Editorial: Housing Glut a Risk
If you think concerns about the slowing housing market are overblown, you might want to take a quick trip to Miami. Publications and other media - including MSN - have been acting like town scolds recently, hyping statistics about rising default rates, stagnant and falling home prices, and investors pulling back from key markets. All those statistics are interesting, but nothing illustrates the risk of a housing market correction better than a glimpse at the Miami skyline today.
Amid evidence that the condo market there is already cooling off considerably, the skyline from the airport to downturn Miami is littered with construction cranes. And they all seem be presiding over the construction of one thing: high-rise condos.
Once you're downtown, take a look across Biscayne Bay. The Miami waterfront is also a study in high-rise residential construction. At night, the cranes are lit up and make the strip look like an amusement park.
Let's hope there are still enough buyers out there to make all these projects work. Let's hope that the growing inventory of existing condos on the market doesn't drag down pricing so far that developers go belly up. But with the sheer volume of activity out there, it's difficult to imagine that all the developers are going to come out ahead when thousands of new units come on the market.
Many of these new buildings are huge - 30 to 50 stories tall - and projects this big have been in the pipeline for a while. By the time evidence of a slowdown was accumulating, ground had already been broken and it was too late to scale back or postpone development. Given the heady real estate sector of recent years, it wouldn't be surprising if similar forces are also at work in other "hot" markets like Phoenix and Las Vegas.
All real estate markets are unique, and Miami benefits from some atypical demand factors. It's a popular second-home market for the populous and well-to-do Northeast. In addition, international buyers, especially from Latin America, boost housing demand in Miami.
But demand is not infinite, and this editor got the feeling on a recent trip to South Florida that some developers may
be overly optimistic about the market's ability to absorb all the new condos that will be coming on the market during the next couple of years. We hope that the construction and commercial lenders that have underwritten all the development have done so prudently. And we urge single-family lenders to keep an eye on the situation as well.
There's plenty of risk built into a market when supply is expanding so quickly.
Snapshot: What Do Consumers Think?
Percentage who think a housing price collapse in their market is 'very likely': 16%
Percentage who think a price collapse is 'somewhat likely': 31%
Source: Experian-Gallop Personal Credit Index Story (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com