Oceanfront condo bubble?
One of my potential clients sent me this in an email today. I don't know where it's from, but here it is:
Very Interesting Condo Update
I spent the entire day in a conference that I wish all of my clients could have been at. Let me start with this number:
A - 2,850 condo and rental units built in Miami in 2002-2004
B - 13,518 condo units under construction NOW
C - Plus another 4,264 planned and approved.
D – And dozens of new projects in the approval process pipeline, maybe as many as 30,000 to be delivered in the next 5-6 years!
During the next three years 17,782 units will be coming on line. That’s 12.48 times what has come on line during the last two years. This is the same picture in Fort Lauderdale, Naples, Panama City, Orlando, etc. Granted . . . Baby Boomers are coming and South Americans are coming, but not 12.48 more than have shown up during the last two years. It is a very scary picture, since prices on these units have more than doubled since 2003. In some cases, tripled and quadrulpled. Despite this, I get dozens of requests each week for condo units in these overbuilt markets. Moreover, all the requestors want to flip immediately or even before they close. Not only is that over, but prices are coming down in these markets.
Compare this out of line scenario with some of the other areas that do not allow high rises, and where new construction is falling behind the demand. Do your due diligence. If it sounds too good to be true, it is.
Another interesting fact:
A – 2004 saw less than a dozen condo conversions in the entire Orlando market.
B – 2005 has more than 49 condo conversions going on this month with a dozen more planned!
I’m sure I’ll get some of you blasting me that I’m crying wolf. Let me explain the other part of the conference before you shoot yourself in the foot. These numbers have not escaped Greenspan and Washington DC. Fannie Mae, the organization that supports our entire mortgage market has some surprises for investors. They are planning on tightening up credit to investors and spoke about only accepting mortgages where buyers hold for a minimum of 90 days. If that happens, I can guarantee you that there will be a lot of problems in our markets. Our suggestion was for the Feds to implement that plan gradually so we don’t wind up with hundreds of thousands of buyers that cannot close.
My advice to everyone is to be very careful. As I have been preaching all along, stay away from high rises and stay away from markets where there are high rises. I hope the numbers above demonstrate this very clearly. My second piece of advice is not load up on a lot of properties that you expect to flip at closing. Plan your purchases and spread them out. If you do have to hold for a few months after closing, you certainly don’t want to wind up with multiple projects if you can only carry one. I have discussed this with all of my clients in the past. However, for many of you, you are buying things in other markets, so I have no idea what some of you have coming into your pipeline.
And here’s the other shoe. Insurance companies are now balking at writing insurance for investors. That is a very huge problem, because without insurance you can’t get a mortgage. Right now, all of my clients are fine when it comes to insurance. All of the projects I have you in will provide insurance. What you get into with some of the other agents out there, I have no idea.
On the bright side, we learned that the population of Florida is going to double in the next 15-20 years. Different figures from different people. In any event, our population will surpass Texas and be number 2 only to California. Everyone was in agreement that Florida will remain the hottest real estate market for the next 20-30 years. 76 Million Baby Boomers and where the Baby Boomers go, so go the jobs.
My best advice is to start buying quality property and hold it. Forget about the fast money. It’s over. It doesn’t exist anymore, even though most agents are still singing the song of riches with $1,000 down.
1031 Tax Deferred Exchange Call tonight at 7:30
Next week Real Estate IRA call
Regards,
Mike
*****************************************
My client asked for my opinion on it. Well, here it is. Yes, the huge coming supply of high-end condos is a well known and much reported fact. I believe these have been marketed to foreign "investors". If they are hoping to flip them as soon as they are completed, they may or may not make a nice profit. However, there will be buyers for all of these units. If the price comes down I cannot see it being more than a 20% dip. Remember the last part of the article regarding Florida being the hottest real estate market of the next 20-30 years. This gives me reason to believe that any possible dip of any measure will be met by willing buyers. Who wouldn't want to live in a nice oceanfront condo in Miami if the price were right??
With that being said, for most of our investors this is NOT our prototypical investment. We focus on affordable housing at London Realty Corp. More on that in another blog. Stay tuned.
Very Interesting Condo Update
I spent the entire day in a conference that I wish all of my clients could have been at. Let me start with this number:
A - 2,850 condo and rental units built in Miami in 2002-2004
B - 13,518 condo units under construction NOW
C - Plus another 4,264 planned and approved.
D – And dozens of new projects in the approval process pipeline, maybe as many as 30,000 to be delivered in the next 5-6 years!
During the next three years 17,782 units will be coming on line. That’s 12.48 times what has come on line during the last two years. This is the same picture in Fort Lauderdale, Naples, Panama City, Orlando, etc. Granted . . . Baby Boomers are coming and South Americans are coming, but not 12.48 more than have shown up during the last two years. It is a very scary picture, since prices on these units have more than doubled since 2003. In some cases, tripled and quadrulpled. Despite this, I get dozens of requests each week for condo units in these overbuilt markets. Moreover, all the requestors want to flip immediately or even before they close. Not only is that over, but prices are coming down in these markets.
Compare this out of line scenario with some of the other areas that do not allow high rises, and where new construction is falling behind the demand. Do your due diligence. If it sounds too good to be true, it is.
Another interesting fact:
A – 2004 saw less than a dozen condo conversions in the entire Orlando market.
B – 2005 has more than 49 condo conversions going on this month with a dozen more planned!
I’m sure I’ll get some of you blasting me that I’m crying wolf. Let me explain the other part of the conference before you shoot yourself in the foot. These numbers have not escaped Greenspan and Washington DC. Fannie Mae, the organization that supports our entire mortgage market has some surprises for investors. They are planning on tightening up credit to investors and spoke about only accepting mortgages where buyers hold for a minimum of 90 days. If that happens, I can guarantee you that there will be a lot of problems in our markets. Our suggestion was for the Feds to implement that plan gradually so we don’t wind up with hundreds of thousands of buyers that cannot close.
My advice to everyone is to be very careful. As I have been preaching all along, stay away from high rises and stay away from markets where there are high rises. I hope the numbers above demonstrate this very clearly. My second piece of advice is not load up on a lot of properties that you expect to flip at closing. Plan your purchases and spread them out. If you do have to hold for a few months after closing, you certainly don’t want to wind up with multiple projects if you can only carry one. I have discussed this with all of my clients in the past. However, for many of you, you are buying things in other markets, so I have no idea what some of you have coming into your pipeline.
And here’s the other shoe. Insurance companies are now balking at writing insurance for investors. That is a very huge problem, because without insurance you can’t get a mortgage. Right now, all of my clients are fine when it comes to insurance. All of the projects I have you in will provide insurance. What you get into with some of the other agents out there, I have no idea.
On the bright side, we learned that the population of Florida is going to double in the next 15-20 years. Different figures from different people. In any event, our population will surpass Texas and be number 2 only to California. Everyone was in agreement that Florida will remain the hottest real estate market for the next 20-30 years. 76 Million Baby Boomers and where the Baby Boomers go, so go the jobs.
My best advice is to start buying quality property and hold it. Forget about the fast money. It’s over. It doesn’t exist anymore, even though most agents are still singing the song of riches with $1,000 down.
1031 Tax Deferred Exchange Call tonight at 7:30
Next week Real Estate IRA call
Regards,
Mike
*****************************************
My client asked for my opinion on it. Well, here it is. Yes, the huge coming supply of high-end condos is a well known and much reported fact. I believe these have been marketed to foreign "investors". If they are hoping to flip them as soon as they are completed, they may or may not make a nice profit. However, there will be buyers for all of these units. If the price comes down I cannot see it being more than a 20% dip. Remember the last part of the article regarding Florida being the hottest real estate market of the next 20-30 years. This gives me reason to believe that any possible dip of any measure will be met by willing buyers. Who wouldn't want to live in a nice oceanfront condo in Miami if the price were right??
With that being said, for most of our investors this is NOT our prototypical investment. We focus on affordable housing at London Realty Corp. More on that in another blog. Stay tuned.
posted by Steven at 9:48 PM
5 Comments:
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