With such a bizarre year we are currently experiencing, it is normal to be wondering what the future will bring and how the real estate market will be affected. This week I decided to focus on the luxury housing market in Miami and the projections for the last quarter of 2020 and the beginning of 2021.
Worldwide it is expected that prices for the luxury real estate industry remain steady or even slightly drop due to an increase of inventory at the end of 2020, however, they are expected to pick up in 2021. Getting down to the numbers and to Miami specifically, in the last quarter of 2020, it is expected that prices drop by 5%, but in the first quarter of 2021 it is expected to slightly recover, perhaps even to flatten the curve with a price growth between 0.1% up to the previously lost 5%.
It is envisioned that luxury sellers decide to wait by removing their units from the market and see how the situation develops. However, unlike 2008, we are not waiting for a wave of foreclosures and desperate sellers being pressured to sell.
Miami had a strong 2019 with increasing demand due to the SALT tax deductions, which allowed the city to face the pandemic with a seller's approach (inventory was relatively scarce and sellers kept prices high). The fact that Miami offers plenty of outdoor areas, larger homes than more density cities, a good amount of inventory, and low-interest rates - projected to stay down- has made the city a perfect shelter for the COVID-19.
Miami is in a really solid position to be facing this crisis. It's not the same case for some other cities such as Buenos Aires, Vancouver, and New York, which are expected to suffer a deeper drop (-5% each) in the luxury housing price range in 2021. But what makes Miami different from these cities? Mainly the big shelf of the federal tax deductions limits.
Some other cities that have a positive horizon are Shanghai, and Vienna, which have managed remarkably well the Coronavirus pandemic. Both cities are no longer under lockdown after following a strict quarantine guideline, by having closed the city as soon as the virus started to spread. This has made that the luxury housing market didn't show any decrease in the prices and even is projected to rise later this year. Lisbon, on the other hand, has a positive forecast as the high-end housing market has lower prices compared to other cities in Europe, and with all the unemployment and economic crisis driven by the COVID-19, people are looking for different alternatives, that most likely will benefit the capital of Portugal.
Miami luxury housing market has a relatively low and "diverse" inventory. By diverse, I mean that Miami itself has a variated offering and cultural diversity that attracts people from all over the world. This keeps me thinking that the future for the luxury housing market is not as dark as we thought and that there might be a bright future for this COVID-19 new normality.