others have suggested “modifying” it further than it already has been; and in my experience the government has a short-sighted habit of throwing boulders into a lake not realizing the tsunami it creates at the other side of that proverbial lake.
Consider this, a $200,000 home at 4%, on the first year of purchase, would allow you to deduct $8,000 from your taxable income; and this benefit allows you to essentially save $2,000 on your tax bill if you are in the 25% tax bracket (making between 37,650 and 91,150 if you are a single filer. See picture for more detail below). These two politicians would have you believe that the US Economy is recovering due to the policies their party supports; however, data suggests otherwise. Money Magazine published an article in September 2015 entitled “Typical American Family Earned $53,657 Last Year”. It is good reading and can certainly help put things into perspective, especially when evaluating how, if we should see yet another Democratic Party Candidate ascend to the Presidency, home values & net incomes may be effected.
This equates to about 3-5% of total gross income FOR THE YEAR for the average tax paying citizen! That $2,000 is extremely important to many American families; and even if it is not (for some), it has a wide array of better uses than in the Federal Government’s hands! This is money that can be invested (for college, retirement etc), or can be spent on goods & services, thus further fueling our economy and increasing our economy’s Velocity of Money, which today is abysmally and historically low (see chart from 1959 until end of 2015 below):
The Democrats/Liberals/Progressives/Socialists (all synonyms) claim that the 100+ Billion dollars that would be generated in tax revenues by eliminating deductions for the “rich” could be used to reduce the national debt, and they are correct; those revenues could be used in such a manner. However, all of them have been pontificating about expanding entitlements and creating new ones. In my view, should they move ahead with further reforms, they will find new and interesting ways of squandering our nation’s (your) wealth. In addition, once you start taking money away from the “rich”, a better term for them would be “The Employer Class”, they (the “rich”) begin to pull back (i.e: they start firing people and cutting expenses and limiting new investments which create jobs), and so goes the cascading tsunami across the lake (borrowing from my previous analogy). Furthermore, according to the National Association of Realtors, home values would see upwards of a 15% decline, on average, throughout the country if this is done away with.
Lastly, these candidates have a “print more money” policy, as if this does not have consequences. Every nation in the world has begun hedging away from the US Dollar as it is nearly obvious to anyone with a reasonable amount of education that The Dollar’s status as a Reserve Currency is in serious jeopardy. The media deliberately does not put this in front of you, but the fact remains you can only print money for so long before it becomes valueless. If the United States continues on this path, it will eventually find itself (sooner than later many reputed economists believe) in the midst of a Currency Crisis. To explain this; if I had a way of turning all the sand of Florida’s beaches into gold, how valuable would gold be? I conclude “Threat #2” with the chart below which depicts the United States Money Supply.
Threat #3 – New Construction & Glut of New Inventory
Last summer I read an article in the Miami Herald. It is entitled: At least a dozen new South Florida condo projects in limbo amid changing market conditions. I have been hearing rumblings that pre-sales have slowed, and while it could be the market pulling back to do some digesting, it could also be the “inflection point” they mention in the last paragraph of the article; meaning we have possibly seen the peak of this real estate cycle. In either case, we have many thousands of new units on hand in inventory, and should it be the end of the most recent boom in the market, developers will rush to finish their projects as fast as possible and dump the new inventory on the market. If we are not at the end of the boom, we have already seen over 3000 new units come online, over 10,000 more currently being built, and a projected 28,000 in the planning stages. Should all of these come online, it will only put further pressure on the existing home sales, and in my opinion, drive prices down as listing volume rises and sales volume continues to plummet due to already deteriorating global macroeconomic fundamentals.
Threat #4 – The Weather
I believe I am stating the obvious here, however, it is worth mentioning as it is a factor. It has been over 10 years since the last major hurricane struck South Florida. In that time tens of thousands of people from all over the nation, and the world, have moved here to make Florida their home. I was here during the 2000s, and I can tell you that after Hurricane Wilma (October 2005), the entire South Florida Real Estate Market completely stalled, as the shock and awe of the event set in to the population. I am fairly confident that a strong Category 2, to (God forbid) a Category 5 hurricane making landfall between Homestead, FL and West Palm Beach, FL would create a rush to sell in this region as there are many people who will be panicked after such an event, and currently cannot comprehend the vast power of one of these storms. Following such a storm, they will strongly reconsider their wanting to live in a place where such a beast is possible. While I hope the current pattern holds and these storms continue to remain out at sea, we are fast approaching Hurricane Season 2016 (beginning in June).
That concludes my analysis for this month. If you have any questions, comments, feedback or would like to explore purchasing a home; give me a call any time. Keep in mind you can always use http://REBroker.Miami to browse Homes for Sale and For Rent on the Miami Association of Realtors MLS.
January 1st 2015 – September 4th 2015 (October 2015 Update)
As the summer in Miami Beach came to a close I ran these reports on the five zip codes constituting the Miami Beaches ahead of the Labor Day Weekend. My last report was published shortly before the end the Spring and just ahead of the Memorial Day Weekend; and it was quite was alarming. Using data from Realtor’s Property Resource, an authoritative database for all transactions listed via the Multiple Listing Service, when compared to the same time period in 2014, transaction volume on the Miami Beaches had plummeted by 30-50% and listing volume was up sharply.
Since then, the stock markets, worldwide, have roiled over the uncertainty surrounding the future of interest rates, let alone the world’s reserve currency, the US Dollar; which, albeit stronger in the last couple of years, remains fixed in a 30+ year long downtrend.
The recent upswing in the Dollar resulted in properties being more expensive to foreign nationals, and for this reason, amongst others (i.e new construction), I believe is the root cause of what is currently happening along the Miami Beaches. Please note that the data below DOES NOT include pre-construction or new construction purchases; but also keep in mind that there is virtually nothing, of consequence to the numbers, in the new construction category within the Miami Beaches that is priced under one million US Dollars.
As you can see, Home Values continue to rise despite market weakness, however, I expect a shift in this as Median Listing Prices are down substantially and homes are on the market longer. In addition, the chart goes back as far as 2012, where there were circa 1500 homes listed in the South Beach Market. Listing Volume has more than doubled in the last 3 years having passed more than 3200 listed homes currently on the market! Naturally, Median Listing Prices have been declining over the same time period as Sellers wake up and realize their home is not worth nearly as much as they imagined.
The 33140 area lies immediately to the north of South Beach, 33139 and is, with respect to home ownership and other demographics a stark contrast to South Beach. North Beach is more of a full-time resident neighborhood and has far less tourist traffic than 33139. However, it is also not immune to the market correction we have been seeing. Again, Home Values continue to increase, while Listing Volume also continues increase, having nearly doubled in the last 3 years. More owners than renters exist in this market, and in my opinion, it is a more family friendly zip code to live in. Median List Prices are relatively flat year over year, and I expect this sideways trend to dip lower as listing volume increases. When looking at the the Price Range of Homes Sold, it should be noted that nearly 1/3 of all sales were over $1,100,000 USD.
Following the greater trend, Home Values continue to rise but the Median Listing Price has fallen off a cliff, now down 32%. I sold a couple of homes in this area in the past quarter and noticed that the recent Market Correction has brought in Ready, Willing and Able American Buyers (both were soon-to-be Retiree Couples). The Average Days on the Market also fell substantially as Buyers looking for a deal are snatching up properties in this area. I think that for a second home, investment property, or wanting to simply live in the area of Miami Beach, the best values can be found in this particular neighborhood right now. It is absolutely a Buyer’s Market with Sales Volume down more than 50% and Listing Volume having more than doubled in the past 3 years. This is a weaker market than the North Beach (to the south) and the Bal Harbour (to the north) Markets, and in my view, it has led the market correction on the beaches as a result. I expect the other markets, to a degree, to follow suit prior to the Spring of 2016 (although from May 2015 to September, Bal Harbour has taken quite a beating. It was “leading” the markets (in terms of resilience at least) in May.)
Bal Harbour is one of the wealthiest communities in the United States, home to one of the most exclusive malls in the world (The Bal Harbour Mall), and is an absolutely beautiful place to behold. However, it has not been able to hold up against the market correction as well as it was doing back in May when I published my last report. While, once again, Home Values continue to rise (and substantially here, +16%), Median Listing Prices are down by nearly 25% and Sales Volume is off by a whopping 62.7% (I am glad I am not an agent only specializing in Bal Harbour!).
Listing Volume is at a 3 year high and is currently double what it was in January 2012. Median Listing Prices have broken through a support range of 375K and are continuing to fall. One third of all listings sold were under 400K and another third of all homes sold were over 900K. Therefore this recent market correction has obviously spared no one. I expect market turnover to continue until Listing Volume begins to decline.
I have lived in Sunny Isles Beach for the last 7 years and I know this town well. In fact, I am pretty sure the data has improved in this zip code substantially in the past month due to the sheer volume of Buyers who have called me interested in taking advantage of the recent market correction here. While Home Values Improved, the Median Listing Price dropped substantially, at one point was off by nearly 30%. Listing Volume has climbed steadily however, and is currently sitting at a nearly 4 year high. In September, the trailing 12 months of Sales Volume was off nearly 40%, but a recent spate of closings I believe has reduced this to less than 5%. Keep in mind that a very substantial demographic change is currently underway in Sunny Isles Beach. With the construction of numerous beach front condominiums, a breed of extraordinarily high net worth people have been scooping up pre-constructions prices STARTING at $1400 per square foot! In turn, I have seen a number of beach condominium owners, also wealthy, but, not as wealthy as the newer beachfront apartment buyer, put their condominiums up for sale and inquire about making a purchase on the intracoastal side of the barrier island, an area of older, smaller, less expensive homes and apartments. This bodes well for home values and tax receipts to the City of Sunny Isles in the future as the demographic of this city becomes, on average, even wealthier. With few exceptions, I do not see prices declining much further here, however, I do see rents continuing to skyrocket as a result of this shift.
Despite the market correction on the beaches, Miami continues to be a top international destination, and barring an apocalyptic event, I do not see that trend softening, let alone reversing, any time soon. For the last 5 years inbound traffic and hotel stays have set records year after year, room rates continue to rise, and tax revenue from tourism continues to increase substantially. In tandem, massive non-residential commercial investment continues to pour into Miami-Dade County, and Southeast Florida as a whole. While the vast majority of the United States, I expect in the coming 1-2 years, will take an economic beating as a result of our Country’s ludicrous fiscal and monetary policies, The Miami Beaches and the City of Miami, I believe, will weather whatever the coming economic storm may bring for numerous reasons. First of all, the Baby Boomer Generation is retiring at a rate of 10,000 people per day (or 1 person every 8 seconds); and many of them have their eyes set on the warm Sun, sandy beaches and green palm trees of the South Florida subtropical climate. In addition, even if the Dollar takes a hammering, in an array of ways, that will boost foreign direct investment as wealthy foreign nationals seek to escape from harsh taxation & regulations in their home countries (and our policies are no picnic!). With that in mind, it should be noted that we are looking at a Buyer’s market here on the beaches and this is an opportunity that prospective buyers should, at the very least, look at closely with a knowledgable & reputable real estate broker.
Lastly, I would like to apologize to my readers for having not published another market update report sooner. I am extremely busy servicing my own customers & clients (who get the benefit of my analysis and insights on request) in both a residential & commercial real estate capacity; and therefore my time has been constrained with respect to Publishing & Marketing. As my firm grows, I expect to be able to publish on a more regular basis.
One of the biggest problems the average working American Citizen has these days is Information Glut. We are constantly bombarded with information be it on the TV, on our phones, on the side of a bus, and sometimes on a nice clear day at the beach, in the Sky! Unfortunately, and in fact, few Americans; even prior to the Information Age, paid much attention to the happenings in Washington DC. Even fewer have the education level needed to truly understand the Who/What/Why/How(s) of what (and whom) they are voting for and how a single person’s (or group’s) policies can ripple-effect through the very fabric of our existence living in this country. We live in a litigious society that is slanted towards entitlement, and has very little understanding of the consequences it will face tomorrow for actions taken today; particularly when it comes to the insanity of our monetary & fiscal policies. As the old saying goes, “Those who do not learn from history are doomed to repeat it”.
To better establish my case and point, I will establish the timeline of the irresponsible fiscal & monetary policy our current regime is moving ahead with at full steam:
In 2006, conveniently ahead of the implosion of our economy and near economic collapse of the nation (and the resulting money printing bonanza), the Federal Reserve ceased publishing M3 which includes the total of M1, M2 and Long Term Time Deposits. Tim McMahon wrote an excellent article on this back in 2006 that strongly questions why the Federal Reserve would do this as well as portrays a logical, cogent theory (in short, they are cooking the books!) as to why they did this:
Hindsight being 20/20, it is my view that they saw the inevitable, bursting of the real estate bubble and shifted further towards a policy of less transparency so they could continue the masquerade and postpone the pain, suffering and related consequences of irresponsible fiscal & monetary policy.
Also in 2006, Peter Schiff predicted the forthcoming 2008/2009 economic collapse in extreme detail, but he had also published a book predicting what the Federal Reserve would do as a result of this collapse. Unfortunately, the Federal Reserve has done EXACTLY what Peter was afraid they would do (read his book! Crash Proof: How to Profit From the Coming Economic Collapse).
How many of you called him, or people like him “crazy” or “conspiracy theorist” at the time? How many of you saw the implosion of 2007-2009 coming? I know I did; and I can prove it (I was trading my 401K at the time, shifting money between funds, and as a result, I was flat the first half of 2008, by the end of 2008 had lost 16% because I was actively buying the decline, shifting money from bonds – which had gone up a bit as “people ran towards the blast” – Peter Schiff, but then I saw 40+% and 30+% gains in 2009 and 2010 as a result of my trading/re-weighting of the portfolio. I continue to retain these records).
However, it was not just the fundamentals & technicals in the market that tipped me off the most (I use a method of market evaluation called Rational Analysis, ie: where Fundamental & Technical Analysis overlap, which I learned from studying the work of John Bollinger); it was the fact that, for years, I had been attending several monthly social affairs, and came to the realization (in 2006) that when I first began going to these functions (2001/2002), one person was a Doctor, another a Lawyer, another a Dentist, still another a Police Officer etc…now, in 2006, I was the only person at the affair who was NOT a mortgage broker or a real estate agent. Historically speaking, scenarios like this favor the Contrarian.
In 2008, Peter Schiff was featured on Fast Money and told the Fast Money Team to fade (sell) the Dollar:
For those chartists out there, you will note that Peter correctly predicted the fall of the Dollar index (Symbol: DXY) which fell from 90 to 75 over the next 12 months. Since then, there was another rally into the high 80s, a revisiting of the lows, the setting of a new low, and in the last 2 years a feeble climb back into the 80s, which is showing a lot of technical weakness with a recent “double top” this past year. However, his prediction was not for a short term trade; he still holds the position that the dollar will eventually take a, possibly permanent, dive well below the most recent support of circa 73. From a technical perspective, a move below that support level could see the DXY plummet to circa 68, which for the average American, would be very damaging in terms of their purchasing power. Still worse, a move below the 68 level would be catastrophic to the nation’s, and possibly the global, economy.
For those who are not savvy traders or chartists, consider this: The US Currency is NOT backed by anything. The value of the USD (and any fiat currency) is completely based on trust & faith. Like any other asset (like a stock or commodity), the more of it that is available, the less value it will have. For example, if we had the ability to make every grain of sand on the beach turn into gold, what would gold be worth? If gold were as easy to produce as the asphalt you drive your car on, or as common as the beach sand you walk on, it would be worth nothing. Therein lies much of the danger in the US’s “Printing Press Mentality”; and it is the continuous printing of money that pressures the Dollar Index (DXY) lower. As it moves lower, the American Dollar has less purchasing power.
One of the best analogies to the most recent bubble was also given by Peter Schiff in 2009 where he goes into significant (and hilarious) detail about the Internet Bubble. The very same reasons/causes of the Internet Bubble were re-implemented by the Federal Reserve to create the Real Estate Bubble. Furthermore, the very same reasons/causes for the recent Real Estate Bubble and Economic Collapse are still continuing, unabated, via all the Quantitative Easing the Federal Reserve has been doing. The United States Dollar continues to enjoy Reserve Currency status, however, there are limits. The Liberals (Democrats/Socialists/Idiots…all synonyms in my opinion) argue that it is “Different this time”. These are the most dangerous words that can ever be uttered in the financial world, and if you are a person working as a trader, broker or other person who works in a financial institution and is responsible for handling money, these words could get you fired instantly. Here is our Vice President arguing that we need to print more money (ie borrow more) to get out of debt:
Here Peter demonstrates that It is NOT different this time, and it won’t be any different next time, especially if the current economic crisis becomes a currency crisis (as serious as the subject is, I like Peter because he is able to take what is typically dry material and make it quite humorous…this is a long video, but worth the watch and the laugh):
In 2010, Representative Alan Grayson questioned the Inspector General of the Federal Reserve (Elizabeth Coleman) regarding 9 TRILLION Dollars in Off Balance Sheet Accounting (isn’t this the sort of shananigans that bankrupted/imploded Enron and MCI Worldcom nearly a decade prior??) and several other subjects related to the Federal Reserve’s balance sheet growth etc. More than 2 years after TARP was passed, this lady still had not even began a single investigation (and admittedly only just started a “high level review” of Fed Board activities) and could not answer one question. In fact, she denied certain functions were her/their responsibility, only to be corrected by Rep. Grayson, that such investigation(s) are indeed her responsibility.
To boot, here are Ron Paul‘s comments regarding the printing of more dollars to not only bail out our own banks, but foreign banks as well! Pay very close attention to what Ron says, as you will hear several common themes that will continue to play out throughout this article.
In 2011, Ron Paul summarizes the conception of the Federal Reserve, and the real and present dangers of the abuses of the Federal Reserve and the current fiat currency system:
It amazes me how complacent we as a nation have become. The entitlement mentality in this nation has clouded our reasoning and sensibilities to the point where the average person will argue that “oh, that can’t happen here.”, but not be able to make an educated, rational, sensible, cogent argument as to why not. Currency crises have happened many times over the past century; and have typically been caused by moves towards Liberal/Socialist agendas. It happened with the Pound Sterling, Argentina, and is arguably happening right now with the Euro. To think it cannot happen here is absurd, especially considering that our monthly trade deficit exceeds the GDP of most nations!
Finally, a full 7 years since the beginning of this article, I conclude with three additional videos. The first, is another Peter Schiff video. It is a 20 minute video recording of his presentation at the 2013 Las Vegas Money Show. The second, is an interview with Jim Rogers, famous investor and billionaire; who is singing the same song/truth Peter Schiff has been professing. The third video is a dramatized, What If? / Worst Case scenario of the US Dollar was to lose it’s Reserve Currency Status. Keep in mind, most people will tell you “That cannot happen here”; what they do not know is that it has happened many times, in other countries, over the past century; and in fact it has happened to previous “Reserve Currencies”.
I found this very funny, and if you understand economics, I think you will too; he begins “It is 2013, but if feels like 2006…”
Interview with Jim Rogers:
Dramatized What If the US Dollar Collapses?
In a nutshell the problem can be summarized as this: In the 90s the Federal Reserve lowered rates and created vast sums of cheap money which fueled the Internet Bubble. Then, we had a big bust; but instead of actually have a real recession and allowing Capitalism take over and cleanse the system; there were multiple bailouts, an expansion of government and interest rates were lowered even further. This fueled another bubble; the Real Estate Bubble. Once again, government grew massively, there were even more bailouts than before (and bigger than ever before) and interest rates were lowered to zero/near-zero; once again, circumventing the process of Capitalism. So here we are in 2013, with a Federal Reserve printing tremendous amounts of cash and a government that has decided to try and grow its way out of debt through deficit spending. We are not only repeating the insanity, we are doing it BIGGER than ever before! How is more of the same supposed to help our economy grow and thrive? That is like getting yourself into credit card debt and thinking that by borrowing and spending more you will get your family out of debt. Millions of Americans tried this already over the past 10 years, and I do not know of anyone who that strategy has worked out for. So how will the US Government able to do it on such a massive and complex scale? Simply put, they cannot. We ran up debts in the early half of the 20th century, but that money was put into building factories, infrastructure etc. Today, we are borrowing massive amounts of currency but we are spending it on consumption. So the government is using its “credit card” to fund consumption, and not investments. One produces nothing (Buy a meal, it feeds you for a day), the other produces a going concern that services & employs people (Buy/build the restaurant, it feeds you, and others, for a lifetime).
So how does this all relate to real estate? What if the currency doesn’t collapse? What if it does? These are all questions I will touch on in my next article where I will discuss what I perceive to be the state of the real estate market. Stay tuned!