One of the true international cities in the U.S., Miami is considered the gateway to Latin America – and not just culturally. It’s a meeting place for significant amounts of international business, and those who frequent Miami commonly opt to purchase real estate in the metro area as well, whether to stay there when visiting for business, live there full time or rent out as an investment property.
But Miami’s international influence doesn’t make it immune to trends occurring in other parts of the U.S., especially when it comes to real estate. In many ways, it appears Miami is heading the turn toward a buyer’s market over many parts of the country, with higher housing inventory and low homebuilder confidence, though it doesn’t necessarily feel that way from the ground in the metro area.
Using information from the U.S. News Housing Market Index, we’ve compiled the data you need to understand the current state of the market. Here’s what you should know about the Miami housing market in the recent past, now and looking ahead into mid-2023.
How the Miami Housing Market Changed in 2022
Miami’s newly approved construction permits for both single-family houses and multifamily housing (with two or more housing units) saw a sharp decline in 2022, according to U.S. Census Bureau data. In December, there were just 252 newly approved construction permits for single-family houses in the Miami metro area, which includes Fort Lauderdale and West Palm Beach, among other municipalities. Compared with December 2021, it’s a 57% decline year over year.
Looking at the final three months of 2022, 1,085 single-family homes were approved for construction – a sharp decline compared to the final three months of 2021, when 1,716 permits were approved.
Permits for multifamily housing were also down, with permits approved for just over 965 units in December 2022, a nearly 44% decrease year over year. Looking at the last three months of 2022, nearly 3,300 units received approved permits. While it seems like a lot compared to single-family homes, it’s still down 28.7% from the last three months of 2021, when more than 4,618 units received approval.
Miami Housing Supply and Demand
While plans for new construction homes have gone down, the availability of properties on the market has increased. In December, Redfin reported there were 5.84 months of supply in the housing market, which refers to the amount of time it would take to sell all the homes currently on the market at the current sales price.
Six months is widely considered a balanced market, meaning there’s no distinct advantage on either the buyer or seller side, which puts Miami very close to a balanced market.
However, Miami’s months’ supply has seen a sharp increase since March 2022, when it was at a five-year low of 2.18 months. That, along with the high number of months’ supply compared with the whole of the U.S. housing market, which was at 2.3 months in December, and it’s more likely that Miami is headed into a buyer’s market faster than other parts of the country.
In the market itself, however, the difference doesn’t appear to be so stark. Ines Hegedus-Garcia, executive vice president of Avanti Way Realty in Miami and 2023 chairman for the Miami Realtors association, says she’s seeing supply at around four months as of mid-February.
“Overall inventory started trickling up in the last quarter of 2022, but definitely not necessarily higher than other parts of the U.S.,” Hegedus-Garcia wrote in an email.
In the rental market, 6% of rental housing was vacant in December 2022, which held steady from the previous two months. Year over year, rental vacancies were up only slightly from December 2021, when the vacancy rate was 5.83%.
Looking at mortgage applications, the Mortgage Bankers Association reports its seasonally adjusted Purchase Index increased 3% in the week of Feb 3, 2023, compared with the week prior, indicating a slight increase in mortgage loan application volume for new mortgages. The unadjusted Purchase Index was 4% above the previous week, and 37% down year over year.
Consumer sentiment in the U.S. was at 59.7 out of 100 in December, based on the Survey of Consumers from the University of Michigan. It’s a 10.9-point drop compared to the same time in 2021, indicating lower confidence in the current state of the economy.
Median Home Price in Miami
One upside in the Miami housing market, however, is the median home price, which was $455,000 in December, a 4.6% year-over-year increase, according to Redfin.
“Homes are selling close to market pricing or even above but you get a sense of price depreciation because of price drops from sellers asking way above market price,” Hegedus-Garcia says. “We are seeing sellers start to price more reasonably since we are not seeing (the) multiple-offer situations we were seeing at the beginning of 2022.”
Miami’s median sale price was well above the national median of $388,000 in December, though the difference is to be expected with Miami’s large population, reputation for luxury real estate and high number of international investors.
The rental market is seeing gains at an even steeper pace. The median rent in the Miami area in December was $2,871, more than 32% above the median rental price in December 2021, according to Zillow data.
A big part of the rising sale and rent prices is the growing population: The total number of households in the Miami area is 2.31 million, according to the U.S. Census Bureau. Miami is the seventh-most populous metro area in the U.S.
An obstacle that contributes to the rising cost of homes, and potentially the lower builder sentiment and plans for new development, is the cost of construction. Based on data from the U.S. Census Bureau construction costs in the U.S. in December 2022 were 15.4% higher than in December 2021.
Combined with high home costs from the sale price standpoint, home affordability is low with higher interest rates. In December, the average 30-year, fixed-rate mortgage interest rate was 6.36% – more than 3 percentage points higher than the previous December. Since then, Freddie Mac’s weekly interest rate reporting has shown a drop – to 6.12% as of Feb. 7 – though it’s still much higher than buyers were accustomed to in 2020, 2021 and at the start of 2022.
Unemployment Trends in Miami
More than 2.88 million people were employed in nonfarm positions in December 2022 in the Miami metro area, with an unemployment rate of 2.1%, according to data from the U.S. Bureau of Labor Statistics.
Miami’s unemployment rate is low compared with the national unemployment rate for December 2022, at 3.7%. This low unemployment rate in the Miami metro area likely contributes to the continued ability for buyers to pay higher prices, allowing the median home price to continue to climb.
As of December 2022, there were 143,000 construction jobs in Miami, 2,100 more than in December 2021, according to the Bureau of Labor Statistics. Construction jobs in the metro area have held fairly steady over the last five years, with some slow increase over time.
The low unemployment rates appear to be helping keep mortgage delinquencies and foreclosure activity down – Black Knight Inc. reports the rate of foreclosure activity in the Miami metro area was just 0.4% in October 2022, the most recent month available, and with no change compared to the same time in 2021. It marks a continued downward trend in foreclosure activity in the area since mid-2018, with the exception of December 2021, when foreclosures dipped ever so slightly to 0.3%, then returned to 0.4% in January 2022.
Builder Confidence in Miami Wanes
The National Home Builders Association and Wells Fargo Housing Market Index reported homebuilder sentiment in the Miami metro area was rated 35 out of 100 in December, a steep 54-point drop from December 2021, when builder sentiment was rated 89 out of 100.
While builder confidence appears low, Hegedus-Garcia says it isn’t reflected in the amount of new development she sees going on.
“The areas of Miami with single-family and townhouse projects are not able to keep up with buyer demand. If construction decreases it’s because of lack of buildable land, not decrease in buyer demand,” she says.
Construction for nonresidential buildings is down in the Miami area, rating 48.6 on the Architecture Billings Index from the American Institute of Architects. While the number is down 7.8 points year over year, the score of 48.6 is not outside the more normal fluctuation for the area prior to the coronavirus pandemic, in 2018, 2019 and early 2020.
Miami Real Estate Market: Predictions
In the coming months, plans for new construction are expected to continue in the downward trend – likely spurred by low builder confidence and lower-than-before consumer sentiment.
The U.S. News Housing Market Index predicts that the first five months of 2023 will see just under 3,265 single-family homes and just over 5,545 multifamily housing units approved for production.
If unemployment remains low, it would likely help to keep the median home price from experiencing a significant drop, or for foreclosure activity to increase. Even a mild increase in unemployment would likely have little impact on buyer activity.
Lower builder activity could also continue to push prices up even if there is some drop in demand – the number of buyers would likely still outpace supply.
“I expect the Miami housing market to continue appreciating, but at a more conservative pace,” Hegedus-Garcia says. “Remember that Miami is a unique market because of the high percentage of cash buyers and high migration. We expect more normal contract terms that favor both sides.”
Source: us news