MIAMI REPORT ANNIVERSARY EDITION N O W I N C L U D I N G G R E AT E R F O R T L A U D E R D A L E
SEPTEMBER 2010
INTRODUCTION One year ago, ISG issued its first Miami Report entitled Perception vs. Realty to address the widespread perception that Miami was drastically overbuilt and suffering from an unrelenting overhang of new condominium inventory that would take a decade to absorb. This initial report clarified the media’s 2005 published projections of 62,000 residences to be built in the Downtown Miami and Brickell Avenue areas and documented the 17,502 residences that were actually built --less than 30% of what was projected. Subsequent Quarterly Reports issued by ISG have attentively documented the steady decline of new condominium inventory throughout Downtown Miami and other key South Florida markets that included Miami Beach, Bal Harbour, Sunny Isles, Aventura, Hollywood and Hallandale. This Report, however, has been expanded to include “South Beach”, as well as the Greater Ft. Lauderdale market inclusive of Plantation and Sunrise. Contrary to earlier projections and despite today’s challenging economic environment, Downtown Miami‘s new condominium inventory continues to diminish steadily, fueled primarily by the highly competitive pricing offered by the developers and lenders competing for buyers. Given its current rate of absorption, it is projected that the remaining inventory in Downtown Miami will be depleted within 24 to 36 months. A healthy absorption of new condominium inventories has also been documented in The Miami Beaches and Greater Ft. Lauderdale markets, suggesting a total absorption of inventory within The Miami Beaches in approximately 24 months and Greater Ft. Lauderdale in approximately 12 months. Independent market studies prepared by the Miami Downtown Development Authority and the National Association of Realtors parallel ISG’s own market research and findings.
速
Sunday, May 22, 2005
According to the Miami Herald in May 2005, 62,000 units were proposed to be built in Downtown and Brickell areas.
ACTUALLY BUILT
DOWNTOWN MIAMI
Developer Inventory Summary 17,502 9,616 7,886
Total Units Built from Mid 2005 through Dec. 31, 2009 Sold & Closed 2006 - 2009 Remaining Inventory as of Jan. 1, 2010
less (2,838) Sold through August 31, 2010
5,048
Remaining Inventory as of September 1, 2010
速
THE MIAMI BEACHES
Developer Inventory Summary 10,001 (6,212) 3,789
Total Units Built from Mid 2005 through Dec. 31, 2009 Sold & Closed 2006 - 2009 Remaining Inventory as of Jan. 1, 2010
less (1,209) Sold through August 31, 2010 less (561)
Construction Suspended
2,019
Remaining Inventory as of September 1, 2010
INTRODUCING GREATER FORT LAUDERDALE
GREATER FORT LAUDERDALE
Developer Inventory Summary
5,092 4,004 1,088
Total Units Built from Mid 2005 through Dec. 31, 2009
less (451)
Sold through August 31, 2010
637
Remaining Inventory as of September 1, 2010
Sold & Closed 2006 - 2009 Remaining Inventory as of Jan. 1, 2010
While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
SUMMARY OF NEW SOUTH FLORIDA COND Actual & Projected absorption of developer inventory [Bu Downtown Miami
Units
The Miami Beaches
17,502
18,000
62 Buildings
20,000
16,000
14,000
AC TUAL
10,001
58 Buildings
12,000
PROJEC TED
9,616
10,000
2,000
0
Built
12/2009
637
1,088
4,000
2,019
3,789
6,000
5,048
5,092
39 Buildings
8,000
09/2010
12/2010
03/2011
06/2011
09/2011
12/2011
03/2012
Monday, October 4, 2010
Virtually no new construction has started Therefore, no new supply is projected to be
While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
DOMINIUM SUPPLY ilt Between 2005 - 2009]
3/2012
DOWNTOWN MIAMI The focus of the media’s real estate boom and gloom, Downtown Miami has surprised its harshest critics with its amazing resiliency. Of the 62,000 units projected to be built between 2006 and 2009, only 17,502 units were actually built and as of September 1, 2010, only 5,048 units remain. The status and salability of the remaining inventory varies, as several large buildings are in a state of flux due to financial and ownership restructuring; several were delivered to the market in late 2009 and others have suspended sales hoping to take advantage of market driven price increases.
Greater Fort Lauderdale
THE MIAMI BEACHES Between 2005 and 2009 approximately 10,001 condominiums units came to market in the areas of Miami Beach, South Beach, Aventura, Sunny Isles, Bal Harbour, Hollywood Beach and Hallandale Beach. Approximately 75% of this inventory has been absorbed, leaving only 2,019 remaining. This remaining inventory is concentrated primarily in Miami Beach and South Beach, (992 units) in buildings that have recently resolved financial restructuring and ownership issues.
06/2012
09/2012
12/2012
12/2013
since 2007. e added through 2012.
The foundation for ISG’s projections are based on each areas previous sales history and an analysis of the remaining inventory, taking into consideration each building’s current status, price ranges, remaining unit mix and location. In some instances, developers have opted to rent their remaining inventory rather than offer it for sale, expecting to take advantage of upward pressure on pricing as inventory continues to diminish.
GREATER FORT LAUDERDALE The number of new condominium units introduced to the Greater Ft. Lauderdale market between 2005 and 2009 was significantly less than in Greater Miami, only 5,092 units were built. The majority of that inventory has already been absorbed and only 637 units remain as of this Report. The remaining inventory is concentrated in a handful of buildings that have recently resolved ownership and/or developer changes and are now being re-introduced to the marketplace at significantly lower prices compared to those during pricing peaks from 2005 to 2006. The current absorption pattern here suggests a one year supply of new condominium inventory.
makes no claims, promises, or guarantees about the accuracy, ®
1 2
2 4
2,238 Units Built
3
1 4
9 BUILDINGS*
3
4
AVENTURA
2
4 4
4
3
1
5
4
SUNNY ISLES
6
3
1,698 Units Built
2,394 Units Built
4
1 2
10 BUILDINGS*
HALLANDALE | HOLLYWOOD
11 BUILDINGS*
12
9 8
6
5
7
10
BAL HARBOUR
1 3
725 Units Built 2 BUILDINGS*
1 3 2
5 6
13
12
4
14 15
7
MIAMI BEACH | SOUTH BEACH 8
2,946 Units Built 26 BUILDINGS*
BRICKELL | DOWNTOWN
17,502 Units Built
10 9
62 BUILDINGS*
19
20 44
17
16
49
21
18 22 45
43 47
46
25
40
34
33
39
48 36 42
32 41 35 19 37 50
16
24
1
21
6
26 27
3 2
14
26 23
12
13
20
4
38
29
5 18
17
15
28
30
25
31
24 8
10
9
Actually Built
From Mid 2005 through 2010
11 7
22
23
While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
2
1
HALLANDALE | HOLLYWOOD
2 4
70 Units for sale
3
1 2
4 3
4
AVENTURA
2
4 4
4
3
1
5
4
SUNNY ISLES
6
3
196 Units for sale
575 Units for sale
4
1 2
12
9 8
6
5
7
10
BAL HARBOUR
1 3
186 Units for sale
1 3 2
5 6
13
12
4
14 15
7
MIAMI BEACH | SOUTH BEACH 8
BRICKELL | DOWNTOWN
10
5,048 Units for sale
9
19
20 44
17
16
49
21
18 22 45
43 47
46
25
40
34
33
39
48 36 42
32 41 35 19 37 50
16
24
1
21
6
2
14
15
28 11
22
23
26 27
3
7
26 23
12
13
20
4
38
29
5 18
17
30
25
31
24 8
10
9
992 Units for sale
Remaining Developer Inventory for sale
SEPT. 1, 2010 速
BRICKELL BRICKELL 1. 1.500500 Brickell EastEast - 500- 500 Brickell Ave.Ave. Brickell Brickell 2. 2.500500 Brickell WestWest - 55-SE556SE St.6 St. Brickell 3. 3.1060 Brickell - 1050 Brickell Ave.Ave. 1060 Brickell - 1050 Brickell 4. 4.1050 Brickell - 1060 Brickell Ave.Ave. 1050 Brickell - 1060 Brickell 5. 5.AsiaAsia Brickell KeyKey - 900- 900 Brickell Key Blvd. Brickell Brickell Key Blvd. 6. 6.AxisAxis South 79 SW 12 St. South - 79 SW 12 St. 7. 7.AxisAxis North - 1111 SW SW 1st Ave. North - 1111 1st Ave. 8. 8.Brickell on the River North - 31 -SE315th Brickell on the River North SESt. 5th St. 9. 9.Brickell on the RiverRiver South - 41 -SE415th St. Brickell on the South SE 10. Brickell Station Villas - 100 SW 10th St.5th St. Brickell 1002nd SWAve. 10th St. 11.10.Brickell ViewStation West -Villas 1723-SW Brickell West 1723Ave. SW 2nd Ave. 12.11.Habitat OneView - 1701 SW-2nd - 1701 SWBrickell 2nd Ave. 13.12.IconHabitat BrickellOne Tower I - 465 Ave. Brickell Tower I - 465 Brickell 14.13.IconIcon Brickell Tower II - 495 Brickell Ave.Ave. 14. Icon Brickell Tower II 495 Brickell 15. Infinity on Brickell Condo - 60 SW 13th Ave. St. Infinityonon 60 SW 16.15.Latitude theBrickell River - Condo 185 SW- 7th St. 13th St. Latitude on the RiverBrickell - 185 SW 17.16.Lofts on Brickell I - 1528 Ave.7th St. Lofts on Brickell I - 1528 Brickell Ave. 18.17.Lofts on Brickell II - 1650 Biscayne Blvd. on De Brickell II --1650 Biscayne 19.18.LosLofts Suenos Brickell 145 SW 11th St.Blvd. Suenos DeSW Brickell 20.19.NeoLos Vertika - 690 1st Ct.- 145 SW 11th St. Vertika 690 SW- 1800 1st Ct.SW 1st Ave. 21.20.OneNeo Plaza West -Brickell 22.21.ParkOne View Towers SW 11 St. SW 1st Ave. Plaza West- 115 Brickell - 1800 23.22.Plaza Brickell North- 115 - 950SW Brickell ParkonView Towers 11 St.Bay Dr. 24.23.Plaza on Brickell South - 951- 950 Brickell Bay Ave. Plaza on Brickell North Brickell Bay Dr. 25.24.Solaris BrickellSouth Miami- 951 - 186Brickell SE 12thBay Terr.Ave. PlazaCondo on Brickell 26.25.TheSolaris Emerald Condo BrickellMiami - 218-SE186 14th Condo Brickell SESt. 12th Terr. 27.26.TheThe SailEmerald on Brickell - 170Brickell SE 14th- St. Condo 218 SE 14th St. 28.27.Viceroy Iconon Brickell - 485 Brickell Ave.St. The Sail Brickell - 170 SE 14th CENTRAL BUSINESS DISTRICT 28. Viceroy Icon Brickell - 485 Brickell Ave. 29.CENTRAL 50 Biscayne - 50 Biscayne Blvd. BUSINESS DISTRICT 30.29.Capital Lofts - 117 NEBiscayne 2nd St. Blvd. 50 Biscayne 50 31.30.EpicCapital West -Lofts 200 Biscayne Way - 117 NE 2nd- St. 32.31.Everglades on the Bay South 253 NE 2nd St. Epic West 200 Biscayne 33. Everglades on the Bay North -Way 244 Biscayne Blvd. Everglades on the BayE.South 253 NE 2nd St. 34.32.Flagler First Condo - 101 Flagler- St. 33. Everglades on the Bay North 244 Biscayne Blvd. 35. Ivy Miami Condo - 90 SW 3rd St. First Condo 101 E. Flagler 36.34.MetFlagler One Condo - 300 S.- Biscayne Blvd. St. IvyCondo Miami- 92 Condo - 90St.SW 3rd St. 37.35.Mint SW 3rd Condo -II300 S. NE Biscayne Blvd. 38.36.TheMet LoftOne Downtown - 133 2nd Ave. Mint - 92S.SW 3rd St. 39.37.Wind by Condo Neo - 350 Miami Ave. 38. The Loft Downtown II - 133 NE 2nd Ave. MEDIA & ENTERTAINMENT by Neo - 350St.S. Miami Ave. 40.39.CityWind 24 - 350 NE 24th ENTERTAINMENT 41.MEDIA Opera & Tower - 1750 N. Bayshore Dr. 40. WEST City 24 - 350 NE 24th St. PARK 42.41.900Opera Biscayne - 900 Biscayne Blvd. Dr. Tower - 1750 N. Bayshore 43.PARK Marina Blue - 888 Biscayne Blvd. WEST 44.42.Marquis Condo - 1110 900 Biscayne - 900Biscayne BiscayneBlvd. Blvd. 45.43.TenMarina Museum Park- 888 - 1040 Biscayne Blvd. Blue Biscayne Blvd. WYNWOOD-EDGEWATER 44. Marquis Condo - 1110 Biscayne Blvd. 46.45.Cynergi - 2700 N.Park Miami Ave. Biscayne Blvd. Ten Museum - 1040 47.WYNWOOD-EDGEWATER Edgewater Lofts - 2200 NE 4th Ave. 48.46.Gallery Art -- 2700 333 NEN.24th St. Ave. Cynergi Miami 49.47.Midblock 3250 NE 1st St. Edgewater Lofts - 2200 NE 4th Ave. 50.48.Midtown (Mid-rise) GalleryIIArt - 333 NE- 3451 24thNE St.1st Ave. 51.49.Midtown II (Mews) 3449 NE Ave. Midblock - 3250 NE-1st St.1st 52.50.Midtown II (High-rise) 3470 E. Coast Midtown II (Mid-rise) 3451 NE 1stAve. Ave. 53. Midrown IIII - 3301 NE 1st Ave. 51. Midtown II (Mews) 3449 NE 1st Ave. 54. Moon bay - 520 NE 29th St. Midtown II (High-rise) 55.52.New Wave - 725 NE 22nd St.- 3470 E. Coast Ave. 53. Midrown IIII 3301NENE25th 1st St. Ave. 56. Onyx on the Bay -- 665 Moon-bay 52030th NE St. 29th St. 57.54.Palermo 425-NE New Wave NEN22nd St. Dr. 58.55.Paramount Bay- 725 - 2066 Bayshore Onyx on- 480 theNE Bay30- St. 665 NE 25th St. 59.56.Platinum Palermoon-the 425Bay NE -30th 60.57.Quantum 1900St.N Bayshore Dr. 61.58.StarParamount Lofts on theBay Bay- 2066 - 712 NNEBayshore 25th St. Dr. NEN30Bayshore St. Dr. 62.59.ThePlatinum 1800 Club- 480 - 1800 60. Quantum on the Bay - 1900 N Bayshore Dr. 61. Star Lofts on the Bay - 712 NE 25th St. 62. The 1800 Club - 1800 N Bayshore Dr.
ISGISG Downtown MIaMI DevelD Downtown MIaMI Developer Inventory of nof ewnCew onDoM Developer Inventory Con
17
5
5
19 17 12 11 19 27 26 20 11 12 15 9 10 27 26 20 15 93 4 37 10 25 6 7 30 35 37 8 21 22 3 4 30 25 2 6 7 35 8 21 1 24 22 39 23 1 2 24 39 23 14 16 281431 13 38 16 28 31 13 3 34 18 3 18 32 33 29 32 33 36 29
While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
3
DevelopMent analySIS onDoMInIuMS & SaleS aCtIvIty
75% - 100%
SOLD OUT
50% - 74%
SOLD OUT
Under 50%
SOLD OUT
35
38
34 18
36
43
42 45 44
40
41
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61 62
THE MIAMI BEACHES
Canyon Ranch South (17) Canyon Ranch Center (Sold Out) Canyon Ranch North (122) Cabana (Suspended)
REMAINING
INVENTORY
SEPT. 1, 2010
Terra (68) Nobe Bay (Suspended) Casablanca (41)
Regatta (Sold Out)
MEI (11)
63 Nobe (21) 6000 Indian Creek (Sold Out)
Fountainebleau III (28)
Caribbean North Tower (2) Caribbean South Tower (7)
9
Mosaic (Sold Out) Cipriani South Beach (Suspended) Gansevoort South Beach (255) W South Beach Residences (244) Arte City - The Governor (18) Arte City - Artepark North (41) Arte City - Artepark North (43) Parc Place (On Hold)
Capri South Beach (49)
75%- 100% SOLD OUT 50%- 74% SOLD OUT Under 50% SOLD OUT
MIAMI BEACH SOUTH BEACH
South of Fifth (25)
992 Units for sale
Apogee South Beach (Sold Out)
*Representing Buildings Built From Mid 2005 through Dec. 31, 2009
Continuum II North (Sold Out)
速
While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
REMAINING
INVENTORY
SEPT 1, 2010
St. Tropez Tower I (18) St. Tropez Tower II (27) St. Tropez Tower III (60) Acqualina (Sold Out) Ocean 4 (Sold Out) Jade Ocean (131) 1
Jade Beach (Sold Out) Turnberry Ocean Colony S (Sold Out) Turnberry Ocean Colony N (Sold Out) Trump Tower I (Sold Out) Trump Tower II (68) Trump Tower III (271)
Solis (Suspended)
75%- 100% SOLD OUT 50%- 74% SOLD OUT Under 50% SOLD OUT
SUNNY ISLES 575 Units for sale *Representing Buildings Built From Mid 2005 through Dec. 31, 2009 While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
REMAINING
INVENTORY
SEPT. 1, 2010
Regent Park (Sold Out) Radius (Sold Out)
Trump Hollywood (70) Ocean Palms (Sold Out) Diplomat (Sold Out) Beach Club (Sold Out) Duo East (Sold Out) Duo West (Sold Out)
Ocean Marine Yacht Club (Sold Out)
75%- 100% SOLD OUT 50%- 74% SOLD OUT Under 50% SOLD OUT
HALLANDALE HOLLYWOOD
70 Units for sale *Representing Buildings Built From Mid 2005 through Dec. 31, 2009
速
REMAINING
INVENTORY
SEPT. 1, 2010
Atrium (2) Uptown Lofts (Sold Out) 3030 (27) Eastside (Sold Out) Artech (30) Peninsula II (75) Alaqua (Sold Out) Terzetto (62) Venture West (Sold Out) Venture East (Sold Out)
75%- 100% SOLD OUT 50%- 74% SOLD OUT Under 50% SOLD OUT
AVENTURA 196 Units for sale *Representing Buildings Built From Mid 2005 through Dec. 31, 2009 While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
REMAINING
INVENTORY
SEPT. 1, 2010
Harbour House (33)
St. Regis North Tower (65) St. Regis Center Tower (23) St. Regis South Tower (65)
75%- 100% SOLD OUT 50%- 74% SOLD OUT Under 50% SOLD OUT
BAL HARBOUR 186 Units for sale *Representing Buildings Built From Mid 2005 through Dec. 31, 2009 速
E V E RG L A D E S
75%- 100% SOLD OUT 50%- 74% SOLD OUT Under 50% SOLD OUT
Greater Fort Lauderdale 5,092 Units Built 637 Units for sale *Representing Buildings Built From Mid 2005 through Dec. 31, 2009
While ISG strived to make the information in this Report as timely and accurate as possible, third party sources were used and ISG therefore makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this Report and expressly disclaims liability for errors and omissions in its contents.
SUNRISE 1. Artesia 2. Tao PLANTATION 3. Veranda FORT LAUDERDALE 4. Lauderdale One 5. Lauderdale Tower 6. Le Cercle 7. Porto Venezia FORT LAUDERDALE BEACH 8. Sapphire Condominium North 9. Sapphire Condominium South 10. Symphony Tower One 11. Symphony Tower Two 12 Fountains on Ocean Blvd. North 13. Fountains on Ocean Blvd. South 14. Ritz Carlton [Castillo Grand Residences] 15. Las Olas Beach Club 16. The Vue North 17. The Vue South
LAS OLAS 27. Aria 28. Place Des Arts 29. 45 Hendricks 30. The Meritage 31. Las Olas by the River 32. Nu River Landing 33. 350 Las Olas Place 34. Las Olas Grand 35. Watergarden 36. Las Olas River House 37. Sole at Fort Lauderdale 38. The Port Condo 39. Waverly at Las Olas
ATL A NT I C O CEA N
DOWNTOWN FORT LAUDERDALE 18. Nola Lofts 19. Strada 315 20. Foundry Lofts 21. The Mills Lofts 22. Avenue Lofts Condo Two 23. Avenue Lofts Condo Three 24. Avenue Lofts Condo Four 25. Avenue Lofts Condo Five 26. Coconut Grove Residences
CONCLUSION ISG has been positioned at the forefront of South Florida’s real estate market for many years, working with many prominent developer clients, as well as thousands of local, national and international brokers. We have found that our own comprehensive market studies are useful to our clients and fellow realtors in better understanding the many factors that have impacted the current market. Interpreting the multitude of economic events that continue to influence the nation’s real estate market and Florida in particular is essential in understanding future real estate trends. Compared to most U.S. cities experiencing the much publicized real estate recession, the Greater Miami and Fort Lauderdale markets have proven to be uniquely resilient, especially considering their sizable overhang of new condominium inventory and today’s lack of available end-user financing. While the steady absorption and recovery of these markets can be attributable to a number of factors, the most significant is the substantial price reductions being offered by the developers--almost half of their 2005–2006 price peaks. Another contributing reason is the realization that virtually no new condominium supply will be introduced to these markets for at least another two years. Miami and Fort Lauderdale are closely linked to Latin America in many ways and are commonly referred to as the “Gateway to Latin America”. Further recognized as Latin America’s financial and security haven, Miami and Fort Lauderdale continue to benefit from this relationship culturally, socially and economically, as business development grows, foreign direct investment increases and visitation from Latin America expands. Finally, the Miami and Fort Lauderdale markets continue to be an attractive destination worldwide to those wanting to live, work and invest. Whether it’s to own a property as a primary home, second home or vacation home, today’s current residential pricing has brought that dream within the reach of many throughout the world.
AS S
SEPTEMBER 15, 2010
EEN
IN
10 Reasons To Buy a Home
Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing. By BRETT ARENDS Enough with the doom and gloom about homeownership. Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.
3. You’ll save on taxes.
You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains–if any–when you sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.
yields there have plummeted of late. That also makes homeownership look a little better by contrast.
7. It’s risk capital.
No, your home isn’t the stock market and you shouldn’t view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the longterm growth of the economy–if it happens–and still managing to sleep at night.
8. It’s forced savings.
If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won’t. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by building equity. As a forced monthly saving, it’s a good discipline.
The Sept. 6 cover of Time magazine: This is what capitulation looks like.
After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make your rich?”
The June 13, 2005 cover of Time.
4. It’ll be yours.
You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You’ll feel better about 1. You can get a good deal. your own place if you own it than if you rent. Many years Especially if you play hardball. This is a buyer’s market. ago, when I was working for a political campaign in Most of the other buyers have now vanished, as the tax England, I toured a working-class northern town. Mrs. credits on purchases have just expired. We’re four to five Thatcher had just begun selling off public housing to the years into the biggest housing bust in modern history. tenants. “You can tell the ones that have been bought,” And prices have come down a long way– about 30% said my local guide. “They’ve painted the front door. It’s from their peak, according to Standard & Poor’s Casethe first thing people do when they buy.” It was a small Shiller Index, which tracks home prices in 20 big cities. sign that said something big. Yes, it’s mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much 5. You’ll get a better home. In many parts of the country it can be really hard to find in the long haul. a good rental. All the best places are sold as condos. Where is fair value? Fund manager Jeremy Grantham at Money talks. Once again, this is a case by case issue: GMO, who predicted the bust with remarkable accuracy, In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction said two years ago that home prices needed to fall another 17% to reach fair value in relation to household of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the incomes. Case-Shiller since then: Down 18%. best neighborhood, you’re better off buying. But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.
2. Mortgages are cheap.
You can get a 30-year loan for around 4.3%. What’s not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.
6. It offers some inflation protection.
No, it’s not perfect. But studies by Professor Karl “Chip” Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That’s valuable inflation insurance, especially if you’re young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But
9. There is a lot to choose from.
There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That’s below last year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.
10. Sooner or later, the market will clear.
Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact on housing supply in your town. Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com
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