The Price is Right... or is it?
There’s an art to analyzing real estate market data. Numbers are only infused with meaning when put into a context clients can understand, digest, and use to make informed decisions. And, like experiencing a work of art, the message behind the stats can be hard to put down in words. The following paragraphs take a very loose look at what you see in the graphs below and on the right, but the full picture of what’s happening in today’s Miami-Dade County market is best discussed at length. If there are questions after reading, feel free to reach out to us at beth.butler@ compass.com to learn more.
In the last few months, we’ve been looking at what we call the Butler Index as an indicator of inventory absorption. Put simply, a real estate market area with too much inventory won’t start to recover until the number of new listings over a given period of time is less than the properties sold or pended in the same amount of time. Last month, we looked at how some neighborhoods are doing compared to a 10- year average and, based on inventory, labeled markets as “Shop”, “Buy” or “Sell”.
“Shop” markets where there’s still an inventory buildup and a considerable amount of similar inventory, like a condo building with multiple units for sale in the same line. Chances are there’s a motivated seller who is willing to negotiate a better price. When much of that inventory starts to sell, prices are likely to rise, so trends will shift to a “Buy” market. Finally, as prices start to increase, it is a “Sell” market, where Sellers who’ve been waiting for better pricing may start to benefit from lower inventory. Short supply results in high demand.
When thinking about how absorption and pricing speak to each other, the general rule of thumb is that as the Index increases, pricing decreases and vice versa. In other words, prices should have a somewhat inverse relationship with the Index. It’s certainly the case in established neighborhoods with limited introduction of new product, as seen in the Coral Gables Graph pictured above. A quick glance of 2009 will show even the most stable markets can have some pretty wild fluctuations given the right (or maybe wrong) set of circumstances.
In markets like Brickell/Downtown, where new inventory’s being built all the time, the price per square foot doesn’t track as easily. Looking at the Brickell/ Downtown chart, from 2015 to present, you’ll see the Index is less likely to be inverse to pricing. When a new construction building first delivers and closes, typically many of its condos will come back on market as new inventory, and the impact on pricing takes more time than in more established markets. How the market accepts and absorbs those resales has a larger impact on price per square foot in the short term. Over time, the market will eventually settle and price fluctuations will follow the Index in a typical, inverse manner.
However imperfect average price per square foot may be, it’s still a good indicator of trending price changes as a whole. Looking at Miami-Dade County overall, there is a clear trend of appreciation in price per square foot since 2008 and a slight decreasing trend in the Index. Remember, decreasing Index is good for sellers - it means more properties are closing or pending in a month than those coming to market.
Is the price right in your neighborhood? Check out the graphs and decide. Then, take a break from these numbers and enjoy our culture-focused stories on the following pages.