Is Miami's Housing Market Being Taken Over by Investors? - Even though they are located thousands of miles apart, Miami and Phoenix have a lot in common. Both cities enjoy warm temperatures year round, they are both known as a cultural melting pot, and there are even some similarities in the housing markets.
For example, both cities have seen home prices drop off over the past few years, only to skyrocket in recent months. The recovery of the housing market occurred much faster in Phoenix than in Miami, so there are some lessons that investors looking to make a quick profit in Florida could learn from the situation in Arizona.
When we say Miami is hot, we don't just mean the tropical climate. According to the Miami Association of Realtors, sales of existing single-family homes in Miami-Dade County increased 16.4% in December 2012 when compared to the same month one year earlier. The median sale price for homes and condominiums continued to rise in December (up 18.9% and 25.4% respectively) in a year-to-year comparison, marking the 13th straight month of year-over-year gains.
Because Miami’s home prices are constantly surging, a large portion of the purchases right now are being made by investors. In fact, these investors are bypassing lenders and doing all-cash transactions. That way, they can obtain ownership of the property much quicker, and in some instances, don't even have to make repairs to the home to make a profit. In fact, home prices in Miami-Dade County are increasing so quickly that investors are making huge profits by simply purchasing a home then relisting it a few months later at a higher selling price.
Just how big of a role are these investors playing in the housing market?
The Miami Association of Realtors reports that 49% of single-family homes and 76% of condos that sold in December were cash-only transactions.
So if home prices and sales continue to rise, how could this possibly be viewed as a bad scenario for the housing market in South Florida?
To answer that question, you have to look at what’s going on in Phoenix. Simply put, Phoenix experienced a similar influx of investors who wanted to make a quick profit, but the same thing that turned them onto the market has now started to turn them off! Home prices in Phoenix are still rising at unbelievable rates, making it harder for investors to find a home priced below market value that they can purchase and then resell a few months later for a sizeable profit. As a result, investors are starting to leave that market.
In August 2012, investors made up 35% of the buyers in Phoenix. By November, that number had dropped below 28%. That's a significant drop-off for such a short period of time, proving that investors aren't as interested in paying higher prices.
In Miami, foreign buyers with lots of cash are scooping up properties before local prospective homebuyers even have the opportunity to apply for a loan. Homes aren't on the market for long, and investors are loving the fact that they can buy a single-family home or condo now and make a significant profit by reselling the property in a few months. But as home prices drop off, those same foreign buyers will no longer view Miami's housing market as place to make money. The difference between the price they are paying and the price they are selling the home for will be minimal, and at that point, they could take their money elsewhere. If that occurs, local buyers looking to purchase a home the typical way – with a mortgage financed through a lender – will no longer be competing with the out-of-town investors. With less competition, demand for homes could drop off, meaning inventory will increase and prices will decrease. But of course, only time will tell if Miami follows in Phoenix's footsteps!
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