According to state and regional real estate analysts, the factors which fueled the condominium boom of the last several years are easily explainable. These factors ranged from sustained historically low interest rates, flight-risk safety investments for foreign investors from South America, Asia and Europe, as well as heightened demand and speculation.
These are among the leading factors that led to the fast pace of condominium developments and its “affordable” alternative, which are the conversions of rental apartments to condos. Generally, most of the foreign investment actually took the form of currency plays, which were based on the weakened values of the U.S. dollar.
How Speculators Created Heightened Demand For Condos
Housing market observers have noted that a certain segment of the housing market which was generally based upon pure speculation, and was referred to as “flipping,” was the main cause in creating a large demand for condo developments and new projects, and quickly satisfied lenders’ pre-sale underwriting requirements.
When it became clear that this speculative activity was based upon buyers who were intent on speculating in pre-construction condos, the lenders required condo development borrowers to place limitations on such activity, which took the form of an array of contract provisions that ranged from prohibitions of contract assignments to buy-backs, rights of first offer and refusal, as well as the sharing of profits in the event of flipping.
With Local Buyers Staying Off, Foreign Buyers Dominate Current Condo Market
Although it’s quite hard to ascertain, it is evident that a mixture of falling prices as well as a weakening U.S. dollar, have prompted foreign buyers to quickly gobble up bargains in the residential condo market. Buyers who come from countries like England, Scandinavia, Ireland and Russia have been purchasing units for both investment and recreational use, according to Miami-Dade real estate consultants and market analysts.
Housing market observers note that the currency exchange imbalance is exactly the opposite of how it was in the 1980s, when the greenback was about twice the value of the British pound. The wealthy upper-income and upper-income foreign buyers serve as replacement buyers for those who have already, or reportedly, moved out of Miami-Dade County, analysts noted, which makes some feel today that the higher-priced real estate seems to be more sustainable than lower priced real estate.
Why The Condo Frenzy Cooled Off?
After the condo boom of the past three or four years, the pace of development seems to have cooled down lately in this market. What factors led to the slowdown in the condo market? Analysts say that increasing interest rates, especially affecting those artificially- low initial rate teaser mortgages, as well as the effects of adjustable and variable rate mortgage products, which had a heavy brunt on some buyers
In some instances, a stronger currency dampened the use of the currency play, as well as the simple market saturation because of oversupply. The most visual example of an oversupply could be best seen in urban markets such as downtown Miami, Fort Lauderdale, West Palm Beach and other urban infill areas, as opposed to resort condos and other beachfront projects.
According to market observers, depending on the areas in Florida, some residential sectors are better off than others for investment buyers, who are looking for good & sound investments, which they could also personally use. Aside from taking advantage of the weak dollar, buyers from countries like England and other European nations are scooping up condo bargains, and some are even participating in auctions and foreclosure sales, which should help keep the market afloat while local buyers keep stay off, and wait for conditions to settle down and go back to normal.
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