Miami Real Estate: Will the bubble burst?

Photo: Gran Paraiso Residences
Photo: Gran Paraiso Residences 660 NE 31st St, Miami, FL 33137, 305) 771-0257

The financial crisis of 07’ was a series of events that will never be forgotten in the United States. It caused foreclosures, loan defaults and businesses to close their doors. If you were to ask any home owner, they will surely tell you the difficulties they experienced during this time.

No one saw it coming. Who would have thought that the “most secure” market was headed down a road to disaster?

Real estate has always been the go-to for investors due to it’s security. If you were to tell a loan officer or investor in the 90’s that there was going to be a massive plunge in the real estate market causing financial and economic crisis in the U.S., they would tell you “that is nonsense.”

Fast forward ten, twenty years, and here we are. An economy that is slowly, but surely, recovering from one of the biggest blows to the real estate market. However, even though this financial crisis represented hardships for numerous real estate investors, there was some good that came out of all this.

Photo: Axis Brickell Interior
Photo: Axis Brickell Interior 79 SW 12th St, Miami, FL 33130, (305) 373-3360

Call me an optimist or an irrational economist, but there was indeed some light at the end of the tunnel. With that being said, this event has caused people to push aside their ignorance. The possibility of a real estate bubble is REAL, and now we are able to anticipate their presence in the market.

This event opened the eyes of bankers, government officials, financial consultants, investors, real estate personnel, and the average person alike. We are now more so aware of such circumstances and are able to anticipate a likely disaster.

Today, there are instances where bubbles are forming and people are noticing. One instance in particular is the real estate market in Miami.

Miami is an attractive place. From shopping, to beaches, to great schools and much more, Miami has been THE city to live in. Condos are being built at rapid speeds, with over 11,500 built since the 1960s. Many of which are holding price tags well into the seven figures.

Photo: Icon Brickell Miami Beach
The buyers of these condos have typically been foreigners who pay cash. Photo: Icon Brickell Miami Beach 475 Brickell Ave, Miami, FL 33131, (305) 371-1411

As a result of the prevalence of cash buyers in the market, the rapid increase in condo resale prices have nearly doubled. In 2009 alone, resales averaged less than $225 per square foot. In 2014, the average was more than $400 per square foot, with the anticipation of it rising even higher in years to come.

In a compelling review of the area’s high-rise history and analysis of the condo marketplace’s current boom, Brickell Homeowners Association did a recap on the event hosted by Peter Zalewski, a contributor to the Miami Herald and a real estate columnist for The Real Deal. 

Zalewski stated that, “…As the global economy slows and the U.S. dollar strengthens to it’s highest level in more than a decade, concerns are growing that foreign buyers could be challenged financially in the future to acquire Greater Downtown Miami condo units with the same veracity as in previous years.”

With the increase in the price per unit, it is only inevitable that rental prices are following their lead.

Today, Downtown Miami’s rental rates are at a record high. Will this bubble burst? Or will investors dodge the bullet? It is clear to see the consequences of such a bubble, and hopefully people are looking to find a solution rather than waiting to find out what is to happen. Homeowners’ associates and real estate agencies in Miami are aware of the situation and are monitoring it closely. Now it is up to the invisible hand and market analysts to see what the market has in store.

 

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Senior at Florida State University, majoring in Economics with a minor in business, concentrating in Markets and Institutions.

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