Demand for Miami housing is high, and values are rising – does that process, though, threaten future demand?

By Peter Ricci

Last week, when June data was released for Miami-Dade’s real estate market, two things were clear: one, that housing in the sunny city is hot as ever, and two, that international buyers continue to play a big role in the city’s housing ascendence.

A recent U.S. News report estimated that as many as 40 percent of Miami’s 2012 transactions were for foreign buyers, and according to data from the Miami Association of Realtors, 65 percent of transactions in June were all-cash, and 90 percent of international buyers pay all-cash. However, as grand as Miami’s housing market has been so far in 2012, new research from Trulia suggests the city’s successes could damage the very thing that made it so appealing in the first place – its relative affordability.

Miami, Trulia found, has the highest share of international searches of any major metro in the U.S., with 15.7 percent of home searches for Miami in 2012’s second quarter coming from foreign house hunters. That number, though, was down six basis points from 2011’s second quarter, and foreign searches for all of Trulia fell nearly 10 percent from last year. Jed Kolko, Trulia’s chief economist, thinks the high demand in Miami, and the price increases it has inspired, is a big reason.

”Foreigners attracted to real estate bargains get turned off when prices increase,” Kolko said. “Investors want to buy when prices are at their bottom, but they’ll start to lose interest when prices rise 15 percent, as they have in Miami and Phoenix. Demand by people looking to scoop up bargains can dry up quickly when prices rise.”

And prices have risen quite a bit in Miami from last year. In June, prices for condos rose 34 percent year-over-year, and single-family homes rose 5 percent. Though such price gains are unlikely to become a new norm for Miami’s market, when stacked next to Trulia’s findings, they do present an interesting question – do Miami’s rising prices threaten its appeal to international buyers?

“No,” said Carlos Garcia, the broker/vice president of The Keyes Company, Kendall, and the vice-chairman for the Master Brokers Forum, adding that though Miami’s values have risen somewhat, they still offer superior returns to the native properties for many foreign investors.

“They still find Miami a good place to invest,” he said.

International investors often have specific interests in mind when they look for residences, and Garcia said the number one item on most wish lists is a property near the water. Though Miami’s inventory has plummeted in recent months (it dropped to 4.2-months supply for Miami-Dade in June), Garcia is not concerned about shrinking supply, because, as he jokingly put it, “We’ve got plenty of water!” referring to Miami’s broad coast.

Also, Garcia mentioned there are a number of new developments going along Miami’s coast, and he said he’s seen more cranes in operation developing new projects than at anytime in the post-boom market; and with those developments, he’s confident that both prices and inventory levels will remain appealing to international buyers at least through 2012.