Miami Condo Market Report Q3 of 2014

Miami Condo Market Overview

Summary 1 – 12-Month Sales & Listing Activity Summary - Miami, FL 33131

The Miami condo market prices in Brickell (Miami, FL 33131) reached a peak with a record of $460/SqFt in Q1 of 2014 followed by a small decline to $455/SqFt in the second quarter (Q2) of 2014, and $452/SqFt in Q3 of 2014 (Figure 1). This is 0.66% Quarter-to-Quarter decrease in price and an 4.63% Year-Over-Year price increase (Table 1). Q3 is normally the "Low Season" for real estate in South Florida. The high demand for condos has been further fueled by local and international cash buyers, improving US economy and unemployment numbers. However the stock market has been on a steep decline the past two months, which could translate into lower sales in Q4/2014 and Q1/2015. Summary 1 shows the past 12-month sales and listing activity in the Miami-Brickell area. The absorption rate of 59% shows a major slowdown. If it continues with this trend, units will take longer to sell and/or sales prices will start trending down.

Miami Condo Market Sales Price Analysis

Figure 1 – Avg Sales Price Per SqFt Q3 2014 - Miami, FL 33131

The yearly low season in South Florida is normally during the third quarter, which is when prices tend to be driven lower as the number of tourists drops substantially due to the seasonal hot weather, tropical storms and humidity conditions. During this quarter there has been a large increase in inventories in some of the market segments and as a result the prices have been driven a bit lower than during the second quarter.

The past three quarters Q1/2014, Q2/2014 and Q3/2014 showed a Year-Over-Year Avg. Sales Price/SqFt growth of 17.65%, and 8.85% and 4.63% respectively (Table 1). They also have set new all-time high records for Avg Sales Price Per SqFt .

Table 1 – Year Over Year Avg. Sales Price/SqFt Change Q3 2014 – Miami, FL 33131

Miami Condo Market Prices Segmentation Analysis

One might think that prices are very uniform in condo-units that are within the same neighborhood or building. However the reality of it is that, in most cases, it can be found that some condo-units have two to three times (2X to 3X) higher Sales Price/SqFt than other condo-units located in the same building or within the same neighborhood. There are several factors that are responsible for this type of segmentation. Three of the most important ones are, number of bedrooms, location and views. We will now analyze the Avg. Sales Price/SqFt market segmentation for South Beach, based on number of bedrooms.

Figure 2 – Four-BedroomPlus Condominium Avg Sales Price Per SqFt & Trend Q3 2014 – Miami, FL 33131

The 4-bedroom+ Avg. Sales Price Per SqFt (Figure 2) for Q3 2014 was $701, versus $742 for Q2 2013. This is a Year-Over-Year decrease of 5.53%. Even though the chart has an upward trend with a value of $875/SqFt, this is the first time in several years where the Q3 Avg. Sales Price Per SqFt Year-Over-Year has decreased after having reached a peak. The initial of the down trend in the chart can be due to several factors; the asking price of the new listings was too high versus what investors were willing to pay and the increased level of unsold and new inventories in this market segment; this could be an early signal of a slowing down of this market segment.

Figure 3 – Three-Bedroom Condominium Avg Sales Price Per SqFt & Trend Q3 2014 – Miami, FL 33131

The 3-bedroom Avg. Sales Price Per SqFt (Figure 3) in Q3 2014 was $572, versus $497 in Q3 2013. This is a Year-Over-Year increase of 15.09%. This market segment’s chart has an upward trend with a value of $622/SqFt which it has maintained over the past four years. This is a strong signal that the Sales Price/SqFt is breaking out for this market segment and will reach higher high’s, mostly due to a combination of high demand and low inventory.

The 3-bedroom Avg. Sales Price Per SqFt for Q3 was 18% cheaper than the 4-bedroom Avg. Sales Price Per SqFt.

Figure 4 – Two-Bedroom Condominium Avg Sales Price Per SqFt & Trend Q3 2014 – Miami, FL 33131

The 2-bedroom Avg. Sales Price Per SqFt (Figure 4) in Q3 2014 was $468, versus $441 for Q3 2013. This is a Year-Over-Year increase of 6.12%. Even though this quarter has set the highest ever sales price per square feet, this chart has shown a flat trend during the past four quarters. It may be due to the fact that there is a lot of new inventory coming into the market and not many sales are happening.

The 2-bedroom Avg. Sales Price Per SqFt for Q2 was 33% cheaper than the 4-bedroom Avg. Sales Price Per SqFt and 18% cheaper than the 3-bedroom.

Figure 5 – One-Bedroom Condominium Avg Sales Price Per SqFt & Trend Q3 2014 – Miami, FL 33131

The 1-bedroom Avg. Sales Price Per SqFt (Figure 5) for Q3 2014 was $408, versus $389 for Q3 2013. This is a Year-Over-Year increase of 4.88%. The Q3 Avg. Sales Price Per SqFt Year-Over-Year has been on a steady increase since 2010. However this is the first quarter where it has decreased Quarter-to-Quarter from $415/SqFt to $408/SqFt, nearly 2% decline. This may be due to the low season and excess inventory.

The 1-bedroom Avg. Sales Price Per SqFt for Q3 was 41.8% cheaper than the 4-bedroom Avg. Sales Price Per SqFt, 28.67% cheaper than the 3-bedroom and 12.82% cheaper than the 2-bedroom.

Miami Condo Market Top 10 Selling Buildings

Table 2 – Top 10 Condo Selling Buildings Q3 2014 – Miami, FL 33131

Figure 6 – Top 10 Condo Selling Buildings Chart Q3 2014 – Miami, FL 33131

The Avg. Sales Price Per SqFt is set by those buildings that have the most sales activity. The top 10 buildings that have set the highest sales volume year-to-date are shown in Table 2 and Figure 6.

During Q3 of 2014 The Jade Residences had the highest Sales Volume Year-To-Date with $25,261,500. It was followed by the Epic West with $23,469,500 and the Carbonell with $21,353,250. The Asia condo had the highest Avg. Sales Price with $822/SqFt. The Icon Brickell Tower 1 and Icon Brickell Tower 2 had the largest number of sales (25 sales), with the Three Tequesta Point having the shortest Avg. Days On the Market (110 days). The highest Avg. Sales Price to Listing Ratio was set by Icon Brickell Tower 2 with 96.3% on 25 sold condo-units.

This information can be extremely useful for investors and brokers in order to know where most of the sales are coming from, which are setting the market trends. It can signal investors which buildings to invest in or which ones to stay away from based on the various metrics values. Brokers can better allocate resources and marketing dollars based on the top listing buildings (which will be analyzed in a section later on)

Miami Condo Market Inventory Analysis

Table 3 – Year Over Year Inventory & Absorption Rate Change Q3 2014 – Miami, FL 33131

Figure 7 – Number of Sales & Trend Q3 2014 – Miami, FL 33131

Figure 8 – Number of Listings & Trend Q3 2014 – Miami, FL 33131

As I mentioned before, the Avg. Sales Price Per SqFt across all market segments showed signs of a slow down during Q3 of 2014. The inventory absorption numbers shown in Table 3, reflect that there has been a substantial accumulation of inventory in the past three quarters. In Q3 2014 there were 168 sold condos versus 405 new listings (Figures 6 and 7, Table 3). This is an absorption rate of only 41.5%, with an net increase in inventory of 237 condo-units. When compared to the previous four quarters we can see that the Year-Over-Year absorption rate change were -25.9% for Q4 of 2013, -21% for Q1 of 2014, -48.4% for Q2 of 2014 and -60.5% for Q3 of 2014 (negative absorption rates indicate accumulation of inventory). The net effect of this is that there has been an acceleration in the quarterly inventory accumulation of condo-units from 5 in Q4 of 2013, 104 in Q1 of 2014, 259 in Q2 2014 and 496 in Q3 2014 (Table 3).

This indicates that the market is slowing down and it has been consistent in the past two quarters. There is also the fact that the new listings have increased 70.9% Year-Over-Year, from 237 in Q3 2013 to 405 in Q3 of 2014. The net effect of this is that we are having an accumulation of listings that will compete for the number of buyers for each quarter. This will further increase the competition with the new listings coming up in the next quarters, and unless more buyers come into the market, then we will see an increase on the amount of time that it takes to sell a condo – Days On The Market (DOM) and a further decrease in prices in some of the market segments.

As always, everything is based on supply, demand and easy access to capital and lending. Right now due to the increase in inventory, this is a buyer’s market. However with the recent increase in interest rates, we can expect to see certain market segments sales (like the one and two bedroom condos) to slow down. The luxury market is not normally limited by loans as most of the sales are cash transactions. So I expect, based on the luxury market trends and limited inventories, that we will continue to see higher sales price per SqFt for the 3 and 4-bedroom condos for the remaining of 2014 and the first two quarters of 2015.

Miami Condo Market Days On The Market (DOM) Analysis

Figure 9 – Avg. Days On The Market & Trend Q3 2014 – Miami, FL 33131

The Days On The Market is a key metric that can show the effect of imbalances in supply & demand and listing and selling prices. When it is higher than 180 days or it is increasing, it shows a potential oversupply of inventory and/or unrealistic listing prices; it signals a buyer’s market and it may lead to decreasing selling prices. When it is lower than 180 days or it is decreasing, it shows a potential limited inventory and/or increasing sales prices; it signals a seller’s market. As each building and neighborhood has its own ecosystem of pricing and inventory behavior, none can really characterize what the typical number of Days On The Market (DOM) is for them. This is why it is key to be able to obtain the actual Days On The Market chart for each building (and each market segment within the building if possible).

For the Miami-Brickell area it can be seen that the Q3 Avg. Days On The Market was 147 days versus 147 days in Q3 of 2013, no change Year-Over-Year (Figure 8). Even though there has been a very steep downtrend on the Days On The Market since Q1 of 2012, the accumulation of inventory which clearly marks a "Buyer’s Market" has triggered an increase in the Days On the Market. It is important to note that the chart hit a potential bottom in Q1 2014, with 137 days, and then increased to 151 days in Q2 of 2014 and 147 days in Q3 of 2014. This Days On The Market increase, combined the increase in inventory and the decrease in absorption rate, sets a clear early signal of a change in one or several of the market segments. We will continue to track this metric for Q4 of 2014 and Q1 of 2015 to look for further confirmation of the early signal.

Miami Condo Market Sales-To-Listing Price Ratio Analysis

Figure 10 – Avg. Sales To Listing Price Ratio & Trend Q3 2014 – Miami, FL 33131

The Avg. Sales to Listing Price Ratio (SP/LP Ratio) is another key metric that when combined with inventories and Days On The Market, can show the effect of imbalances in supply & demand and listing and selling prices. When the Avg. Sales to Listing Price Ratio is higher than 94% or is increasing, it shows a potential limited inventory and/or increasing sales prices; it signals a seller’s market. When it is lower than 93% or it is decreasing, it shows a potential oversupply of inventory and/or unrealistic listing prices; it signals a buyer’s market and it may lead to decreasing selling prices.

For the Miami-Brickell area, we can see that the Q3 2014 Avg. Sales to Listing Price Ratio was 95% versus 96% in Q3 2013, showing a flat pattern Year-Over-Year (Figure 9). This a 1% reduction on the Avg. Sales-to-Listing Price Ratio, which clearly indicates that buyers are expecting on the average a 5% discount on the prices set by sellers. From the chart we can also see that the Avg. Sales to Listing Price Ratio has been on a range between 94% and 96% since Q3 of 2011. I will also continue to monitor this metric in Q4 of 2014 and Q1 of 2015 to see if it moves lower than 93% as it will start flirting with a Buyer’s market.

I would not be surprised if, in the remaining part 2014 and early 2015, we start seeing a weaker seller’s market in the Miami-Brickell area due to the large accumulation of condos for sale.

Miami Condo Market Listing Price Analysis

Figure 11 – Avg. Listing Price/SqFt & Trend Q3 2014 – Miami, FL 33131

The Miami-Brickell area Avg. Listing Price/SqFt has been increasing at a very steep trend since it hit bottom in Q3 of 2010 (Figure 10). From the chart we can see that Q3 of 2014 set yet another all-time high Avg. Listing Price/SqFt of $549 versus $483 in Q3 of 2013, a 13.7% increase Year-Over-Year. Also the gap between the Avg. Listing Price/SqFt and the Avg. Sales Price/SqFt has increased to 21.5% in Q3 of 2014 versus 11.80% in Q3 of 2013. This may explain partially why the market has slowed down in the number of sales, as the prices are getting to a point where buyers get more selective, nervous or prefer to wait and see.

For the rest of the year, we might see a major hit in the world economy and political environment, due to the Ukrainian-EU-Russian crisis, which will affect the European Union and Russian investors liquidity. This might hit the luxury market more than the sub-$1,000,000 condo-units sales.

Miami Condo Market Top 10 Condo Listing Buildings

Table 4 – Top 10 Condo Listing Buildings Q3 2014 – Miami, FL 33131

Figure 12 – Top 10 Condo Listing Buildings Chart Q3 2014 – Miami, FL 33131

The Avg. Listing Price Per SqFt is set by those buildings that have the most listings activity. The top 10 buildings that have set the highest listings volume year-to-date are shown in Table 4 and Figure 12. The three top buildings with the highest listings volume in the Miami-Brickell area were the Epic West with $65,190,300, Jade Residences with $53,305,600, and Icon Brickell Tower 1 with $48,807,478. The Three Tequesta Point had the highest sales volume year-to-date (of those listings year-to-date) of $14,126,777 with 13 sales and an Avg. of 75 Days On The Martket. The Four Seasons took the first place setting the highest Avg. Listing Price Per SqFt at $950/SqFt as well as the highest Avg. Days On the Market with 127 days.

As mentioned before, investors can use this information to better understand which buildings are setting the listing activity and price trends in order to make their decisions on where to invest. Brokers can better allocate resources and marketing dollars based on the buildings where condo-unit owners are more likely to list their units and the type of prices that are being set for new listings and sales.