In order to make an informed decision when buying or selling a Miami condo, you need to have an understanding of the direction of prices. We feel that the traditional metrics used by the brokerage community such as median sale price or more scientific metrics such as the S&P CoreLogic Case-Shiller Miami Home Price Index are inadequate for describing the prices of Miami condos.
A metric such as median sale price suffers from the problem that the mix of properties sold during one time period may not be comparable to the next. For example, one period may have more units that are of higher quality and/or larger square footage. This is especially true today when there are many new or renovated condo units that are being sold which skew the median sales price metric higher.
A metric such as the S&P CoreLogic Case-Shiller Miami Home Price Index corrects for these property mix problems, but has very little relevance to the Miami condo market as the index only looks at single-family homes and covers a wide metro area including Miami-Dade, Broward, and Palm Beach counties.
In order to create a metric that accurately represents Miami condo prices, we adopt the repeat sales pricing technique used to create the S&P CoreLogic Case-Shiller Home Price Indices and apply it to condo sales data reported from the Miami-Dade County Property Appraiser. This methodology is recognized as the most reliable means to measure housing price movements.
For our index, we use condo sales data from November 1, 1999 through April 2018 for the following cities: Miami, Miami Beach, Aventura, Sunny Isles Beach, Coral Gables, Key Biscayne, North Bay Village, Surfside, Bal Harbour, and the Bay Harbor Islands.
In order to accurately measure the change in condo prices, we use a repeat sales approach which tracks price changes of the same properties over time. This way errors or biases created by the location, size, age, and quality of the properties are minimized since we are doing an "apples to apples" comparison. However, this approach makes the assumption that the quality and size of each condo would remain constant over time, which may not be the case, for example, if a condo was renovated in between sales.
In order to control for changes in condo quality, we eliminate repeat sales pairs where a property is resold for more than a 20% annualized gain or is resold within a 3 month period. Additionally, we eliminate new construction sales since the sale date recorded by the property appraiser may differ by up to 2-3 years from the actual date when the buyer agreed to purchase pre-construction.
Our indices are calculated monthly, using a three-month moving average algorithm. Here we discuss the results for April 2018, which consists of the repeat sales pairs from February, March, and April 2018. Similar to Case-Shiller, we assign a base index value of 100 to January 2000.
Looking at the All Cities Index which consists of Miami, Miami Beach, Aventura, Sunny Isles Beach, Coral Gables, Key Biscayne, North Bay Village, Surfside, Bal Harbour, and the Bay Harbor Islands we see that the condo market peaked in June 2016. The April 2018 index value of 237.84 represents a 6.9% decline from the June 2016 peak. Although condo prices are declining, they are substantially above the values seen during the 2006-2008 condo boom and subsequent bust.
Condo prices on the Miami mainland (Miami, Aventura, Coral Gables) have not increased as much as condo prices on Miami Beach and the other islands (Sunny Isles Beach, Key Biscayne, North Bay Village, Surfside, Bal Harbour, Bay Harbour Islands).
Prices on Miami Beach and the other islands have far exceeded their 2006-2008 highs, whereas Miami mainland values are now back below the peak from the last condo boom. We believe this is due to large differences in the amount of developable land in each area. As demand rises, developers are able to build on the Miami mainland, limiting price gains. On Miami Beach and the other islands, development is limited so prices have to increase more in order to balance supply and demand (higher prices = more sellers & less buyers).
Prices in Aventura never reached their 2006-2008 peak and are heading lower.
Given that properties on the upper end of the market tend to have different characteristics than those on the lower end, we thought it would be useful to group properties into three price tiers and track their performance.
For our tiered indices, each repeat sale pair is allocated to one of three buckets: Low Tier, Mid Tier, or Upper Tier. The allocation is done by the first sale price, so if you are looking at the Low Tier index, its performance would be indicative of a strategy buying condos falling in the bottom third of sale prices, while the High Tier index is an indicator of buying condos in the upper third of sale prices.
The charts below show the tiered performance on both the Miami mainland and Miami Beach plus the other islands. The tier price breakpoints shown on the charts reflect the current April 2018 values.
In both locations, the properties that performed the best during the 2006-2008 condo boom were the Low Tier units, as they were the most affordable. The Low Tier units also became the most overpriced and saw the largest percentage declines during the subsequent bust.
What has happened since 2010 is particularly interesting. On the Miami mainland the Low Tier units have performed the best, whereas on Miami Beach and the other islands, it's the Upper Tier units that have done the best. We believe this difference is driven by young professionals who work in the city center and prefer to live close to work. Buyers of condos on Miami Beach and the other islands tend to be older and more vacation oriented.
There's a lot more work we plan to do with our Condo Price Indices, and we're pretty excited! If you have questions, feel free to send us an email or leave us a message in the comments below.