So . . . it seems that I have a buyers lead list that only grows and grows. So many prospective Miami-lover are intent on buying this year . . . just not yet. Everyone seems to think that the second half of the year will bring better prices, and they could be right. Earlier in my South Florida Real Estate forecast, I mentioned that the 2nd half of the year will bring more stability. I still stand by that for the most part, but for the condo market it is very possible that since so many buyers are still waiting on the sidelines that prices will adjust downward a bit more before stabilizing.
Also, I spoke to a very sophisticated investor that does things like put shorts on mortgage-backed securities and other even more complicated things I have never heard of, and he believes that what happens to Miami condo developments still under construction could be the key to what happens next in the market. He believes that a few commercial banks -- the banks that fund developers -- have certain mechanisms to delay their impending death or hide their life-threatening issues, but that any financial problem they do have from giving loans to failing developments will start showing its ugly head in the second half of this year. And the contagion from the news of failing developments can open a gate that market bulls will not be happy to see.
I am going to keep an eye on this and start running more numbers soon to see where things may be heading . . .
The Miami-Dade County property tax appraiser just released that as of March 14, 2008, 4,873 homeowners applied for portability.
In case you are not up-to-date on the details of the portability law, here is an excerpt (in italics) from the Dade county website and some quick examples of my own.
PORTABILITY: Currently, property owners with a homestead exemption receive a benefit known as Amendment 10 or Save Our Homes cap. This Save Our Homes benefit works by limiting the increase of the assessed value of a home to a maximum of 3% regardless of any increase in market value. Under the new law, homeowners will be allowed to transfer this benefit to the next homestead property. This is called portability or a portable cap. Qualified applicants are now able to transfer (or port) this Save Our Homes benefit up to $500,000, whether they are buying a more expensive or less expensive home.
Homestead property owners will be able to transfer their Save Our Homes benefit (up to $500,000) to a new homestead property within two years of giving up their previous homestead. If the market value of the new homestead is more than the previous home's market value, the entire Save Our Home benefit can be transferred up to $500,000; if the new homestead has a lower market value, the amount of the accumulated benefit that may be transferred is proportional to the value of the new homestead property.
So, for example, Joe Homeowner owned a homestead property in unincorporated Miami-Dade county in 2007, with the following scenario:
(Please note that I am not including non-advalorem taxes and school district taxes to keep things simple)
2007 Market Value: $331,281
2007 Assessed Value: $142,356 - Homestead Exemption: $25,000
2007 Taxable Value: $117,356
2007 Millage Rate: $18.5679
2007 Property Tax Amount: $2,179.05
Save Our Homes Benefit: $188,925
Joe Homeowner then purchased a new property in unincorporated Miami-Dade County in November of 2007 for $425,000, and he moved in December 2007 to the new home. In 2008, he applied for homestead exemption on the new home.
HOW MUCH PROPERTY TAXES WOULD HE PAY IF PORTABILITY HAD NOT PASSED?
2008 Market Value: $425,000
2008 Assessed Value: $426,500 - Homestead Exemption: $25,000
2008 Taxable Value: $401,500
2008 Millage Rate: $18.5679 (assuming same millage from 2007)
2008 Property Tax Amount: $7455.01
HOW MUCH PROPERTY TAXES WILL HE PAY WITH THE PORTABILITY RULE OF AMENDMENT ONE?
Based on the new home with homestead exemption and portability benefits, the following is the new scenario:
2008 Market Value: $425,000
2008 Assessed Value: $426,500 - $188,925 (Save Our Homes Benefit) = $237,075
- Homestead Exemption (doubled through Amendment One) : $50,000
2008 Taxable Value: $187,075
2008 Total Millage: $18.5679 (assuming same millage from 2007)
2008 Property Tax Amount: $3,473.59
Total Savings due to Portability: $3981.42 ($7,455.01 - $3,473.59)
That is an impressive savings of 53%!
However, many people, like new homeowners are left out of any tangible benefit of the new Portability law. Keep your eye out soon for the new blog!
I can understand that after all the bad press and bad data that comes out on a daily basis about the Miami or Miami Beach home and condo market, that all buyers believe that they can name their price on the place of their choice. Honestly, I wish that were true. It sure would make transactions easier, and my customers -- at least my buyers -- happy.
Unfortunately, buyers -- especially end-users like full-timers or second-homers -- don't realize is that they are not the only ones with good taste and easy access to the internet to track the good values. For every home or condo in Miami or Miami Beach my buyer loves, there is another buyer close on their trail.
Don't believe it? What if I told you that my customers and I have been involved in 3 bidding wars so far for both homes and condos in Miami in the first two months of this year?
2 of them were bank-owned condos where we were asked for highest and best after another solid offer came in near the same time as ours. The condos were in Cite in the Edgewater/Art District area just north of downtown Miami. They were both 2-bedrooms under $300K, which is a hot niche market based on what I am seeing.
The other was for a regular sale on a 3-bedroom home in the 33140 zip code in Miami Beach. I did comps for my customer, gave him a market price and told him that if we get the place for anything less than that, he would be getting a good deal. We started with a low-ball on his request, and by the time we went back and forth a couple of rounds, someone came in and scooped it for about the price I had come up in my comparitive analysis.
So what do we learn from this? It's simple. You are not alone in the quest for a quality place. So the risk of losing your top choice in a bidding war is a very real one. It also teaches us with certainty that the huge amount of inventory out there doesn't mean there is a significant number of QUALITY places.
I agree that as a buyer, there is no need to panic and jump on the first place you see, and I also do not think this points to an increase of prices anytime soon. But buyers beware, quality places at good values are scarce, and you are not alone in the quest for a great new home even in this market . . .
This week I went to a very interesting presentation by Dr. Fishkind called the South Florida Real Estate Forecast. Dr. Fishkind is a leading economist in Florida.
Dr. Fishkind presented dozens of graphs/charts (trying to get his permission to post them) that demonstrated that we may be near the bottom of both the weak economy and bad real estate cycle, and that due to the seeming resilience of the markets and the Fed’s interest rate cuts we should start seeing more strength in both in the second half of this year.
The South Florida Real Estate Forecast presentation was a mix of general economics and data specific to real estate. It never hurts to know how the economy works, since we don’t live in a vacuum, so I am going to review some general economics in Part 1.
Most of what is below is data and ideas that Dr. Fishkind presented, mixed in with some of my own. Feel free to comment if you disagree or have any good data to add.
General Economy
We are near or in a recession. A Consumer Confidence Index (CCI) of below 70 is sign of recession. Dr. Fishkind was very positive about consumer confidence of 87.3 for the month of January. But February numbers have come out at 75, which is a very big dip and closer to the tipping point of 70. Also, we just got new job growth numbers, which is 60,000 in the negative. Job growth is a very strong indicator of the economy. According to Dr. Fishkind, every increase of 100,000 jobs represents a 2% increase GDP. So I would assume that a reduction in jobs indicates a negative pull on the GDP. If that holds true, then the latest numbers point strongly towards recession.
But Dr. Fishkind had other data and observations that seemed to support an improvement in the overall economic picture in the months ahead.
We survived the subprime mortgage crisis
The subprime mortgage crisis could have ended up as a complete disaster, but didn’t. The subprime loan fiasco ended with the closure of dozens of lenders, less loan options for consumers and with the remaining players much more careful about to whom they loan money. To sum it up, money is “a lot tighter” than it has been in a long time. But it could have been a lot worse. Luckily, the industry as a whole seems to have survived without a major meltdown. One institution you can thank partially for that is the Fed.
No panic with increased oil prices
Another positive sign for the market is the response to increased oil prices. Adjusted for inflation, I believe we have hit higher crude oil prices ($100/barrell) than in the energy crisis of the Carter years, but somehow we are taking it pretty lightly. Of course with higher energy prices, we have higher gas prices, and that is not good news for the average consumer. Moreover, when energy prices are higher, everything costs more to produce and transport, which means higher prices of goods. And that means the “I” word: inflation, which is the devil of any economy. The Fed usually increases interest rates to counter inflation, but according to Dr. Fishkind, the Fed’s first goal is to jump-start the ecomony by reducing rates. Once the Fed sees the economy rebound, we will again see the Fed increasing interest rates to put a lid on inflation.
The Fed keeps cutting interest rates
The Fed has been cutting interest rates since August 2007. A reduction in interest rates brings liquidity to the market, so everyone has more money available to them at lower cost. When they spend more money, the economy grows. According to Dr. Fishkind, it takes 6-12 months for interest rate cuts to have an effect. As I write this, we are essentially in month six of the first rate cut, so we should just start seeing the effects soon.
So what do the Fed’s rate cuts mean for a 30-year fixed mortgage?
When the Fed cuts interest rates, they are short-term rates, which have no direct relationship to long-term mortgages. Long-term mortgages are actually driven by the 10-year treasury bond (actually, by mortgage-backed securities, but the 10-year bond is an easy benchmark). That said, Dr. Fishkind showed us a chart that demonstrates a strong indirect relationship between the Fed’s interest rate cuts and long-term mortgage rates. So as long as the Fed continues to cut interest rates, we will be seeing a reduction in long-term mortgage interest rates as well.
Another indirect factor in long-term interest rates is the stock market (Dr. Fishkind did not speak to this, but my mortgage colleagues have filled me in on this on various occasions). Typically when stocks fall, there is “flight” to the safety of bonds. When there is more interest in bonds, the yield decreases, which can lead to lower interest rates. This is by no means a direct correlation, but when stock prices fall hard call your bank that afternoon or the next morning to see if they adjusted their mortgage rates lower . . .
Some of you probably want more about what Dr. Fishkind is saying about the real estate market . . . I will post some tidbits on that in part 2 . . .
After working in the first 2 months of 2008, I am very excited about this years' prospects for both me and my customers in the Miami condo market. It is clear by the renewed interest in available properties from both locals and out-of-towners, that buyers are coming back out of the woodwork. I have done quite a few deals this year already, mostly with end-users. Investors are still a bit skiddish, and are "waiting 3-6 months" before making a purchase. But with all the foreclosures and distressed properties out there, finally buying vs renting is starting to make sense for end-users! Hooray finally for good common sense in pricing.
All that said, if you are a seller of a Miami condo, I wouldn't get too excited. While sales pace is picking up, there is still alot of inventory out there. That means that buyers have alot to choose from and have firm control over pricing for the most part. Prices are set to either stay stable or fall a bit further depending on the market niche.
Speaking of market niche's, people don't realize that you can't look at the Miami condo market (or any market for that matter), as a whole. There are certain niches (sections) of the market that have not been affected by the market or are now recovering faster than others. More on the market niche's that I know are doing well in a future blog.
As always, I would love to hear your feedback on my posts. Are they clear? Useful? Let me know!
Serving Brickell, Miami Beach, South Beach and Downtown Miami, with a focus in distressed and bank-owned condo foreclosures. See more Miami condos for sale at http://www.condoblackbook.com
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