Quick look: Foreign buyers are snatching up bargain-priced homes in the Miami metro area. This could help remove one of South Florida’s last (and biggest) obstacles to housing recovery — excess inventory.
Based on data from the Case-Shiller/S&P Home Price Index, you could make an argument that the Miami real estate market is bouncing along the bottom. The most recent report showed a slight decline in prices. Miami home prices fell 0.3% from July to August 2011. But previous reports have shown modest gains in housing prices. It certainly looks like a “bottom bounce” on paper.
Inventory reduction has a lot to do with this. As with many cities in the U.S., the Miami real estate market has long suffered from excess inventory. Much of this inventory comes in the form of distressed properties — short sales, bank-owned foreclosures, etc. This puts a double-whammy on home prices. It tips the scale too far toward the supply side, and it floods the market with under-priced comps that drag down appraisals.
Inventory reduction helps sustain home prices. Stable prices attract more buyers. Increased demand leads to appreciation. And thus the vicious cycle of decline becomes a positive one. It’s the key to every housing market turnaround. As it turns out, the Miami real estate market is getting some help in this area from foreign buyers and investors.
Foreign Buyers Love Florida
Trulia, the real estate search website, recently ranked U.S. cities based on their popularity among foreign home buyers. Several cities in Florida made the list, including Miami. Here were the top ten cities on their list:
- Los Angeles, CA
- New York, NY
- Cape Coral, FL
- Fort Lauderdale, FL
- Las Vegas, NV
- Miami, FL
- Naples, FL
- San Francisco, CA
- Fort Myers, FL
- Miami Beach, FL
According to the search data analyzed by Trulia, Florida has six of the ten most popular real estate markets for foreign buyers and investors. One of the obvious reasons for this is depreciation. Florida was one of the hardest hit states during the housing crisis (a crisis that is still unfolding in the Sunshine State). This is also what makes Las Vegas and much of Southern California attractive to foreign buyers.
In the long run, this kind of activity could help the Miami real estate market. It’s already playing a major role with inventory reduction.
Reducing Inventory in the Miami Real Estate Market
Housing inventory in the Miami area fell by roughly 6% between Q2 and Q3 of 2011. Many analysts believe that foreign investors had a lot to do with this reduction. Vanessa Grout, CEO of Douglas Elliman Florida real estate brokerage, points to Latin American buyers in particular. “The major reason the inventory in South Florida has been trading and at ever-increasing rates is because of the strength of the Latin American buyers,” she said.
Inventory reduction is a step in the right direction for the Miami real estate market. The foreclosure crisis hit South Florida harder than most parts of the country. This produced a swell in the number of foreclosed homes, not to mention the soaring inventory of non-distressed properties. Excess inventory puts downward pressure on home prices. This is partly why home prices in Miami have continued to fall (annually) since the crisis began. The latest data from Case-Shiller shows a -4.6% decline in prices over the last year.
According to Altos Research, there has been a steady decline in Miami’s housing inventory since the beginning of the year. As of October 30, 2011, they showed approximately 4,000 homes for sale in Miami. That’s about 1,000 units less than the inventory at the start of 2011. This trend bodes well for the local real estate market. It will help to stabilize housing prices in 2012.
Foreign buyers are helping with the demand side of the equation. They are snatching up properties for bargain prices. And this is starting to make a dent in the inventory side of the equation, as well. Could this be the beginning of a turnaround for the Miami real estate market? Time will tell.