By the time it broke ground in March, Residences by Armani/Casa, a new condominium underway in Miami’s Sunny Isles Beach, already had more than 65 percent of its 308 units under contract.
The planned 56-story tower, where prices range from about $2 million to more than $15 million, will include more than 35,000 square feet of amenities, including a restaurant, cigar room and a two-story spa. The sale of the Giorgio Armani-furnished penthouse, which will not be complete until next year, comes with a trip to Italy to meet Armani himself.
The glossy new project sits on a stretch of Florida oceanfront where at least six other luxury buildings are in some stage of development amid a vigorous building boom in South Florida not seen in more than a decade.
“People are calling this another boom in Miami, but this is different,” says Gil Dezer, president of Dezer Development, which is developing the project in partnership with Related Group. “Today’s buyers have learned from the last boom, and so have developers.”
For more than a year, home prices in the areas hit hardest by the real estate downturn have been registering the sharpest increases.
Miami, Las Vegas, and parts of Arizona and California, all poster children for the real estate bust that began in 2006, are now seeing gains that far outpace the national average, according to the National Association of Realtors.
A decade after becoming the epicenter of the crash, Miami’s property market is seeing the highest price jumps since 2006 — the peak of its last housing boom. Steadily rising home prices in Las Vegas in the past few years are bolstering that market’s high-end sector, with sales of homes priced at more than $1 million nearly doubling in 2015 compared with the previous year, according to data from the research firm CoreLogic. And in Phoenix, which endured one of the hardest crashes during the recession, homeowners who sold their properties in March saw a 29 percent gain on average, according to RealtyTrac, a California company that tracks housing sales. Home prices in Phoenix rose 12 percent year over year in June, RealtyTrac data show.
The upward trend follows one taking hold nationally, where home prices across the United States are steadily rising, fueled in part by low mortgage rates, shrinking inventory and more affordable prices. As of May, average home prices within the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index’s 10-city and 20-city composites were back to their 2007 levels.
Yet the housing recovery in once-beleaguered real estate markets underscores how changes put in place after the crash, along with shifting market dynamics, are helping these locations prosper, housing experts say.
Tighter lending restrictions, higher down-payment requirements and curbing overbuilding in places once inundated with property development are driving their changing fortunes.
“In the last boom, you had severe overbuilding, which caused an influx of speculators to flock to many of these cities, and that caused a somewhat artificial market,” says David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. The firm compiles the monthly S&P CoreLogic Case-Shiller Home Price Indices. “Tighter restrictions on mortgages mean lenders are less inclined to enable these types of buyers, and that’s helped build a more balanced market.”
Jonathan Smoke, chief economist at Realtor.com, the listing website of the National Association of Realtors, says a more moderate supply of housing is also keeping skyrocketing prices at bay. In the boom years, Las Vegas, Miami and other hot areas piled up eight or nine months’ supply of homes at the peak, Smoke estimates. “That figure is more than double what’s considered a healthy and balanced market in many places,” he says. “So when the bottom fell out, these areas were left with empty buildings and skyrocketing defaults.”
In South Florida, where home prices lost more than half their value during the bust, several critical factors separate this property rise from the last one.
Buyers of condominiums — which fueled the last real estate boom — are putting up bigger deposits, generally 50 percent of the purchase price. That contrasts sharply with the 10 percent to 20 percent deposits during the last buildup.
Though banks are beginning to fund more projects in South Florida after recoiling in the wake of the last real estate crash, they are asking developers for a larger financial stake, typically a substantial level of pre-construction sales.
“These measures instill a level of commitment from buyers and developers that we didn’t have before,” says Ron Shuffield, president and chief executive of Esslinger-Wooten-Maxwell Realtors, an affiliate of Christie’s International Real Estate. “Last time, you had developers and buyers getting access to easy money, and that’s just not happening now.”
In Las Vegas, where housing prices fell more than 60 percent from mid-2006 to 2012, prices have seen double-digit gains in the past three years, says Scott Beaudry, president for the Greater Las Vegas Association of Realtors. Though the pace of sales has slowed a bit this year, he says, fewer speculators and a less robust building pace are driving the market higher but at a much more moderate pace.
“In the past, we had prices shoot up 30 percent in some years, and that was driven by a lot of outside buyers propping up this market,” he says. “Now we’re seeing local buyers drive this market, and that’s leading to a much more moderate increase in home sales but a more balanced market.”
Washington-area real estate markets are seeing an uneven recovery, housing data show. The median price of a home in the D.C. metro area rose to $435,000 in July, up 0.6 percent from a year ago, according to data provided by ShowingTime RBI based on listing activity from MRIS, the region’s multiple-listing service.
Falls Church’s median sales price dropped 3 percent, to $708,000, and Howard County’s fell 5.7 percent. The District’s median sales price rose 3.6 percent, to $570,000, and Prince George’s County jumped 13.5 percent, to $270,000.
Of course, not every market that hit bottom in the bust has recovered. That has been especially true for secondary markets where the local economy is still struggling, according to a market report from housing website Trulia. Albuquerque and Camden, N.J., rank among 10 locations labeled the worst places to buy property since the housing bust, the survey showed. The list comprises cities that performed below average on labor and housing market metrics.
“A growing economy typically goes hand in hand with a strengthening real estate market,” says Ralph McLaughlin, chief economist of Trulia. “Many cities just aren’t seeing enough economic growth to mount a sustained recovery.”
Meanwhile, the housing recovery is sparking worries of overheating in some pockets of the country. Seattle, Portland, Ore., and the Bay Area in California have seen home values rise sharply in the past few years, putting homeownership out of reach for many middle-class residents and leading to worry of another boom-and-bust cycle.
Denver-area home prices, among the fastest rising anywhere, have reached record levels every month for the past two years, with prices growing at twice the national average, according to the S&P CoreLogic Case-Shiller index. Only Seattle and Portland had greater home appreciation, the group says.
But Smoke says the sharp rise in home prices in these markets differ from the last real estate boom. Housing prices in these areas, while expensive, are being driven by rapidly expanding economies, population growth and a chronic low supply of homes for sale.
“These aren’t areas where speculators and foreign buyers dominate as we saw in the last boom cycle,” Smoke says. “Job growth, especially in the tech and pharmaceuticals sectors, is the engine for a wave of new people migrating to these cities, and that’s driving strong demand for housing,” he says “Often very expensive housing.”