Thursday, March 11, 2010

South Florida Residential Market Won’t Rebound Until 2030


The above headline forecast is coming from Moody's, which, it must be added, on the other side of their business completely missed the mortgage securities collapse--despite their rating the securities and having more data in front of them about the mortgage markets than anyone else in the world.

Here's the bottom line on south Florida real estate, and I note, I spent much of the last two months down there researching the stuff. There is a huge amount of supply, and anything upscale doesn't cash flow positive.

Yet, there is something intriguing about the area. It's really a fairly limited land space and the fact that the area has so many real estate residential projects that soar 50 stories high, and higher, tells you that the land demand is even in a smaller area, chiefly that around the water and that's it.

Slowly, and I'm talking the Miami area now, especially around Biscayne Bay, you are starting to see basic shops open up, from a dry cleaners to a deli, which makes it much more attractive and livable than it was even a year ago.

As for the prices, it is absurd to make forecasts 20 years out using the methods that Moody's does by just extrapolating current trends. The world is going to be a lot different in 10 years, never mind 20 years. So much depends on trends in the government and what the Federal Reserve does over that period ( and it is unlikely to be pretty). If the Fed starts to really print money, I'm talking at a double digit rate for a prolonged period of a year or more, south Florida real estate is likely to lead the real estate market higher. Anyone buying now should lock in current interest rates and be able to carry any purchase with the current negative cash flow for at least 10 years.

Eventually, and I don't think it will take a full 10 years but I am using that number to be on the safe side, the cyclical inflation trend and the secular south Florida uptrend should make any investment made in the area look like a wise decision.

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