Expect Market Correction Due to Influx of South Florida Condos

As the calendar flips to 2006, a handful of Florida home loan experts have weighed on on real estate predictions for the new year. While some views vary, one constant seems to be that thousands of new condominiums will likely result in a market correction.

These units are marching through the permitting stages throughout South Florida. As this takes places, developers are in search of financing, while lenders are pulling back from residential projects.

Money should still be available, longtime Miami analyst Michael Cannon said, but at increased rates.

“Fewer announced condo developments will obtain financing as pre-sale requirements will be tougher,” he added. “The adage ‘location, location, location‘ may prevail if coupled with proper timing, timing and timing.”

The struggle for average workers to find affordable housing will increase, as more rental apartments are transformed into for-sale units and the rising value of land and materials pushes up the cost of housing.

At the same time, there is a lack of inventory of super-luxurious homes, said Irving Padron, CEO of Miami-based SOL Sotheby’s International Realty.

“South Florida has become a hot spot for the ultra rich. We have worked with several buyers willing to make offers of well over $20 million on single-family homes,” he said. “Our concern is that there aren’t enough sellers in that price range.”

Single-family homes in general are always expected to increase in value, thanks to the scarcity of land in the region.

But folks hoping to make big bucks flipping Florida condos may find themselves in trouble as interest rates are expected to continue climbing.

If local workers find new rentals too expensive and ownership out of reach, while the foreign investment market becomes tapped out, speculators may start walking away from units. If widespread foreclosures occur, some legitimate owners may find themselves upside-down, paying more for a unit that it is worth.

The fallout of a major correction would likely affect even high-end buyers and sellers, Padron said.

“We are prepared in case of a correction, as all prudent businesses should be at the current stage of this cycle. In fact, we believe that a correction will eliminate a vast number of agents and firms without adequate expertise and experience in the marketplace.”

Will the value of condominiums depict significant depreciation? What about the state of the Florida home loan market in general? These are questions that should be answered within the first couple months of 2006.