By Justin Spittler, editor, Casey Daily Dispatch
Have you been to Miami recently?
If you have, it would be easy for you to think that the city was experiencing some sort of magical real estate boom.
And why wouldn’t you? Construction cranes dot the city’s skyline.
Source: Getty Images
Surely this is a sign of a healthy market, right?
Well, not exactly. You see, construction cranes only tell us about supply. They don’t say anything about demand.
And right now, demand for condos in Miami is plummeting.
In February, condo sales fell 10%. Single-family and existing home sales also fell 10%.
Now, it’s perfectly normal for real estate markets to pull back every once in a while. But that’s not happening in Miami, where demand for condos has been falling since 2013.
Just look at this chart.
The blue line shows the total number of condo units in Miami-Dade County. The green line tracks how many condos have sold in Miami each month.
You can see that monthly sales (demand) are down more than 30% over the last four years. Yet unit inventory (supply) has nearly doubled since the start of 2013.
• You don’t have to be an economist to see the problem here…
Miami has far more condos than it needs. The city’s condo market is now starting to implode.
I’m not the only one sounding this alarm, either.
Andrew Stearns, an expert on Miami’s real estate market, recently described the city’s condo market as “distressed.”
Stearns said local real estate professionals and investors should prepare for the worst:
Building inventory and declining sales usually result in downside pricing pressure. Preconstruction condo developers, flippers, and existing condo resellers should expect pricing pressure to accelerate.
This is a major warning. But it’s not being taken seriously.
If it were, more than 11,000 new condos wouldn’t be scheduled to hit Miami’s market by 2018. That’s about 70% more condo units than Miami already has.
This is going to be like pouring jet fuel on a raging fire.
And yet speculators continue to “flip” condos across the city.
Flipping is when you buy a property with the goal of quickly reselling it for more than you paid for it. It’s extremely speculative, and the type of thing you usually only see when a real estate bull market is coming to an end.
The fact that this is still happening in Miami tells us that the city’s condo market has completely lost touch with reality. Anyone with half a brain can see this. But here’s something you might not know…
• House flipping has taken the United States by storm…
It’s happening all across Florida, Las Vegas, and Atlanta. It’s also happening in small U.S. cities like Fresno, California and Tacoma, Washington.
According to real estate site Trulia, more than 6% of home sales last year were “flips.” These are properties that have sold at least twice in the past years.
That’s up 5.3% from a year ago. More importantly, we’re now seeing the highest level of flipping activity since 2006…which was the peak of the last housing bubble.
This is a big deal. It tells us that the U.S. housing market is likely in the late stages of a bull market.
It’s not the only indicator suggesting this, either…
• U.S. housing prices have never been higher…
You can see what I mean below.
This chart shows the Case-Shiller U.S. National Home Price Index, which tracks home prices across the country.
You can see that this index has surged 38% since 2012. It’s now trading at a record high.
Here’s more proof that the U.S. housing market is closer to a top than a bottom.
The chart below shows the NAHB/Wells Fargo National Housing Market Index.
This index measures the mood of U.S. homebuilders. A high index level means home builders are very optimistic. You can see that this index is at the highest level in 12 years.
Some people might see this and think now’s the time to buy a house.
But optimism usually peaks just before a market tops out.
In fact, home builder sentiment peaked just 13 months before housing prices topped out in 2006.
U.S. home prices went on to plunge 27%. In many places, prices fell so much that people lost their homes to foreclosure.
Now, I’m not saying that the U.S. housing market is going to crash tomorrow. But it is clear that the easy money in housing has already been made.
• Keep this in mind if you’ve been thinking about buying a house or condo as an investment…
You should also be careful if you own any housing stocks.
Here are two ways to protect yourself:
Use stop losses. A stop loss will automatically sell a stock when it falls below a certain level. It allows you to stay in stocks without exposing you to big losses. If you’re not familiar with trailing stop losses, click here.
Don’t average down. Averaging down is when you buy more shares of a stock when it falls in price. A lot of investors do this to lower their average cost per share. But this strategy often leads investors to ride losers down. You can learn more about averaging down by clicking here.
These simple strategies will allow you to profit from the U.S. housing market without exposing yourself to huge losses.
Delray Beach, Florida
April 24, 2017
P.S. I’ll keep a close eye on the U.S. housing market. I’ll let you know when it’s time to sell your housing stocks or even short (bet against) the market.
And stay tuned for more on this idea later in the week… Casey Research founder Doug Casey and Casey Report editor E.B. Tucker have a lot more to say about this troubling trend.
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