Created by: IRR.com
Why the WSJ Headline “Condo Bust Looms in Miami” is a bad forecast
Anthony M. Graziano, MAI, CRE – Senior Managing Director of IRR Miami was interviewed and quoted in the March 29, 2016 edition of the Wall Street Journal.Click here to access the article.
Mr. Graziano provides this follow-up editorial opinion to provide context to WSJ readers beyond their eye-catching headline. His OpEd response is as follows:
“I’m sure I’m not the first expert ever interviewed for an article that was surprised at the content and storyline of a reporter’s narrative, or an editor’s choice of headline. But in this case, I am shocked at the sensationalized headline predicting a “Condo Bust” looming in Miami.
As a real estate expert engaged to provide informed opinions and forecasts, the WSJ headline has no basis in empirical fact, and the headline is catchy, but likely wrong. The reporter interviewed numerous credible sources – and these sources corroborated IRR’s research that sales of pre-construction condos have been slowing in the past 12-18 months, some projects have gotten shelved, and developers are not expecting many new ground-breakings in 2016.
But a slow-down in new development activity is not a “Bust.”
What the news article did not cover or even touch upon are some key facts supporting my opinion that a bust is NOT imminent:
• 85% of the under construction product in Greater Downtown Miami delivering in 2016 is pre-sold.
• Under construction inventory of 7,200 units (which is 100% of all product under construction in Greater Downtown) will be delivered over the next 3 years. Contrast that with 2006 when there were 18,500 units under construction.
• Over 80% of all new condo sales over the past three years were purchased all cash (no bank financing). In the resale market in 2015, the percentage of all-cash purchases was 73%. When banks have extended loans on existing condos, the amount of equity has been 30%-40% of the purchase price (60% LTV). So overall, there is a tremendous amount of equity and very little bank exposure or default risk, which is what generally leads to precipitous price declines (the so-called “bust”).
So for the record in case anyone cares– I do not believe a Condo Bust is looming in Miami.
My professional opinion is that it’s time to exercise caution, study the market, and to be diligent on new development deals – and especially cautious on land acquisition and JV deals. The market is not what it was in 2013-2014 when developers were selling projects out over the Art Basel weekend.
My editorial opinion is that the WSJ lead their story with a headline that looks like a forecast. It’s not MY forecast, and it is certainly not a forecast based on any empirical data. At best, it is an inference. But our data suggests that the Miami market can move beyond boom and bust absent broader economic shocks to debt and/or equity markets.
The market supply of buyers is down, and the development community is responding by taking their foot off the development pedal to keep supply and demand in balance. That’s a long mile from a bust. If it were my headline, it would have read “Can the Miami Condo market weather an International Currency War?”
visit article at: http://www.irr.com/Publication/PressRelease.asp?Ref=974&~