Thursday, June 23, 2011

South Florida real estate paradox: High volume cuts inventory but prices stay low

South Florida’s logic-defying housing market continued to embrace peculiar trend lines in May — sales soared, slashing down the inventory even further, but overall prices fell once again.
Market trends in Miami-Dade and Broward counties diverge from the national housing story, for better and for worse. Local sales are increasing while the national market slumps, but local prices are falling faster than the national average.

The region’s real estate narrative is also at odds with traditional market economics. The coexistence of shrinking supply, rising demand and falling prices has left analysts with a number of questions: How long can this frenzied sales pace —fueled by Latin American and cash investors’ appetite for discounted real estate — continue? With inventory shrinking rapidly, when will the strong sales activity translate into price stability and appreciation, as market economics dictate? How large is the “shadow inventory,” and how will those unlisted bank-owned homes affect the recovery?

“It’s an odd time,” said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realty. “ We’re able to say we’re selling more homes and condos than we’ve ever sold in history, but at the same time 61 percent of our sales are short sales and foreclosures.”

In May, home sales continued to rise, keeping South Florida on track to have its best year on record, according to data released Tuesday by the Miami Association of Realtors.

In Miami-Dade, there were 875 sales of existing single-family homes and 1,420 condo sales, increases of 20 percent and 46 percent from last May, respectively. Compared to April, home sales were up 5.4 percent and condo sales were up 1.1 percent.

In Broward County, 1,142 single-family sales and 1,537 condo sales represented increases of 6 percent and 14 percent over last May, respectively.

In the first five months of the year, more than 23,000 homes and condos have traded hands in South Florida, one of the strongest five-month runs on record. Nationally, 2011 has been a poor year for sales, with double-digit declines nearly each month.

South Florida’s rapid sales pace has helped reduce the region’s housing inventory, which has gone from severely bloated to suddenly lean over the last couple of years.

There are now 31,659 homes and condos for sale in South Florida, down from 61,755 in May 2009.
The crucial “months-of-inventory” figure has slimmed to 7.2 months in Miami-Dade and 5.5 months in Broward, both down to a fraction of their peaks. Economists say that six months of housing inventory is indicative of a healthy market.

So why hasn’t the shrinking supply of homes led to price stabilization?
“We have a whole bunch of pent-up supply,” said William Hardin, professor of real estate and finance at Florida International University . “There’s a squeeze play going on because no one is going to sell a house in today’s market unless they have to.”

The majority of homes that are selling are under distressed circumstances —either a foreclosure sale, or a short sale that doesn’t cover the cost of the mortgage. Those properties — popular among cash investors and foreign buyers — sell at deep discounts, dragging down overall prices in the market.
BY TOLUSE OLORUNNIPA
TOLORUNNIPA@MIAMIHERALD.COM

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