Archive for the 'Real Estate Market Data' Category

Key Biscayne Had Highest Price Per Square Foot in 2013

posted on January 31st, 2014 filed under: Properties in Focus, Real Estate Market Data, Real Estate News

Where in Miami will you find the most expensive real estate in terms of price per square foot for single-family homes?  Turns out it’s in the relatively small homes that line the waterfront in Key Biscayne.  Four of the five top home prices per square foot in 2013 were there.  Of those, three were on a single street — Harbor Drive — while a fourth was on North Mashta Drive.  List below . . .

398 Harbor Drive, Key Biscayne (3BR, 3-1/2BA, 2,155 sf, sold $8.5M):  $4,455/sf

4211 Indian Creek Drive (5BR, 4-1/2BA, 2,322 sf, sold $8.5M):  $3,661/sf

830 Harbor Drive (4BR, 3BA, 2,922 sf, sold $6.25M):  $2,567/sf

571 North Mashta Drive (3BR, 3BA, 3,239 sf, sold $6.7M):  $2,316/sf

881 Harbor Drive (3BR, 3BA, 2,903 sf, sold $5.6M):  $1,998/sf

Miami Real Estate Photos -- Key Biscayne -- Rickenbacker Causeway

Based on MLS data.

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2013’s Mortgage Milestone

posted on December 31st, 2013 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

The rebound in real estate markets, especially prices of homes in the hardest-hit markets like Miami, has been a top story in 2013.  One of the less appreciated bits of news was the passage of a major milestone.  In the third quarter of 2013, the total amount of mortgage debt outstanding recorded its first positive number since 2009 (and really since 2008, because 2009 merely saw one quarter of very slightly positive growth).

Fed Flow of Funds Z1 -- Mortgage Borrowing -- 1Q2000 to 3Q2013 -- Chart, Graph

Mortgage debt is the mother’s milk of real-estate prices, so continuation of the uptrend in debt is important to the sustainability of rising prices.  Since the 1950s, mortgage borrowing and home prices had increased without fail, lulling bankers and buyers alike into the ill-fated belief that prices would never fall.

Fed Flow of Funds Z1 -- Mortgage Borrowing -- 1956-2012 -- Chart, Graph

And indeed, when viewed on a logarithmic scale, the explosion in mortgage debt during the bubble might have seemed within reason — in keeping with the constant, long-term destruction of the dollar through inflation.  Unlike in the 1970s, however, incomes were not going along for the ride.  Without income to service the debt, the end was nigh.

Fed Flow of Funds Z1 -- Mortgage Borrowing -- 1956-2008 (Log Scale) -- Chart, Graph

(Negative numbers cannot be plotted on a logarithmic chart, so the preceding chart ends in 2008 — but you get the picture.)

Is the current uptrend in debt and prices sustainable?  The negative numbers represented not only a lack of borrowing by home buyers, but destruction of bad loans by banks — and banks have worked through a significant portion of the bad loans by now.  But interest rates have been rising, which creates several risks to continuation of the debt and price uptrends.  If 2013’s buyers paid as much as they could (as buyers are wont to do), and rates continue to rise, then there are four possibilities for real-estate prices in 2014: (1) cash buyers sustain current price levels; (2) incomes rise to offset the higher payments; (3) lending standards loosen to allow bigger and riskier loans to the extent incomes don’t rise; or (4) prices fall.

Don’t count on the first possibility.  Investors have sharply curtailed their purchases in recent months, quite possibly in reaction to the realization that the Fed’s program of interest-rate suppression has reached its limit.

It’s hard to rely on the second possibility either.  Incomes have been rising modestly, but not enough to keep pace with the rise in interest rates since 2012.  The only hope on this score would be that buyers have been uncharacteristically restained in their offers.  Considering the number of multiple-offer sales and the number of homes selling at or above asking price, it’s hard to believe that buyers have much in reserve — at least here in the Miami real estate market.

Will lending standards loosen?  It’s already happened to some extent, and there may be room for further relaxation.  On the other hand, new mortgage-lending regulations take effect in a couple of weeks and are generally expected to have a constrictive effect.

As for possibility number 4 . . . presumably nobody will repeat the mistake of thinking that “prices never fall” anytime soon.

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Miami Price-Income Ratio Defying Gravity Again

posted on October 31st, 2013 filed under: Financial Responsibility, Real Estate Market Data

A year ago, home prices in Miami had already risen so much faster than incomes that the ratio of median home price to median income was higher than at any time outside the bubble that burst.  (See Do Incomes Matter to Home Prices?)

With another year of low interest rates and cash buyers, the relationship between Miami home prices and incomes has deviated significantly further from historical norms.  The median price rose while the median income actually fell, according to data from the National Association of Home Builders.

Price-Income Ratio (NAHB) -- Miami -- Chart, Graph -- 1991-2013

[Geeks’ note: A few of the data points in the above chart were missing from NAHB statistics, and those gaps were filled by interpolation.]

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S&P Case-Shiller Index Shoots Higher Again

posted on July 31st, 2013 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

According to the S&P Case-Shiller Home Price Index, values of single-family homes in the Miami metro area were rising at about 2.49% per month as of May 2013 (more precisely, it’s the May report for the rolling average of the three months that ended in May).  That’s about 30% per year!  The last time — indeed, the only time in Case-Shiller data — that Miami real estate saw such gains was . . . . . . wait for it . . . . . . in June 2005, just before the bubble burst.

S&P Case-Shiller Home Price Index -- Miami -- May 2013 (from Jan 2008) (Chart, Graph)Source:  Standard & Poor’s

The relatively short-term chart above begins when Miami real estate prices peaked in January 2008.  Viewed alongside the black-diamond ski slope of the real estate crash, the price gains of the last year or so seem respectable but perhaps not all that unusual.

On a longer-term chart, however, it is indeed highly abnormal for Miami home prices to rise this rapidly:

S&P Case-Shiller Home Price Index -- Miami -- May 2013 (Chart, Graph)Source:  Standard & Poor’s

After asset bubbles burst, a phenomenon called an “echo bubble” is sometimes observed.  And the Federal Reserve, which intentionally created the housing bubble in the first place to offset the collapse of the late-’90s stock bubble, is up to its old tricks.

Considering that the price-to-income ratio is already above pre-bubble historical highs, incomes are rising at a low single-digit annual percentage, and interest rates spiked in June to drive up mortgage costs by a double-digit percentage, there is reason to doubt whether 30% annualized price gains make sense.  (For a chart illustrating how fast opportunity in the real estate market has vanished, see Bloomberg — American Dream Suddenly Isn’t So Affordable.)

But hey, as one spirited auctioneer liked to say: “C’mon people, it’s worth whatever you pay for it!”

If you must buy Miami real estate (or sell Miami real estate), the least you can do to give yourself a fighting chance is to give REF Real Estate a call.  Buyers get 1% cash back on the purchase price, and sellers get full service for the lowest possible commission.

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Boom & Bust Poster Child Sells Again (6925 Tordera St., Coral Gables)

posted on June 30th, 2013 filed under: Properties in Focus, Real Estate Market Data

The bank-owned home at 6925 Tordera Street in Coral Gables recently sold for $822,000, or about $233 per square foot.  That’s a low price per square foot for the South Gables neighborhood these days, but the constant presence of work crews suggests substantial repairs were needed.

6925 Tordera St.

6925 Tordera St.

The property’s sales history illustrates the boom and bust:

Sept. 1998:  $650,000

June 2004:  $1,275,000

May 2005:  $1,650,000

March 2006:  $1,850,000

May 2009:  $301,000 (sale to or from financial institution)

April 2013:  $822,000 (sale to or from financial institution)

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For Richer or Poorer

posted on April 12th, 2013 filed under: Properties in Focus, Real Estate Market Data

Broad market data do not always capture the reality of the real estate market.  National data do not necessarily reflect local market conditions.  Even metro data does not necessarily capture deep divisions among micro-markets.

Miami is especially fertile territory for such local divisions to sprout.  According to the U.S. Census, Miami-Dade County is second only to New York County (i.e., Manhattan) in income inequality.  Hot properties and neighborhoods are also a magnet for international wealth.  If location matters in real estate, it really matters in Miami.

So perhaps it should come as no surprise that the past year’s rebound in Miami home prices has been very unevenly distributed.  The most desirable areas have seen prices regain almost all of their losses, while most of Miami remains deep in negative territory.

For the sake of comparison, consider the Cosmopolitan Condo in the trendy SoFi neighborhood of Miami Beach.  SoFi is the part of South Beach that lies south of Fifth Street.  The Cosmopolitan, built in 2004, is not even a high-end property, yet buyers have recently been willing to pay roughly the same amount that buyers paid at the top of the market in 2006.  Only 6 of the 223 units in the building — about 2.7% — are in some stage of foreclosure.

Cosmopolitan -- South Beach -- Sales History -- By Date -- with Moving Average -- 2013-04-12

Compare that with Snapper Village, a community located in the heart of southwest Miami-Dade County.  Prices went parabolic during the boom and collapsed in the bust.  The past year’s bounce has hardly begun to recoup the losses.  At Snapper Village, 64 of 636 units — over 10% — are in some stage of foreclosure.

Snapper Village -- Miami -- Sales History -- By Date -- with Moving Average -- 2013-02-27

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So You Wanna Be a Landlord?

posted on February 28th, 2013 filed under: Financial Responsibility, Properties in Focus, Real Estate Market Data

Investors big and small have suddenly decided that it’s a great idea to buy single-family homes for rental income and future price appreciation, according to a flood of media reports.  A quip about how quickly we forget would be too easy.  And indeed, these investors are far more responsible than the yahoos who bought homes during the bubble.  Those were bad investors, and these are good ones.  Right?

Renting a house is hardly a newfangled way to earn income.  This big new idea is actually an old idea that previously had limited appeal.  What changed?  For one thing, the government rolled out big subsidies for institutional investors.  For another, Federal Reserve policies are starving small investors of a fair yield on their bank deposits, forcing people to hunt for yield in places they never considered before.

Such things tend to end poorly, but in case that observation strikes you as unconvincing and platitudinous, let’s look at a few recent sales to see what they say about how profitable buying and renting single-family homes really is.

The math is not hard.  In the simplest sense, your yield equals rent, minus carrying costs, divided by purchase price.  This is also known as your capitalization rate, or cap rate.

The major carrying costs annually are property taxes, homeowner’s insurance, and maintenance.  In the Miami area, property taxes approach 2% of the purchase price, homeowner’s insurance can be about 1% to 2% of the purchase price depending on the age and structural characteristics of the home, and maintenance should be budgeted at or near 1% as a rule of thumb anywhere.

If you finance, then the interest is a carrying cost but the out-of-pocket purchase price is effectively reduced by the amount you borrow.  We’ll ignore financing, as it’s often a wash.

So what does this simplified analysis say about buying homes for rental income in the Miami and Coral Gables real estate markets these days?  Consider several homes that recently sold and were also recently rented or offered for rent.

The home at 629 Madeira Avenue in Coral Gables recently sold for $370,000, and recently rented for $1,900 a month ($22,800 annually).  Property taxes are about $7,000.  Insurance can’t be known without getting a quote, but the house was built in 1940, so it probably doesn’t qualify for the cheapest rate.  Call it $5,000.  Add another $3,000 for maintenance and you’re at $15,000 in carrying costs.  Subtract that from the $22,800 and you have net income of $7,800 annually.  Divide $7,800 by $370,000 and you get a yield of 2.1%.  Salivating yet?

629 Madeira Avenue

629 Madeira Avenue

Here’s another.  The home at 1248 Milan Avenue in Coral Gables recently sold for $430,000, and recently rented for $2,000 a month ($24,000 annually).  The house is so small (1,335 sq. ft.) that property taxes are about $5,200.  It was built in 1924, so insurance is probably high for the home’s size, but that isn’t saying much.  Call it $4,000.  For such a small home, add a mere $2,800 for maintenance and you’re at $12,000 in carrying costs.  Subtract that from the $24,000 and you have net income of $12,000 annually.  Divide $12,000 by $430,000 and you get a yield of 2.8%.

1248 Milan Avenue

1248 Milan Avenue

One more — this time on the higher end.  The home at 5309 Alhambra Circle in Coral Gables recently sold for $1,261,000, and was recently offered for rent at $6,950 ($83,400 annually).  Property taxes are about $19,000.  It was built in 1926, so insurance probably is expensive.  Call it $11,000.  Add $8,000 for maintenance and you have $38,000 in carrying costs.  Subtract that from the $83,400 and you have net income of $45,400 annually.  Divide $45,400 by $1,261,000 and you get a yield of 3.6%.

5309 Alhambra Circle

5309 Alhambra Circle

The higher-end home seemingly fared better than the others, but still yields just 3.6% — and that’s based on the asking rent.  It didn’t actually rent for that much, so the yield might well have been less than 3.6% if a tenant had been found.

Which raises another consideration: An important factor omitted from these case studies is the vacancy rate.  There’s a big difference between listing a home for rent and renting the home.  Until it’s rented, your income is not just zero, but negative, because you still owe all the carrying costs.  Professional landlords accordingly reduce their anticipated income by the share of time they think a property will be vacant in between tenants.  A safe margin would probably be at least 5% to 10% for single-family homes, and as 5309 Alhambra Circle shows, it can drag on for much longer.  How long would you be able to take that heat before either cashing out or renting your home on the cheap to seven fraternity brothers and a four-legged mascot?

The home at 5309 Alhambra is particularly interesting because the seller bought it in December 2011 for $1,215,000, then listed it in March 2012 for sale or for rent.  The list price for sale was $1,397,000.  The list price for rent was $8,200.  It looks like a failed flip that neither yielded a capital gain (remember the brokers probably took 6%) nor successfully rented even after the asking rent was substantially reduced.

Still wanna be a landlord?

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S&P Case-Shiller Says Miami Up, New York Down

posted on January 29th, 2013 filed under: Real Estate Market Data

The S&P Case-Shiller Home Price Index for Miami posted a modest gain for the three-month period ending November 2012.

S&P Case-Shiller Home Price Index -- Miami -- Nov 2012 (from Jan 2008) (Chart, Graph)Source:  Standard & Poor’s

Prices gained 9.9% year-over-year (Nov. 2011 to Nov. 2012).  That’s a fast pace for real estate, and certainly far quicker than incomes have risen.  No doubt the Fed-sponsored drop in mortgage rates helped.  And there could be a bit of an echo bubble in psychology, as media reports have served up a steady drumbeat of housing-recovery stories.

Will it continue?  Shiller himself is skeptical, writing in a recent New York Times piece that “the tea leaves don’t clearly suggest any particular path for prices, either up or down.”

This much is certain:  Even if prices continued to rise 9.9% annually, it would take over 6 years for prices to get back to their bubble high.

S&P Case-Shiller Home Price Index -- Miami -- Nov 2012 (Chart, Graph)Source:  Standard & Poor’s

The fact that it would still take so long at such an unrealistic pace for prices to regain their high is a testament to the mendacity of the bankers, brokers and buyers who inflated the bubble.

Meanwhile, in New York, the real estate market remains moribund.

S&P Case-Shiller Home Price Index -- New York -- Nov 2012 (Chart, Graph)Source:  Standard & Poor’s

Not quite back at its low, and maybe there’s a broad, bowl-shaped bottom taking form, but that’s about the best you can say for it.

Nonetheless, the crash already happened, and prices have reverted close enough to the long-term trend that the risk of loss has diminished.  If you find a good deal, and plan on holding a property for a long time, buying may make sense, particularly if you plan on financing at currently low rates.

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Do Incomes Matter to Home Prices?

posted on November 23rd, 2012 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

A little dose of reality to put the black in your Black Friday . . .

Price-Income Ratio (NAHB) -- Miami -- Chart, Graph -- 1991-2012

Home prices have stabilized recently, and even gained in some areas.  But this recent price action may face significant headwinds going forward.  The ratio of median home price to median income in the Miami area has once again reached the highest level on record outside of the housing bubble.

The price-income ratio is like the price-earnings ratio of stocks.  When it’s historically high, so is risk.  And when it’s historically low, that’s usually a good opportunity.

The most important factors in the recent bounce in the price-income ratio are probably (1) record-low interest rates that enable buyers to pay more, and (2) continued investment by cash buyers, for whom income is by definition irrelevant.  Perhaps these influences will persist, but rates may not fall much further (having fallen very little since the Federal Reserve announced QEternity), and cash buyers seem like slender support for a major metropolitan area’s housing market.

Of course, it’s a bit late to time the market.  The crash already happened.  And with rock-bottom interest rates, you can’t go too wrong in buying that perfect home if it comes along.  Just be aware of the possibility of detours along the road to recovery.

[Geeks’ note: A few of the data points in the above chart were missing from NAHB statistics, and those gaps were filled by interpolation.]

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Case-Shiller Index for Miami Rises Again

posted on September 21st, 2012 filed under: Real Estate Market Data

The latest reading of the Case-Shiller Home Price Index for the Miami metro area scored a seventh consecutive monthly gain, sparking optimism that housing prices in Miami may have finally hit bottom.

The trend is indeed impressively longer than in other short periods of improvement since the crash, although prices have not clearly escaped the sideways channel established several years ago when property values began to bounce along a bottom.

S&P Case-Shiller Home Price Index -- Miami -- June 2012 (from Jan 2008) (Chart, Graph)Source: Standard & Poor’s

The latest improvement looks fairly promising, though still inconclusive, on the long-term chart as well.

S&P Case-Shiller Home Price Index -- Miami -- June 2012 (Chart, Graph)Source: Standard & Poor’s

One significant danger is that prices may simply have been goosed by dramatically falling interest rates.  According to Freddie MAC, the rate on a 30-year mortgage plummeted from 4.55% in July 2011 to about 3.9% by January 2012, and then from 3.9% to 3.55% between April and July 2012.

Is the 7-month string of gains in the Case-Shiller index proof that housing has bottomed?  Or is it just an artifact of the latest round of Federal Reserve interest-rate manipulation?  The question is important, because the Federal Reserve’s low-rate policy in the early 2000s played a big part in creating the housing bubble, and those who bought in that low-rate, rising-price environment came to regret it.  When the Fed raised rates, the jig was up.  As Warren Buffett likes to say, when the tide goes out, you find out who’s been swimming naked.

So it’s worth reading optimistic news reports with a jaded eye.  For example, the Miami Herald yesterday reported:

[I]f South Florida home values continue rising at their current pace, it will be 2017 before they return to peaks hit in 2006, according to the latest results from the Case-Shiller real estate index.

This is a dangerous assumption based on a flawed analysis.  As the same article points out, prices are still down 47% from their high.  To recover that loss in 5 years would require greater than 8% compounded annual gains.  That’s a much greater rate of appreciation than prevailed before the bubble, so the Herald article is basically talking about a new bubble — an echo bubble.  That’s hard to imagine.  Will banks abandon lending standards again?  Will incomes rise furiously?  Will interest rates fall much further, considering that the Fed is already “all in” since announcing “QE infinity”?

It’s not even clear where the Herald gets the idea that the “current pace” of gains is greater than 8% annually.  Year-over-year, from June 2011 to June 2012, the Case-Shiller index gained 4.4%.  At that rate, it would take another 9 years to get back to the old high.  And that assumes the recent trend is sustained for 9 years.  Perhaps the Herald chose some shorter, sharper period of recent gains (e.g., month to month) and projected that into the future.  That is an unreliable methodology.

On September 4, 2008, even before the fall of Lehman Brothers, the advice here was that “prices in Miami will fall 30% to 50% over a period of three to four years, and not return to their old highs until more than a decade has passed.”  House Price Index Update — New York and Miami (Sept. 4, 2008).  Looks like it will indeed take more than a decade to get back to the old highs.

If you find a good opportunity and you plan on living in a home for a long time, then buying may make sense for you.  Just beware irrational exuberance.

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