15 Key Takeaways: Coronavirus and the Miami Condo Market
Apr 20, 2020 April 20, 2020
For those of you interested in how COVID-19 might be impacting the Miami real estate market, here are a bunch of thoughts. As each week passes, we get more insight on how the Miami markets are reacting. If you don't want to read all of it, look at the last point, "Key takeaways to look for":
- The market is not dead. It is slower for sure. But lots of buyers and renters are calling us DAILY. Why? Because people need to move. This doesn’t change. So, the two main obstacles we’re finding from going under contract are: A) that many condo buildings and tenants (and some owners) are not allowing showings and even some buildings are refusing to take applications. And B) some buyers and renters are very emboldened and want drastic price reductions, which owners are not willing to concede at this point.
- Organic traffic to my condo website, condoblackbook.com, is down approx 30% in the past month.
- Data indicates that showings are down about 70-80% since March, but some of those have been replaced with virtual showings and video walkthroughs, which are being counted the same way.
- Smart landlords have been offering first-month free options. If you’re going to be renting soon, ask for incentives.
- Landlords and sellers are definitely more flexible. Prices will definitely tick down a notch at minimum.
- No, the real estate market hasn't crashed and real estate is not like the stock market. It takes time for the dust to settle and to see where prices go. It’s still a wait and see on how quickly the economy recovers and also how the government will intervene to balance things. This week it’s expected the Federal government will refund the CARES Act with another $250+ billion for Payroll Protection (PPP) and Small Business Administration (SBA) loans after the first round of funding was exhausted.
In the end, it’s inevitable that prices will go down across the board (or at least that hot markets will cool off and flatten). Now the question is by how much. I believe that large companies will be taking this as an opportunity to cut the fat. So, let's say they cut 200 people, they might bring back 170. The other 30 may trickle back over time but with replacements (easy way to get rid of bad apples), or they may in fact not bring back those positions at all. So we will have more unemployed, which won't help real estate (but that doesn't mean real estate will "crash").
- Yes, I project that the $500K and up Miami condo market will take a hard hit. We already had an oversupply in most luxury sub-markets, originally caused by reduced demand due to a strong U.S. dollar and then subsequent typical overbuilding by developers. And now we have an additional hit on demand based on decreased condo accessibility and emboldened buyers. However, there is still a TON of demand for condos, so they will get sold, just not at the prices sellers will want. Everyone wants a piece of Miami, for the right price, and that isn’t going to change.
- There won’t be a massive glut of short-sales and foreclosures. Remember that lately, most people have bought new construction condos in Miami with 50% deposits (some converted at closing to lower down payment loans), so there will not be massive short sales and foreclosures in those buildings. There will be some everywhere inevitably, but this isn't 2007-8 when people were buying new construction properties with 0% down. The mortgages behind our current Miami market are much healthier than the crash of 2008. Also, today’s buyers are doing much less speculating than the previous cycle, so there’s more stability in the owner pool than before, I think.
- Just because there are fewer buyers doesn't necessarily mean prices will go down proportionately, or at all in some sub-markets. Real estate is local. It’s supply and demand and can vary to due to many factors. Demand can weaken due to more unemployment or tougher lending, etc. Supply can increase due to short sales and foreclosures, but more likely supply will not increase. It might even decrease. If you are in trouble, you have forbearance, then after that runs out, you have government intervention stopping or slowing foreclosures, etc, your property won't be on the market for a while. Or if you are a seller who was planning on selling to upgrade, maybe you just decide to stay put and take your home off the market. The point is . . . we don't know until it happens. But yes there will be opportunities in short sales (well before there will be opportunities in foreclosures). If you don't know what a short sale is, ping me.
- Low-down payment lending is tightening. There is a credit crunch (which is why lending is tightening) because of the mandated mortgage forbearances and foreclosure halts. This is putting lenders on edge, and most are taking a “wait-and-see” approach on how the federal government supports them financially to balance out the mandates that dry up their cash reserves and elevate their risk. Many lenders have stripped portfolio loans and some lower down payment options. This will have a negative impact on the market, especially reducing the demand that comes from lower-down payment buyers. Many call these "first-time" buyers but there are many experienced buyers that prefer to buy with lower down payments because they want to be cash-heavy for potential investment opportunities.
- Jumbo loans are tightening. Due to the above credit crunch, lenders are pulling back on jumbo loan options (loans above the conventional max loan limits, e.g. $510K in Miami for single residence). This will put additional pressure on luxury real estate, especially condos because lenders have more restrictions and overlays on condo lending than single family lending.
- There’s a positive side to all the aforementioned lender tightening. And that’s if your credit is clean as a whistle and you have down payment money in the bank, you are in pretty good position to make a purchase/investment and get a good deal on it.
- Rates are still historically low, but due to the crunch lenders are feeling, rates have come up a bit since the low back I think middle of March or so.
- Yes, be bold in your offers, but don't expect every sub-market to react the same. Look at the numbers and data (months of inventory, days on market, median $/sq ft, etc) to get a sense of where things are trending in your sub-market, and talk with your agent. Don't just look at the county as a whole, look at the data for your property type, location, and price point. Also, don't expect that just because you are so sure that the economy is going to suffer for a while that the real estate market will reflect that TODAY.
- So, what are the main key takeaways to look for right now? How the government is going to prop up lenders through policy. How local governments handle foreclosures (do they halt or slow crawl them). Will there be any change in policies of lenders pushing forbearance re-payments out to the end of loans to basically give owners 3 months perception of no-rent? (Some lenders are already doing this.) And finally, in terms of the labor market, how much fat will companies permanently cut once the dust settles? Keep a watch on this, as it will take at least 12 months to cycle through.
Have ideas of other key points for the real estate market to look out for during this Coronavirus crisis? Give me a call or ping me at (786) 930 4220, or shoot me an email. I’m here to discuss your concerns and ideas.