Developers can head off a real estate bust if they examine the lessons of 2007
October 01, 2013
By Peter Zalewski
Condo developers are adamant that the final results of their building frenzy in South Florida — more than 160 towers already, and more to come — will end differently this time around.
The developers confidently proclaim that they have studied, and learned from, the mistakes of the 2007 real estate crash, despite the tri-county region’s history of dramatic booms and devastating busts that dates back nearly a century.
Several safeguards, the developers insist, have been put in place to avoid a repeat of the ravages that slashed sales prices, wiped out both homeowners and investors, and left thousands of new units unsold for three years — many much longer.
And they, along with their real estate brokers, are taking this message — a mantra, really — to prospective foreign buyers at the scads of presentations being put on around the globe to sell South Florida condo projects before a shovel of dirt is even turned.
At these recalibrated “dog-and-pony” shows, the developers make a point of talking a lot about the larger, nonrefundable deposits that buyers have to fork over; the more stringent financing requirements that lenders have put in place; and yes, those lessons that they have learned from the last housing crisis.
With the start of South Florida’s winter buying season just around the corner, it is conceivable that the developers might just be right — at this moment — about the cycle.
After all, inventory is tight and prices are rising — the consequences of strong demand generated by a stock-market bull run, attractive mortgage rates, and a deeply discounted U.S. dollar.
South Florida buyers had fewer than 19,400 resale condos to choose from in mid-September, at a time when nearly 4,500 units are being sold every month, according to the Southeast Florida MLXchange. At that resale pace, the region has less than five months of available inventory.
A healthy residential market typically has six months of resale inventory. Any more indicates a buyer’s market with weaker prices, and any less suggests a seller’s market with stronger prices, industry watchers said.
Another part of the equation: Out of nearly 49,000 developer condo units built during the last boom, South Florida had fewer than 2,000 still unsold as of June 30. At the current sales pace, those condos — statistically — will be gone in the second half of next year.
When the boom-era developer condo inventory sells out is important because a number of towers now under construction are scheduled to be completed in late 2014.
If the developers have timed the market correctly, the first block of new condo units from this boom could be delivered just as the remnants of the last boom are sold.
It would be just the thing to attract more domestic buyers into a pre-construction condo market that is being dominated by foreign investors with strong currencies.
Going beyond 2014, the unanswered question for South Florida is whether developers, lenders and buyers will still remember — and stick with — the lessons they profess they learned from the 2007 bust.
Peter Zalewski is the founder of Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages, and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.