Foreign investors have driven home prices out of whack with local incomes. In the year between August 2015 and July 2016, foreign nationals spent $6.2 billion on South Florida residential real estate, according to the Miami Association of Realtors. That’s 39 percent of total home spending in the region.
The gap between incomes and home prices makes South Florida the nation’s eighth-worst market for first-time home buyers, a Bloomberg study found. The other cities in the top 10 were all in California, except for Honolulu.
In today’s local housing market, it’s not just a question of providing government-subsidized homes for construction and service-industry employees. (Although affordable housing for those workers is desperately needed, too, advocates say.) The middle of Miami’s residential real-estate market is hot — and inventory is falling at alarming rates.
Over the last two years, the number of single-family homes on the market between $250,000 and $600,000 has dropped 18 percent, according to Mike Pappas, president and CEO of the Keyes Company. Homes are now staying on the market for 57 days, down from 79 days in 2014.
The $250,000 to $600,000 range is crucial because it captures the spread of homes that two-income couples with college or advanced degrees could expect to afford in South Florida, based on typical earnings and recommended housing costs.
The mid-market feeding frenzy is happening even as luxury condo sales tank. Foreign buyers drove the latest real-estate boom, now ground to a halt by a strong dollar. But there was a downside to all that investment: South Florida developers chasing foreign cash are building primarily luxury homes, driving up construction and land costs, and making it difficult to produce homes at more affordable price points.
“You hear about people looking at 45, 50 homes,” Pappas said. “They’re making multiple offers. They’re getting outbid by cash. ... There is product out there. But it takes a lot of work to find.”
Sales for mid-market homes soared 27 percent in December, according to the Miami Association of Realtors. The price range between $300,000 and $600,000 accounts for nearly 40 percent of all sales in Miami-Dade County, according to the Realtor’s group.
“It’s the strongest market in South Florida,” Pappas said. “It’s the sweet-spot of all sweet-spots.”
All that competition and not enough new construction makes life tough for locals.
“It’s very difficult to find value,” said Bruce Lamberto, a city of Miami Beach employee who owns six rental homes in Northeast Miami-Dade. “A year ago, I looked at a house that was listed for $175,000. Today, a similar home is listed for $275,000.”
There are now only 4.6 months of supply available for mid-market homes. A balanced market generally has between six and nine months of supply, meaning the mid-market is firmly in seller’s territory. And more people keep moving to South Florida: Miami-Dade, Broward and Palm Beach counties added 500,000 residents over the last five years.
Meanwhile, middle-class buyers complain that many attainable homes need thousands of dollars in repairs or aren’t up to code. Seven in 10 Miami-Dade homes were built before 1980, according to U.S. Census data. Homes generally need extensive renovation after 30 or 40 years of wear and tear.
“Sellers are very aware of the amount of buyers in the market and the lack of inventory,” said Ray Duran, regional sales manager at Quontic Bank in Coral Gables. “It definitely puts the sellers in a stronger position at the negotiating table.”
Homes get more expensive as they get closer to big employment centers. Trulia calculated that a middle-class family in South Florida spends 69 percent of its income on housing, transportation and utilities. That’s the third-highest rate in the nation after San Francisco and Los Angeles.
The lack of affordable inventory combined with traffic gridlock is even influencing the way companies work. Thanks to improvements in communications technology, roughly 20 percent of Sprint’s 1,200 South Florida employees now have the option of working remotely. That can save them the option of choosing between an affordable mortgage payment and a soul-crushing commute.
“You don’t need to be in the office all day long,” said Sprint regional president Claudio Hidalgo. “By using technology, we end up saving on office space, the need for a car, housing.”
It may seem strange that Miami is less affordable than other expensive cities like New York, Seattle and Boston. But workers in those cities earn more money on average. So even though homes are more expensive, they are also more attainable because of higher wages.
In the Boston metro area, for instance, the median home sells for $435,000 and median household income is $80,500, according to the Demographia International Housing Affordability Survey. That means homes cost 5.4 more times than income. In Seattle, homes are 5.5 times more expensive than incomes. In New York, it’s 5.7. The gap in the Miami metro area stands at 6.1. In North America, only Toronto, Honolulu and the major cities in California are less affordable, Demographia found.
The disparity between worker incomes and average housing costs in South Florida can be daunting: In Miami-Dade, the median household makes $43,000 per year, according to U.S. Census figures. In Broward, it’s $52,000.
Using a calculation favored by housing experts — that households should spend no more than 3 1/2 times their income on housing — a typical Miami-Dade buyer should spend roughly $150,000 on a home. A Broward home buyer should spend $182,000.
That doesn’t compare well to median sales prices.
$305,000Median sales price for an existing single-family home in Miami-Dade County
Existing single-family homes in Miami-Dade sold for $305,000 and condos for $210,000 in December, according to the Miami Realtor’s association. In Broward, single-family homes went for $320,000 and condos for $150,000, according to the Greater Fort Lauderdale Realtors.
The math looks better for a two-income, college-educated couple in Broward but still leaves them coming up short in Miami-Dade. That couple’s earnings qualify them for a $288,000 home in Miami-Dade and for a $320,000 home in Broward.
One warning sign about what Miami could become lies just to the south: the Florida Keys.
In the Keys, many workers in the tourism industry have been priced out. Even teachers, firefighters and police officers find themselves commuting from South Dade.
“You have to have people who work in the restaurants,” said Martin Flynn of Tri-Star Affordable Development, which has worked on several projects in the Keys. “You have to have people who are going to teach your kids.”
County leaders understand they need to protect local workers and companies. But they also see the upside in being a city that has arrived on the world stage, said Jaret Davis, a Miami native who is co-managing shareholder of law firm Greenberg Traurig and chair of the Beacon Council, Miami-Dade’s taxpayer-funded economic development arm.
“When I was growing up, when Miami was mentioned it was with Dallas, Detroit and St. Louis,” Davis said. “Now you hear it being named with the New Yorks and San Franciscos. We are on the radar of every major country.”