Headlines – Week of July 9, 2012
July 20, 2012
Another Construction Boom in the South Florida Condo Market
According to a recent report from CondoVultures.com, South Florida, developers have initiated construction on at least 10 new high-rises and are planning several more over the next 18 months as the post-crash development era gains momentum.
The tricounty South Florida region includes Miami-Dade, Broward, and Palm Beach counties.
Some five years after the South Florida condo market began to crash; developers in Greater Downtown Miami have completed one condo tower and are building four.
As of July 2012, at least 46 condo towers with nearly 7,900 units are proposed, planned, under construction, or recently completed in South Florida, according to the Florida brokerage CVR Realty.
Nearly 3,900 developer units created during the last real estate boom remain unsold in South Florida’s seven largest coastal markets according to a recent CondoVultures.com report.
Additionally, more than 1,800 units previously purchased by bulk buyers in South Florida’s seven largest coastal markets have not yet been sold as of March 2012.
To overcome financing hurdles, most of the newly proposed projects are requiring prospective buyers to commit to deposits to be paid in phases up to 80 percent of the preconstruction contract price.
Housing Passes a Milestone
According to data from the S&P/Case-Shiller Index, the housing market has bottomed.
Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. The slow-moving S&P/Case-Shiller house-price data recently reported the first monthly increase after seven months of declines.
Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. And the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes that are vacant is at its lowest level since 2006.
Many believe the reduced inventory of unsold homes is key. For the past couple of years, house prices have risen in the spring and then slumped; the declining supply of houses for sale is reason to believe that won’t happen again this year.
Builders began work on 26% more single-family homes in May 2012 than the depressed levels of May 2011. The stock of unsold newly built homes is back to 2005 levels. In each of the past four quarters, housing construction has added to economic growth.
In a good sign for the economy, in the first quarter, new construction accounted for 0.4 percentage points in the 1.9% growth rate
A recent Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don’t.
With all the good news, however, the biggest threat is a large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures. A flood of foreclosures could reverse the recent rise in prices.
‘Lost Generation’ of Homeowners on Hold
In another good sign for the future of housing, many analysts predict a recovery in the job market will prompt some renters to buy homes especially since many still believe real estate can be a profitable investment.
According to a report from John Burns Real Estate Consulting, the number of first-time buyers has skidded 20 percent during the last three years and homeownership will continue to decline among the 25-to-34 age segment for the next three years.
Stagnant income growth, huge amounts of student loan debt and an 8.2 percent unemployment rate for 25- to 34-year-olds have made Millennials less willing to sink their money into homeownership. However, analysts believe Millennials will want to settle down as they age, and that credit requirements will be eased at some point although it could take years before they feel comfortable purchasing homes.
This has sparked a boom in construction of multifamily housing, particularly in areas like Denver and San Jose where job opportunities abound. In these areas, short-term leases are gaining popularity among young professionals who want to be able to move quickly to take advantage of buying opportunities.
Posted by Scott R. Lodde