With a huge database at it’s disposal, Zillow’s real estate predictions at a nation-wide level are usually spot on. Where the real estate giant often falls down, however, is at the hyper-local level. So how accurate will Zillow’s 2017 housing market predictions be for the Greater Downtown Miami / Brickell market? Here are the six predictions and my thoughts for each:
1. Cities will focus on denser development of smaller homes close to public transit and urban centers.
This has been the trend in South Florida generally, and in the City of Miami particularly, for quite a few years now. In 2014, a report from Christopher Leinberger, George Washington University business professor and president of Locus, a walkable urbanism research organization, was highlighted by the Florida CCIM chapter
[A] factor likely to help make South Florida an eminently walkable region is the wide distribution of small but dense urban centers, according to Leinberger. That makes it likely even people who don’t want to live downtown but still want a “gentler, walkable urbanism” will live and work close to smaller urban cores like Aventura or Miami’s Coconut Grove.
2. More millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.
Given that Millennials are 20 to 36 years old and that they are a larger demographic group than Baby Boomers, it is no surprise that they will represent a huge group of home buyers in 2017. The Miami real estate market will not, however, enjoy the full benefit of Millennials home buying unless we do something about housing affordability. Miami had a 4.1% decrease in its Millennial population growth from 2005 to 2015 in large part due to lack of affordable housing.
3. Rental affordability will improve as incomes rise and growth in rents slows.
Downtown Miami / Brickell is already seeing a 3% decrease in rental rates, and more reductions are expected as the new condo developments continue to be completed over the next few years. Likewise, the Greater Downtown Miami area has seen a 4.9% increase in income since 2010. But with Miamians spending more than 40% of their income on rent, this trend can’t come too soon.
4. Buyers of new homes will have to spend more as builders cover the cost of rising construction wages, driven even higher in 2017 by continued labor shortages, which could be worsened by tougher immigration policies under President-elect Trump.
In an April 2016 CNBC article, Diana Olick wrote:
The common complaint from builders is that they are hamstrung by a lack of skilled labor, which is keeping production levels low.
That may have been a factor for the past several years, but today it is less and less a plausible excuse.
“Our analysis of payroll growth and wage inflation data suggests that labor shortages may not be to blame for the mediocre level of housing activity,” Goldman Sachs analysts wrote in a report this week. “We find that, on the one hand, the construction sector has experienced the largest job growth over the past year.”
“Economics 101 would suggest that, if labor shortages did in fact exist, upward pressure on wages would be more pronounced and payroll growth would be anemic,” the report said. “Therefore, the evidence from the industry-level employment and wage data does not support the existence of labor shortages in the construction sector.”
And I agree. Moreover, last year rising costs were also blamed on increased land costs and increased regulation. Given Trump’s preference for deregulation in the real estate development markets, if anything I would expect construction costs to go down in 2017.
In the Greater Downtown Miami market, I think the glut of inventory currently under construction will be another factor in condo prices dropping slightly rather than increasing in 2017.
5. The percentage of people who drive to work will rise for the first time in a decade as homeowners move further into the suburbs seeking affordable housing — putting them further from adequate public transit options.
Perhaps this trend will hold county-wide in Miami-Dade; but within the Greater Downtown Miami area, and all along our coast from Pinecrest to Palm Beach County, I think the trend to ditch the auto-commute will continue. With Miami MetroRail ridership increasing, new rolling stock for the MetroRail, revival of the “SMART” plan for 6 additional transit lines, and the new Brightline high-speed passenger train service beginning in 2017, indications are good that Miamians will have options in the suburbs along those transit lines.
And, as noted in #1 above, South Florida’s trend towards smaller “urban centers” within it’s far flung suburbs will also allow homebuyers to work close to where the live, and minimize the auto-commute.
6. Home values will grow 3.6 percent in 2017, according to more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey. National home values have risen 4.8 percent so far in 2016.
This is another national trend that I believe will skip the Great Downtown Miami region. As with rental prices, downtown Miami is already seeing “condo prices fall for the first time in 5 years.” With well over another 5,000 condo units and a similar number of rental units still under construction and expected to be completed over the next few years, over supply will likely insure that we don’t see the home value increase predicted by Zillow.