NAR Chief Economist Gives Insights & Forecasts on the Miami Beach market

NAR Chief Economist Miami Beach

NAR Chief Economist Gives Insights & Forecasts on the Miami Beach real estate market. USA Today rates the National Association of Realtors® (NAR) Chief Economist Mr. Yun as one of the top 10 economic forecasters. Yun is ranked 5th on the list and is responsible for NAR’s real estate statistics and economic forecasting.

USA Today enlisted the help of the Federal Reserve Bank of Atlanta in determining the most accurate forecasters among the economists surveyed in USA Today’s quarterly survey on the US economy.

“NAR is proud of USA Today’s recognition of Lawrence Yun and his economic forecast accuracy. He is a highly regarded economist, and the housing and real estate industry have come to rely heavily on his economic analyses,” said Dale Stinton, NAR executive vice president and chief executive officer. “This acknowledgement contributes greatly to NAR’s reputation as the leading innovator in housing related research.” Read full story at Realtor.org

Lawrence Yun’s Forecast for Miami-Dade County

Miami has a glut of homes for sale. Skylines are dotted with cranes, and construction of highrise condominiums continues, guaranteeing an even more enormous glut. In five years, do not be surprised if home prices in Miami are 20 to 30 percent higher than the current levels. In five years, homes priced at $200,000 could sell for $250,000, and a current million-dollar home could sell for $1.2 to $1.3 million.

If a buyer is successful in price negotiation which can be done in the current buyer’s market the return on price purchase will be much higher. The median home price in Miami was $80,500 in 1985, $105,800 in 1995, and $363,900 in 2005 at the peak of the market. Since then, prices have come down a bit. Prices fell by 5.7% for single-family homes and 6.0% for condos (View Miami MLS) over a one-year period to the 4th quarter of 2007 according to NAR data.

Prices Down

Even with recent price declines, home prices have grown much faster than income. Therefore, some surmise that home prices will fall or even crash. I conjecture that this fear is the principal reason why there is excessively low sales activity in Miami. Soft sales make months’ supply ridiculously high and, therefore, pressure home prices to fall. There are a few key factors not being accounted for in the simple analysis using home price in relation to income or rent. First, low-interest rates, as any person with a mortgage calculator will be able to show, permit a lower monthly payment. In the early 1980s, mortgage rates averaged more than 15%. The early 1990s, it was hovering at 10%. In 2000, the average rate was 8%. Today, a 30-year fixed rate can be locked at 5.5%.

Miami’s Housing Market

If Miami was a sleepy southern city, as it had been considered as recently as the 1990s, then home prices in Miami could be considered “out of whack.” However, if Miami is transitioning into a major global cosmopolitan city, a comparison should be made to markets like Honolulu and Los Angeles. Then, prices in Miami suddenly look attractive. In five years, Miami’s housing market will be doing quite fine. What are the factors that will drive the Miami market?

NAR Economist Miami Beach

1. U.S. Baby Boomers. This massive group of people is just turning 60, and the more financially successful ones are on the verge of retirement. Over the next 20 years, a steady flow of wealthy retirees will flow into sunny, warm-weather destinations. Ocean views will be particularly sought after, and people will be willing to pay high premiums for that privilege.
2. Foreign Baby Boomers. The Second World War finished at the same time for Japan and Europe as in America. Peace brought a spike in baby births. The financially successful baby boomers from abroad will demand a piece of the American Dream. It is a status symbol.
3. Nouveau Rich. No one likes to show off more than the people who lived through equality in income and consumption. Former communist countries like Russia and Kazakhstan are creating newly minted oil barons. Entrepreneurs are springing up en masse in Eastern European countries. Business probability says a few of them will be wildly successful. A property in London and Miami is the ultimate conspicuous consumption.
4. Improving Insurance. Miami is artificially being harmed because of high property insurance rates. The insurers jacked up insurance rates after the unprecedented number of destructive hurricanes (those with category 3 and higher wind speeds) in 2004 and 2005. I foresee some retreat in regard to insurance rates in the upcoming years. Insurance companies have been making fat profits over the past two years. Profits draw new entries, and competition will lower rates. Several legislative measures will further help with insurance rates. The high insurance premium, in my estimate, knocked about $30,000 off housing values in Miami. An improvement in insurance will mean a boost to home prices.
5. Improvement in Property Tax. The very high property tax on second homes that is placed on non-residents of Florida has hurt this important housing segment. A good bet is that the populace will demand some measures from legislators to alleviate this tax, which appears to hurt non-residents and has also harmed the home values of primary homeowners in the state.

Warren Buffet’s Investment Philosophy

As I’ve mentioned, Warren Buffet’s investment philosophy is to be scared when everyone is greedy and brave when everyone is scared. The current high inventory conditions may be that perfect window of opportunity for some astute homebuyers to take advantage of. Though it is difficult to call the precise bottom because of so much interplay between confidence and fear factors in today’s housing market, one can be comfortable predicting measurably higher prices in Miami five years from now. Read the entire story here under the Miami Confidential.

The Magic City

I’m always inspired when reading about the positive side of our local market, as in Mr. Yun’s analysis of Miami. This City, known as the “Gateway to the Americas“ and “The Magic City” has so much to offer its residents. It’s only a matter of time until the pent-up demand explodes and these excessive amounts of inventory are picked up on the cheap by intelligent investors and end users who listen to the experts and not the media who feed on negative hype. I’ll tell you what is true. In the media world, good news is no good news.

People in the media operate under the presumption that the public isn’t interested in the good word. They think sensational stories sell papers, and it’s probably true. Read Warren Buffet’s investment philosophy… “Be Scared When Everyone is Greedy, and be Brave When Everyone is Scared.” If you’ve got any insights into the direction Miami’s real estate market is going or the above interpretation by Mr. Yun, please comment and let the readers have a bit of your knowledge!

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