By Peter Zalewski, Special to the Miami Herald

A new rental market epicenter that could significantly influence South Florida residential real estate trends for years to come is slowly taking shape around Biscayne Bay in Miami-Dade County.

At first glance, the residential real estate markets of Greater Downtown Miami and the Miami Beach neighborhood of South Beach — defined as stretching from South Pointe Drive north to 41st Street — are distinctively different.

South Beach is an international destination known for historic Art Deco buildings, celebrity sightings and a legendary late-night club scene.

South Beach’s sandy shore, which is a must-see for swimsuit-clad visitors, often makes the lists of the best beaches and people watching in the world.

Contrast this with Greater Downtown Miami, and its rocky-bottom shore, which features numerous modern high-rises, a well-documented problem with the homeless, and a happy-hour culture resulting from the numerous professional office workers in the area.

Despite the stark differences, lease prices are increasingly growing similar as the two areas morph into one large rental market that effectively stretches from the Julia Tuttle Causeway south to the Rickenbacker Causeway, and the Atlantic Ocean west to Interstate 95.

The last two real estate cycles that were fueled by out-of-town investors — who purchased condo units with the intention of leasing out the properties to tenants — have worked to create an expansive variety of luxury and economic rental options on both side of Biscayne Bay.

The mainland and the barrier island alike now feature a number of new projects by so-called star architects, a variety of high-end hotels, and a growing number of luxury retailers.

Expanded trolley bus services and the arrival of car-sharing companies such as Uber and Lyft is making it ever easier to travel between the mainland and barrier island without a fear of finding — or affording — a parking spot.

Reports that the city of Miami Beach is “pushing forward” with plans for the long-discussed Bay Link light-rail passenger service connecting the barrier island and the mainland would likely only work to expedite an evolutionary process that is already underway in the two rental markets.

Prospective tenants from the western suburbs of South Florida together with new arrivals to Miami-Dade County have bolstered the existing demand for rental properties in the Greater Downtown Miami-South Beach market.

Consider that in 2015, tenants leased nearly 9,500 properties at a median monthly lease price of $2.51 per square foot in this Greater Downtown Miami-South Beach rental market compared to the oldest readily available rental statistics from 2011 when less than 7,350 properties were rented at a median monthly rate of $1.97, according to data from the Southeast Florida MLXchange.

For context, the median monthly rental price was $1.84 per square foot for all leases completed east of Interstate 95 and/or South Dixie Highway in Miami-Dade County in 2015 compared to $1.47 per square foot in 2011, according to the data.

Despite the spike in prices around Biscayne Bay, the Greater Downtown Miami-South Beach area is outpacing in rental rates and leasing activity the Miami-Dade County market east of I-95 and/or South Dixie Highway, according to the data.

Drilling down deeper into the statistics shows that the median monthly rental price in South Beach was only about 10 cents per square foot more than in Greater Downtown Miami in 2015 and 2014.

By comparison, tenants in South Beach paid on a median monthly basis about 13 cents more in 2013 and 22 cents more in 2012 than in Greater Downtown Miami, according to the stats.

Indications are the difference in rental prices on the barrier island and mainland could continue to shrink given the amount of properties available for lease in South Beach compared to Greater Downtown Miami.

Based on the 2015 leasing activity, South Beach currently has about 4.5 months of supply available for rent. Greater Downtown Miami, by comparison, has about three months of supply currently on the market.

A balanced residential real estate market is considered to have about six months of supply available for lease. More months of supply suggests a tenant’s advantage and less months indicates a landlord’s advantage.

The unanswered questions going forward is whether the resale price premium being paid for South Beach condo units will continue to be the norm as Greater Downtown Miami increasingly garners some of the highest rents in the tricounty South Florida region.

 

 

 

WASHINGTON – Oct. 26, 2015 – Steady employment and economic growth, pent-up demand, affordable home prices and attractive mortgage rates will keep the housing market on a gradual upward trend in 2016, according to speakers at the National Association of Home Builders (NAHB) Fall Construction Forecast Webinar.

However, the builders agree there are also persistent headwinds to a full recovery, related largely to a shortage of lots, the availability of labor and the rising cost of materials.

“This recovery is all about jobs,” said NAHB Chief Economist David Crowe. “If people can get good jobs that pay decent incomes, the housing market will continue to move forward.” The good news, Crowe added, is that total U.S. employment of 142 million is now well above the previous peak of 138 million that occurred in 2008.

The one caveat is that job growth has been concentrated heavily in the service sector, which tends to pay lower wages than goods-producing jobs.

Meanwhile, home equity has nearly doubled since 2011 and now stands at $12.5 trillion.

“The single biggest asset in most people’s portfolio is the home they own,” said Crowe. “That’s important because the primary purchasers of new homes are the sellers of existing homes. The more equity they have, the more comfortable they feel about purchasing a new home.”

Mortgage interest rates are expected to rise over the near-term, averaging 4.5 percent in 2016 and 5.5 percent in 2017, but Crowe said it’s not expected to have an impact on the housing recovery because “as the economy gets better, job and wage growth should keep pace. So even though mortgage rates will rise, they will still be low by historical standards and very affordable.”

Supply headwinds
Crowe pointed to several factors that are hindering a more robust recovery. A NAHB survey of members found 61 percent of builders said that the cost and availability of labor was a significant problem in 2014 – it was only 13 percent in 2011.

About 58 percent of builders noted a short supply of lots in 2014. In 2011, only 20 percent said the same.

Concerns over building materials stood at 58 percent among builders in 2014, up from 33 percent in 2011.

Single-family continues to post gains
NAHB projects 719,000 single-family starts in 2015, up 11 percent from the 647,000 units produced last year. Single-family production is projected to increase an additional 27 percent in 2016 to 914,000 units.

On the multifamily side, production ran at 354,000 units last year, slightly above the 331,000 level considered a normal level of production. Multifamily starts are expected to rise 9 percent to 387,000 units this year and post a modest 3 percent decline to 378,000 units in 2016.

Residential remodeling activity is forecasted to increase 6.8 percent in 2015 over last year and rise an additional 6.1 percent in 2016.

Suburbs still hot
Looking at home buyer preferences, Trulia Housing Economist Ralph McLaughlin said that contrary to popular belief, millennials prefer to own a home in the suburbs rather than rent in the cities.

“Many believe that homebuyers are bucking the trend of previous generations in that they want to live in urban areas and want to rent,” said McLaughlin. “What we are finding from our surveys is just the opposite. Among millennial renters, almost 90 percent say they eventually want to purchase a home. That is significantly higher than Gen Xers, who were hurt by the recession, and quite a bit more than current baby boomer renters, who are at 40 percent.”

However, an overwhelming majority of millennials, who are still starting households and paying off college debt, say it will be at least two years before they are ready to buy.

Roughly half of all Americans prefer to live in suburban areas, about a quarter prefer urban areas and just over 20 percent prefer rural communities, according to a Trulia survey conducted last November.

“As we get into the recovery, suburban areas are growing faster than urban areas,” said McLaughlin. “That is a sign that the urbanization trend we saw start to happen at the beginning of the recovery was more of a blip rather than a new rule.”

Moreover, the percentage of households living in urban neighborhoods in 2013 was lower among nearly all age groups compared to 2000.

“So again, this shows there really isn’t an urbanization trend among households,” said McLaughlin. “Homebuyers are saying they prefer modern and modest-sized homes in the suburbs with amenities,” he said, adding that 44 percent of Americans say they want to live in a house between 1,400 and 2,600 square feet.

Recovery in all regions, but pace varies
NAHB Senior Economist Robert Denk said that housing market conditions are improving in all regions, but the pace of recovery continues to vary by state and region.

“We’ve gotten to the point in the recovery where we no longer have problems that came with the housing bust,” said Denk. “It now is really a matter of housing markets reconnecting to the fundamental drivers, and that is employment. Production has been rebounding in all regions, prices have been moving up and new foreclosures are back to more normal levels.”

Using the 2000-2003 period as a healthy benchmark when single-family starts averaged 1.3 million units on an annual basis, NAHB projects that single-family production, which bottomed out at an average 27 percent of normal production in early 2009, will rise to 74 percent of normal by the fourth quarter of 2016 and 91 percent of normal by the end of 2017. Single-family production currently stands at 53 percent of normal activity.

The hardest hit areas during the downturn were a combination of the bubble states – California, Arizona, Nevada and Florida – and the industrial Midwest. The bubble states had the most excessive price and production spikes, while the problems in the Midwest were related more to fundamental economic weakness.

The most successful recoveries are happening now in the energy states, including North Dakota, Wyoming, Texas, Montana and Louisiana.

Other states exhibiting strong employment and housing growth include South Carolina, Utah, Tennessee, Idaho, Oregon and North Carolina.

Another way of looking at the long road back to normal: By the end of 2017, the top 40 percent of states will be back to 99 percent or more of normal production levels, compared to the bottom 20 percent, which will still be below 73 percent.

“Keep in mind that with all of these buckets, the numbers keep getting higher,” said Denk. “There is broad-based improvement across the country.”

© 2015 Florida Realtors®