I was in Miami this past week house hunting. I was primarily looking for a house but I did look into a condo as I wanted to see if it made sense. Many development projects were built in less desirable locations like the Miami business district, where condos should probably not have been built in the first place. In those areas prices are down as much as 50% or greater.
In the prime locations prices are probably down a third to forty percent. After a 40% drop, do Miami condos make sense? A three bedroom apartment in the new Trump building, which is in a prime location, sells for roughly $900,000.
In Florida property tax is roughly 2% of the purchase price and maintenance is about $1,300 a month in a luxury building. The monthly costs are roughly $2,800 a month not including insurance, which is a significant cost in the hurricane prone area.
The same fully furnished apartment could be rented out for $3,600 a month. Including brokers fees and vacancy costs one would be lucky to cover their maintenance and taxes and have to carry a $900,000 apartment. For the people who bought at the height of the market the economics make even less sense. Never mind the fact that if enough people decide to walk away from their apartments and not pay maintenance other owners will need to cover the shortfall.
Many hold on to the apartments as they don't want to take a loss. I spoke to someone on the plane ride home who moved from Florida to New York and did not sell their house in Florida because they didn't want to take a loss. They are renting out the house and paying money out of their pocket in order to cover the mortgage.
More to come later on the Miami area housing market.