Bubble watch, how close to the pin? (Miami, University: sales, real estate)

[tallrick]

Considering the Miami area is now back to the mid 2000's real estate bubble, with construction everywhere, how much longer will this keep going? I am still holding to my 2015 (7 years from 2008) bubble burst, but has anyone come up with other ideas? You can see how the retail sector is shrinking nationwide, and in non bubble areas you see home sales stalling. Even in Broward and Palm beach counties you see ghost malls, failed businesses, and empty homes. Yet in the Miami-Dade area they are demolishing old homes and businesses at a frantic pace to build new ones. Since your incomes are not even keeping up with inflation, do you see any reason this can continue?

[popcorn247]

I think there will always be northerners who are sick of cold winters, moving down here. Now, as to whether they move to Miami-Dade county, that is another matter. I've noticed some new homes being built on cross streets of SW 296 (Avocado Drive) between U.S. 1 and Krome, the past few months.

[ace587]

Originally Posted by tallrick

Considering the Miami area is now back to the mid 2000's real estate bubble, with construction everywhere, how much longer will this keep going? I am still holding to my 2015 (7 years from 2008) bubble burst, but has anyone come up with other ideas? You can see how the retail sector is shrinking nationwide, and in non bubble areas you see home sales stalling. Even in Broward and Palm beach counties you see ghost malls, failed businesses, and empty homes. Yet in the Miami-Dade area they are demolishing old homes and businesses at a frantic pace to build new ones. Since your incomes are not even keeping up with inflation, do you see any reason this can continue?

with foreign cash coming in to Miami i dont see it anytime soon

[bale002]

Originally Posted by ace587

With foreign cash coming in to Miami, I don't see it anytime soon.

Over the past 15 years or so, when international trade does well, Miami benefits, and when there are political problems in Latin America and economic problems in Europe, Miami benefits.

In addition, the University of Miami and, to a lesser extent, Miami's other universities and colleges attract international students, including wealthy Arabs and Japanese. It also has some world class hospitals and other medical facilities.

In short, I see high cash-backed demand for housing and still a dearth of the right kind of housing for such demand.

Right now infrastructure investment is also being allocated to PortMiami in anticipation of receiving supersized cargo ships from Asia through the widened Panama Canal.

To be sure, the greatest risk to all this incoming cash flow and investment is a prolonged period of political instability in Latin America coupled with a prolonged slump in international trade and a breakdown of international economic relationships in general.

In such case, we would have a lot of expensive transportation, housing and other infrastructure to maintain without sufficient income. The result would be blight.

But, at least in terms of housing nowadays, a large portion is being purchased with cash, hence mitigating the nightmare of foreclosing on assets purchased with borrowed money. So in that sense we are not forming a bubble like in the 2003-2007 period.

To sum up, then, there are risks, but not the classic bubble-type risks.

As for construction in progress, not too sure to what extent construction companies are borrowing, but I assume they hope to finish and sell by 2015.

Good Luck!

[Wild Style]

Bale002

I don't know that I fully agree with your analysis 100%. My understanding of our current building spree, specifically as it relates to condo projects is, we are seeing groups of wealthy individuals pooling their money and buying tons of units in any given project. Doing this in the hopes of renting for the short term and selling in the long term. But what happens long term if local incomes are not enough to allow them to purchase these units at a price that these investors can make a profit? Will they (the investors) dump and run? Will we see a 1970s NYC were landlords burn buildings to the ground to get their money out via insurance? That last one is drastic to be sure, but just a example of some of the possibilities. I don't know what the end game is, but I don't see it playing out as many envision it will.

I base all that solely on the local economy, locals just don't have that kind of money and those who come here for school generally do not stay. The foreign student method of operation is generally rent while in school and then move back home or wherever they can find a job. So who is going to buy all this stuff when the musical chairs stop? Also, we are assuming these investors are using their own money to put up 50% in order to fund these building projects. How do we know they are not collectively taking out funny loans to fund all this stuff? We really wont know the full extent of all this, and the long term affects, until well after the fact.

This article agrees with both of us in terms of the foreign investment angle. Foreign investment drives massive projects | Miami Today

here is one talking about the financing model

While the growth feels similar to the bubble-fueled oversupply that remains a painful memory in Miami, developers note that robust international demand has created a new cash-financing model they believe is safer than the easy bank loans that fueled the last boom. They typically require buyers to put down at least 50% before closing, which means the owners would lose their money if they walked away.

Overseas Money Pours Into Miami Real Estate - WSJ.com My problem with the above is, we do not know how these investors are coming up with this cash. Some could argue these investors are super rich and have enough money to put up 50% down, but the fact of the matter is, that is just supposition, we really have no clue how they are financing this stuff.

Another interesting quote from the above article:

Developer Carlos Melo relied on that financing model to build 23 Biscayne Bay, a 17-story project that last year became the first completed tower of the new cycle. He said the building is fully sold, and roughly 90% of the owners bought their units as investments and are renting them out. "They are looking to sit their money in a safe place," Mr. Melo said.

[MadManofBethesda]

What hubris. Tallrick's been making real estate and other economic predictions for years and years and each one is even more ridiculous than the previous one. Here's one of my favorites from almost exactly 5 years ago in April 2009:

Originally Posted by tallrick

...By 2011 inflation will be rampant so we will either be using wheelbarrows of money to buy food or interest rates will be 20%. Some fools in the Miami area already think prices have hit bottom, but what else do you expect from the drug dealer/ Latin American crook culture of perpetually rising real estate prices. Jobs continue to evaporate and salaries are stagnant. The coming hurricane will crush the market once and for all.

And with each failed prediction, he just pushes out his timeline for when the coming economic or real estate collapse is supposed to occur. So now, here in 2014, it's supposed to occur in 2015. I wonder what he'll say in 2015, 2016, 2017....

BTW, we're still waiting for that hyperinflation and those 20% interest rates, lol.

[Wild Style]

Originally Posted by MadManofBethesda

What hubris. Tallrick's been making real estate and other economic predictions for years and years and each one is even more ridiculous than the previous one. Here's one of my favorites from almost exactly 5 years ago in April 2009:



And with each failed prediction, he just pushes out his timeline for when the coming economic or real estate collapse is supposed to occur. So now, here in 2014, it's supposed to occur in 2015. I wonder what he'll say in 2015, 2016, 2017....

BTW, we're still waiting for that hyperinflation and those 20% interest rates, lol.

Well there was a real estate bubble that did go up in smoke, so he was right there.

5 lessons from the housing-bubble bust - MSN Real Estate

It is Latin Americans and partly drug culture (if the Miami New Times article is to be believed) that is fueling the current boom.

Example of drug money fueling Miami condos
Cash, condos & criminals: The big loophole for money laundering - South Florida Business Journal


These are just mini bubbles that are used to soften a hard landing. From a economic standpoint he is right. There are tons of economist who have spoke about this, Roubini comes to mind, and he called the last bubble about 5 or so years before it happened. He wasn't the only one, if you research it, you will see.

[FlyMIA]

The condos are being purchased CASH. An economic bubble is not coming anytime soon. Will rental rates drop? Maybe prices drop? Sure maybe, with the new inventory but a crash won't happen because of the amount of cash going into these purchases.

[hurricaneMan1992]

Who cares if the condos are being bought in cash, or even gold. As long as prices are going up due to speculation, it is by definition a bubble, and there will eventually be a correction. Remember these cash deals are not going through any kind of independent appraisal process! Historically this has been typical for new construction condos, but not for existing homes in established neighbourhoods!!! Boom and bust cycles may be the nature of Miami real estate, but these are real bubbles nonetheless.

[midnightfapper]

there's definitely rampant speculation going on with residental real estate in miami, however there's also a tremendous amount of real demand (owner-occupants looking to move in).

the last crash brought prices down soo far miami became a bargain, i still believe most of the city is incredible value for money and is actually a fair bit underpriced.

yes, there is a disconnect between what people are earning on paper and the prices of things here. you have to remember there are a lot of foreigners living in the area, investors, business owners, etc., most of us have a very low taxable income (if we're here long enough to deal with the 183 day rule and actually report anything to the irs). then you have a lot of shady elements dabbling in the black markets, can't forget those guys.

so using traitional metrics to calculate affordability is a futile effort. that garbage might work in lake worth, not down here.

taking the lack of crime/corruption, beautiful weather, abundance of cultural/social/business/etc. events, spectacular nightlife, drop-dead-gorgeous aesthetics, abundace of luxury goods, etc., miami is incredibly cheap by world standards. this place is impossible to beat.

i think there's a fair amount of time left before it all comes tumbling down... give it at least another two years, 2016ish should be the peak.