Florida Condo Market Begins to Fizzle

As demand for Florida mortgages drop in cities such as Tampa Bay, the effect is also being felt across the Sunshine State condo market.

Developers have pulled the plug on some of Miami’s most anticipated condominium developments, a sign the city’s sizzling, speculator-driven condo market - where prices of many apartments doubled or tripled in a few brief years - has finally chilled.

“This market was too good to be true,” said Lewis Goodkin, a Miami economist and real estate analyst. “But it was a market fueled by speculators, so it wasn’t a true market.”

City officials say 15 condo projects, representing nearly 1,900 units, have been officially pulled from the waning Florida housing market. But analysts say the numbers are much higher when you consider the rest of Florida’s overbuilt condo situation.

A look at the Miami housing market

Miami’s building boom, the biggest in the city’s history, is far from over. Construction cranes dominate the skyline, as they have for years. The city alone still has more than 77,000 units, in nearly 300 projects, under construction or in planning.

But the “for sale” signs are not the only warnings of a fading Miami housing market.

Statewide sales of existing condos dropped 31 percent in October from the same month last year, according to the Florida Association of Realtors. Median prices fell 2 percent. The seller of a Miami Beach waterfront one-bedroom dropped his asking price from $445,000 to $400,000 to $370,000 in a matter of weeks.

Example of overbuilding

“We’re starting to see projects being canceled almost on a weekly basis,” said Jack McCabe, chief executive of McCabe Research & Consulting of Deerfield Beach.

Miami was considered one of the most speculative markets in the years-long U.S. residential real estate boom. Analysts said up to 80 percent of sales at some condo projects were to speculators who intended to quickly resell, or “flip,” the units.

Elie Mimoun, sales director of Midtown Miami, a $1 billion-plus redevelopment of a blighted former railroad yard north of downtown, said the softening represents a natural shakeout of speculators.

“The market is now keeping out the crazy people,” he said. “I think if the economy stays the same, the worst is behind us.”

Midtown Miami, a key cog in the city’s redevelopment plans, is a 56-acre site where developers plan to build more than 3,000 condo units, office space, and some 600,000 square feet of retail shops. Of the nine planned condo buildings, three are under construction and another breaks ground in February with the hopes people will use Florida home loans on them.

But Mimoun said the developers were simply trying to find a financial partner and “there was never a question of getting out completely.”

Mimoun and other optimists believe the unusual demographics of this Latin-flavored city will keep the Miami market strong. About 20 percent of his home buyers are Europeans whose spending is bolstered by a strong euro, and 13 percent are South Americans, traditionally eager consumers of Miami real estate.

But Goodkin said rising building costs, hurricane-fueled homeowners’ insurance hikes and property tax increases caused by exploding prices have made Florida increasingly unaffordable.

“You have to have people buying units to live in. Who are the speculators going to sell these units to?” Goodkin said.

Several years ago, McCabe began mustering funds, or “vulture” capital, to buy apartments when the bubble burst. But he has not yet begun buying and said it may take 5-10 years before prices bottom out and begin to rebound.