In Case You’re in a Hurry:
- Miami’s real estate market has seen an increase in housing supply, but claims of an 80% jump year-over-year appear overstated.
- Developers took advantage of low interest rates and government incentives, playing the long game, not expecting immediate profits.
- Some projects, like Gateway at Wynwood, are struggling due to poor management and external factors like cyberattacks.
- Miami’s real bubble risk lies in the high cost of living paired with low wages, not housing supply alone.
- The economy is being propped up by high-earning remote workers, but Miami could be in trouble if they leave.
- Using a blended market indicator incorporating variables like home prices, unemployment, consumer sentiment, and mortgage rates, we can forecast Miami’s economic future.
- Data suggests Miami may be nearing its economic peak, but a catastrophic event like a hurricane or major cyberattack could change things quickly.
If you’ve been doom-scrolling like me through TikTok or Instagram lately, you’ve probably seen a few videos about Miami’s real estate market, with talk of a possible recession or a bubble bursting. Many influencers, particularly in real estate, point to the increased housing supply as a potential red flag. I recall one in particular citing data from Redfin of an 80% year-over-year increase in housing inventory; however, when I looked into sources such as RE/MAX’s National Housing Report, it was more like a 54% year-over-year jump in months’ supply of housing in Miami as of April 2024. 54% is a lot, but I think it’s safe to say the sky isn’t exactly falling in Miami based on this data alone.
What’s Behind the Rise in Housing Supply?
Let’s take a step back and apply a fundamental principle of data analysis: correlation does not necessarily imply causation. The increase in housing supply doesn’t automatically signal an impending recession, or a bubble is about to pop. Instead, we need to consider multiple factors:
- Developer Strategy: Many developers, taking advantage of previously low interest rates and government incentives, initiated projects when economic conditions were favorable. They’re typically operating on longer timelines, not expecting immediate returns on investment.
- Market Cycles: Experienced developers understand that real estate markets are cyclical. They anticipate potential market slowdowns and plan accordingly.
- Supply Composition: The increased supply includes newly completed apartments, condos, and houses. It’s normal for these units to take some time to be occupied or sold.
- Absorption Rate: We need to consider how quickly new units are being absorbed by the market. This rate can provide insights into the balance between supply and demand. (As of right now I don’t have this data)
To illustrate this, let’s look at some data:
Now, that doesn’t mean there aren’t some horror stories. Take the building next to mine, The Gateway at Wynwood at 2916 N Miami Ave, for example. They ran into serious trouble when a cyberattack during construction stole $3 million meant for the contractor. Combine that with construction loans expiring and the shifting credit market, and you’ve got a real estate mess on your hands. But again, one poorly managed project doesn’t spell doom for the entire city.
The Real Bubble: Cost of Living vs. Wages
Here’s the real problem Miami is facing: the cost of living is sky-high, while wages are, well, not. Miami has one of the worst wage-to-cost-of-living ratios in the entire country. People are paying outrageous rent, but their salaries aren’t keeping up. That’s the kind of scenario that can lead to a bubble.
Alright, let’s talk about the elephant in the room: remote work. It’s been Miami’s golden ticket, but here’s the thing – it might just be our Achilles’ heel too. We’ve had this influx of high-earning tech bros and corporate bigwigs from places like New York, Chicago, and San Francisco, right? They’ve been living it up in South Beach, and Brickell spending their Silicon Valley salaries in our local economy. Sweet deal.
But here’s where it gets dicey. Companies are starting to get antsy about this whole work-from-wherever situation. Take Amazon, for example. They just rolled out this three-day-a-week return-to-office policy for their corporate employees. And let me tell you, where Amazon goes, others follow.
Now, we’re at a crossroads. Some of these remote workers might dig their heels in, say, “Hell no, we won’t go,” and stick around. That could be great – we’d have this pool of top-tier talent that might attract more companies to set up shop here. But here’s the flip side – and it’s a doozy.
If a chunk of these high-rollers decides to pack up and head back to the mothership, we could be in for a world of hurt. Why? Because Miami’s job market isn’t exactly teeming with $200k+ gigs to replace those cushy remote jobs. We’re talking about a potential domino effect here – less spending in local businesses, a possible nosedive in the real estate market (goodbye, overpriced condos), and a hit to our tax base.
Using Data to Predict What’s Next
Rather than relying on influencer hype or gut feelings, let’s take a data-driven approach to see where Miami’s economy might be headed. I use a blended market indicator that tracks several key variables to give a clearer picture of the economic outlook. (If you’re not familiar with how blended market indicators work, check out my article on it for a deeper dive.)
Here’s what I’m using to create this indicator:
- Home Price Index (MIXRNSA) – 35% Weight
Miami’s real estate market is a massive part of its economy, so changes in home prices get the biggest weight in this formula. Rising prices? That’s a strong market. Falling prices? Not so much. - Unemployment Rate (FLMIAM6URN) – 25% Weight
Jobs are the backbone of any economy. Higher unemployment usually means lower consumer confidence, which leads to reduced demand for homes. I’m giving this a negative weight because an increase in unemployment is bad news for the market. - Consumer Sentiment (UMCSENT) – 20% Weight
This measures how confident people feel about the economy. If consumers are feeling good, they’ll spend more, which is good for the economy. If sentiment drops, they’ll hold onto their wallets. - 30-Year Mortgage Rate (MORTGAGE30US) – 20% Weight
Mortgage rates determine how affordable homes are. As rates go up, it gets harder for people to afford homes, which can cool demand. Like unemployment, higher rates act as a brake on the market.
Here’s the formula in TradingView:
0.35*FRED:MIXRNSA - 0.25*FRED:FLMIAM6URN + 0.20*FRED:UMCSENT + 0.20*FRED:MORTGAGE30US
By combining these variables, we get a holistic view of the Miami economy, smoothing out the noise and short-term fluctuations.
What’s the Data Saying?
Let’s take a trip back to 2007-2008. Remember the subprime mortgage crisis that sent Miami’s housing market into freefall (along with the rest of the nation)? My Z-score probability indicator showed trouble brewing as early as February 2007. By March, things were starting to unravel, and by September 2009, we’d hit rock bottom. Smart investors were snapping up assets at rock-bottom prices, following Warren Buffett’s classic advice to “buy when there’s blood in the streets.”
Then, there’s the COVID-19 dip. Around March 2020, most of the country saw a sharp economic decline, but not Miami. We stayed open for business, which attracted tons of new residents and companies like Ken Griffin’s Citadel. From August 2020 to August 2022, Miami’s economy was on fire. The Federal Reserve’s low interest rates and government stimulus packages kept things booming here while other cities struggled.
Fast forward to today, and we’re at an all-time high. So, where do we go from here? My Z-score indicator is showing signs that the winds are shifting. We’re nearing the top of the hill, and things are starting to look eerily similar to 2008. But don’t panic—it’s not the same situation. Lending standards today are much stricter, and developers are more cautious (for the most part).
What Could Tip Miami Into Trouble?
While a major crash seems unlikely, a few wildcard factors could throw Miami into chaos. A major hurricane, a cyberattack, or another pandemic could all tip the scales. Miami’s already facing skyrocketing insurance rates, and if we get hit with a catastrophic event, we might see people leave en masse, especially as home and auto insurance become unaffordable.
But in the absence of disaster, I’m predicting we’ll see more developments go up and construction continue for at least the next two years. Small businesses and restaurants will continue to struggle and shut their doors, but we might also start to see rental prices drop, offering some relief to residents. The housing market could experience a slight correction, but nothing as severe as 2007.
A Fun (but Cautious) Formula for Gauging Miami’s Economy
For all the Stock Market nerds out there, here’s something a little different to track Miami’s economy in a more playful, yet insightful way. The formula involves a blend of some of the biggest companies that have their fingers in the Miami pie. We’re talking about American Airlines, Carnival, Royal Caribbean, Lennar, MasTec, Norwegian Cruise Line, and others.
These are businesses that represent key sectors of Miami’s economy: tourism, real estate, construction, and logistics. By tracking their stock performance as a group, you can get a pretty good pulse on how the local economy is doing. For example, tourism is a major driver in Miami’s economic engine, so big players like Carnival and Royal Caribbean serve as barometers for how tourism is faring. When they’re up, it’s a good sign the city’s doing well, and when they’re down… well, you get the picture.
Here’s how the formula breaks down:
- Tourism: This includes major cruise lines like Carnival (CCL), Royal Caribbean (RCL), and Norwegian Cruise Line (NCLH). Miami thrives on tourism, so this part of the formula highlights whether tourists are still flocking to the beaches and ports.
- Real Estate & Construction: The inclusion of Lennar (LEN), a major homebuilder, and MasTec (MTZ), a construction company, tracks Miami’s ever-expanding skyline and housing market.
- Transportation & Logistics: American Airlines (AAL) is one of the largest employers in Miami, and its performance reflects how travel in and out of the city is faring.
The formula:(BATS:AAL + BATS:RCL + BATS:CCL + BATS:LEN + BATS:NCLH + MIL_LS:INT + BATS:MTZ + BATS:VGR) ÷ 9
In essence, it takes the sum of these companies’ stock performances divided by 9, and voila! You’ve got a blended indicator to get a quick snapshot of the local economy’s health.
Why Does This Work?
By following these companies, you’re keeping an eye on the sectors that power Miami:
- Tourism drives local businesses, employment, and consumer spending.
- Real estate and construction reflect demand for housing and commercial space, both of which are vital for sustained economic growth.
- Transportation tracks how easy or hard it is to get people (and money) flowing into Miami.
What Does the Data Say Right Now?
If you glance at these stocks over the past couple of years, it’s clear that Miami’s economy had a bit of a stumble when interest rates spiked in mid-2022. But, much like the locals who party through a hurricane, the economy bounced back by the end of the year. From October 2022 onwards, it’s been a pretty steady climb. A few dips here and there, but nothing that screams panic—yet.
Using my Z-score probability indicator, I see a potential hiccup coming either at the end of 2024 or early 2025. It’s nothing catastrophic, more like a speed bump than a crash, but with global politics and a presidential election on the horizon, those factors could throw some curveballs that we’ll need to watch closely.
Why You Should Take This With a Grain of Salt
While this formula gives a broad view of Miami’s economy, it doesn’t carry as much weight as the core economic indicators we discussed earlier (like unemployment, housing prices, and consumer sentiment). Think of this as a fun, experimental approach—perfect for keeping an eye on how Miami’s top companies are doing, but not something you’d want to bet your entire savings on.
The Economic Pendulum
As we wrap up this deep dive into Miami’s economic landscape, let’s break down what we know for sure and what’s likely to happen next based on hard data from reliable sources like the U.S. Census Bureau, Miami Association of Realtors and Federal Reserve Economic Data.
First, let’s tackle the housing supply myth. If you live here, you know that Miami’s housing supply has increased, and while this increase is significant, it is not catastrophic.
What’s undeniable (99% certain) is that Miami’s wage-to-cost-of-living ratio remains one of the worst in the country. This imbalance isn’t just a statistic – it’s a real challenge for our residents and a potential risk factor for our local economy.
The impact of remote work is a wild card. While it’s plausible that a significant exodus of high-earning remote workers could shake things up, the exact impact is hard to quantify. Let’s call it a 50/50 chance of having a noticeable effect on our economy. Keep your eyes on major employers like Amazon – their policies could influence trends.
Our economic indicators – home prices, unemployment, consumer sentiment, and mortgage rates – suggest we might be approaching an economic peak. There’s about a 70% chance we’ll see some form of correction, but don’t panic – the probability of a 2008-style crash is low, maybe 10% at most, thanks to stricter lending practices and more cautious development strategies.
One thing we can be almost certain about is rising insurance rates. This, combined with our vulnerability to natural disasters, puts us in a precarious position that demands attention from policymakers and residents alike.
Looking at the stock performance of Miami’s key players – from cruise lines to construction companies – there’s a moderate chance (let’s say 60%) of an economic “speed bump” hitting us in late 2024 or early 2025. It’s unlikely to be catastrophic, but it could be felt across sectors.
So, what’s the bottom line? There’s a high probability (around 80%) that Miami’s economic pendulum will swing from its current bullish trend towards a more cautious outlook within the next 18-24 months. But remember, this isn’t doomsday – it’s an opportunity for those who are prepared.
The key takeaway? Perhaps start padding that rainy-day fund. Miami’s economic journey is far from over, and while challenges are ahead, our city has proven resilient time and time again. Those who keep their eyes on the data and remain adaptable won’t just weather the storm—they’ll be poised to capitalize on the opportunities that inevitably arise during economic shifts.