I just read a headline in the Miami Herald that the rate of real estate price appreciation is back to 2006 levels. Now, the first thought that came to mind was 'Uh oh, not again!" After all, right after prices hit their peak in 06...........well, you know what happened next.
Really? Are we doing this again? Actually, we're not. You see, our prior real estate boom in South Florida was falsely propped up by sub-prime loans, questionable lending practices, and so called "real estate investors" making huge bets with 100% financing. Not to mention all of the buyers that were salivating to get their hands on so called "mortgage backed securities" This "house of cards" without any real substance behind it was destined to collapse.
Fast forward to 2013: We have more than 100 projects is some stage of construction in Miami-Dade County. Many of these projects are 50% sold out already, and not a day goes by that I don't get an email from a developer touting their new community or building. Sounds allot like 2006.
However, there are some observations that I've made which lead me to believe that we, as a market, are not heading towards the same mistakes of the past. For starters, the percentage of cash sales is much higher than it was prior to the bust. Also, anyone that's financing must be rock-solid; good credit, strong down payment, verified assets, etc. Liar loans simply don't exist. Furthermore, the consumer has become a more conservative animal. Just about everyone that I've sold a home or condo to in the past 12 months has, on average, purchased 30% less property than they could actually qualify for. So in the event that there's in interruption in the household income, chances are that that property won't end up in foreclosure. And as for the developers; they too have learned from past sins by adopting a more European/South American model with respect to financing. Many now require as much as 40% down payments.
All in all, this paradigm shift in the minds of lenders, builders, and consumers leads me to be very optimistic that we're not creating another Frankenstein that will eventually turn on us. : )
