The murmurs of the Miami condo market softening have been floating around among some in the real estate broker community for many months. Real estate brokers get a sense of changes before things hit the headlines because we are on the ground on a daily basis talking to prospective buyers and sellers, listing and showing properties, and sharing our recent experiences with colleagues. The average homeowner or prospective homeowner does not get (or believe) the message until it comes out in a market-damning front-page headline. Usually the Miami Herald or the New York Times leads the way with a broadly read article that is then shared thousands of times on the likes of Facebook and Twitter.
But before the front-page headlines come out, there are a number of signs that the average layman, especially a prospective buyer, can piece together as clear indications the Miami condo market may be at its peak. There are other more technical data that offer similar preliminary signs of a marketing softening, like increasing months of inventory, days on market and sales volume numbers. But the following are signs that brokers and buyers alike can follow easily without market statistics or even before Miami condo market statistics show conclusive signs.
1. Relaxing finance options and standards
Obtaining financing is becoming easier than a year or two ago as lenders look for ways to attract a new pool of buyers. Fannie Mae approved condos can now close with only 5% down payments and nonconforming condos can close with 10% down payments; 20% down payment would have been the typical minimum just a short while ago.
2. Lots of new real estate licensees
If you live in Miami, you probably know a handful of people who recently obtained their real estate license, are studying for their license or were out of real estate for a while and ready to jump in because they read in the newspapers that "the market is hot." When someone makes a decision to jump in a hot market from reading the news or hearing about glamorous parties thrown by developers, it's usually a little late to enter the market as a real estate agent.
3. Loosening preconstruction deposit standards
While developers have strong sales momentum, it is too much of a hassle to make exceptions or compromises as the signed contracts come flooding in at a nice pace. But when sales get soft, developers have to find new ways to attracts ready buyers. When developers start advertising exceptions it is a clue that they are looking for a new pool of buyers as their existing pool is running dry. A number of projects, including Le Parc at Brickell and Brickell Heights, have publicly announced that they have reduced their deposit standards from 50% to 30% down, and there are a number of other projects that have not announced it publicly but are more than willing to negotiate a reduced down-payment structure.
4. Reading between the headlines
Even when the market headlines remain positive or nuanced, quotes from developers usually offer clues as to the market momentum. To achieve their goals of selling their inventory, developers need to be overly positive to create sales momentum and a sense of urgency for their products. When they start getting nuanced with their predictions and view of the current market, you know the market momentum is slowing. In a recent article from The Real Deal, developers were quoted using words like "equilibrium", "balanced market" and "healthy market", telltale signs that the preconstruction market had slowed. (Occasionally we get a refreshingly honest quote from a developer like Gil Dezer, when he said in a Miami Herald article in October, "Anyone who tells you they're not feeling the slowdown is lying.") Headlines about long-time Miami developers selling off some of their developable land assets gives us a similar perspective on where the market is heading.
5. Cancelation of proposed new construction projects
In the past nine months a number of preconstruction projects have been canceled, Including Ion in East Edgewater, Six Midtown, Edge Residences in Brickell, Bath Club Estates in Miami Beach and others. Developers don't cancel projects unless developers know their properties won't sell.
What it means for buyers and sellers
If you are moving across town and have to sell your place to buy another, it is a wash and doesn't matter what market you are in (you are buying high and selling high, or buying low and selling low). If you are buying as an investment or making your first condo purchase in the Miami area, you need to buy "smart." Make sure you are not paying a premium above market price, get solid statistics on the neighborhood, price point and property type you are buying, and hold for at least four to five years to maximize the investment. And if you are seller, it is time to be more realistic with your price and get your property sold if you want to maximize your profits during this cycle. Getting greedy could bite you. This article originally appeared on MarketWatch.