Miami leads global housing bubble risk as luxury demand grows
Writer: Mirella Franzese
October 2024 — Miami’s housing market is more overvalued than Tokyo and other major international cities, according to a recent UBS report. However, experts see South Florida’s high-end sector remaining firm despite ‘bubble’ risk.
Out of 25 major global cities analyzed, Miami was rated at the highest risk of a housing bubble by the bank’s Global Real Estate Bubble Index.
Compared to Frankfurt, Munich, Stockholm, Hong Kong, and Paris, which reported property price dips in excess of 20% since the pandemic, Miami’s median home prices surged by 64% over the same period — translating to a cost gain of around $222,000. Speculation on Miami’s luxury condos spiked by 60% over the past five years as the Sunshine State became a premier destination for high net-worth individuals seeking both a change of lifestyle and million-dollar returns on property investments.
Similarly, Miami’s most affluent neighborhoods reported million-dollar price gains for houses sold over the past decade: Homes in Miami Beach appreciated by $2.5 million, Lighthouse Point by $1.4 million, Pinecrest Village by $1.3 million, and Coral Gables by $1 million.
“Huge deals are being made in the ultra high-luxury space right now, which are homes priced above 10 million. People from all around the world with deep pockets are moving here, and they all want premium real estate,” global luxury realty specialist Josh Stein told Invest:.
Miami’s robust economy, warm tropical weather, and cultural assets are part of the city’s allure for high net-worth buyers. In addition to the lifestyle component, Miami-Dade’s rebrand as a global center for business and finance continues to attract population growth by the thousands.
Many high-profile personalities and business tycoons have relocated to the area in recent years, including Amazon’s founder and CEO Jeff Bezos, Citadel CEO Ken Griffin, and Malif Sefrioui, billionaire son of Moroccan real-estate magnate.
“Miami is becoming more diverse in its appeal, attracting not only wealthy buyers but also growing businesses,” said Liam Bailey, Knight Frank’s global head of research, in a newly-released report. “This is making the city a key player on the international stage.”
As one of the fastest-growing economies in the United States, Miami attracted more venture capital money between 2020 and 2022 than Silicon Valley and other emerging tech hubs, such as Chicago, Denver, Colorado, Philadelphia, and Pennsylvania, according to Sotheby’s Realty’s Luxury Outlook 2024.
Against medium-value homes, Miami’s luxury real estate sector reported a strong performance throughout 1Q24, resisting the market volatility that struck other U.S. housing markets.
Multimillion-dollar properties also sold within 69 days of being listed on the market, indicating luxury condo prices could remain steady or rise as demand continues on a growth curve, according to Blackbook Properties.
“There are not enough ultra-priced luxury real estate products currently, so price per square foot in premium neighborhoods will continue to go up,” said Stein.
As many as 102 ultra-luxury homes (priced above $10 million dollars) were sold in Miami over the first half of the year — which marks a substantial growth in performance compared to the 77 homes (US$10 million-plus) that sold over 1Q23 and 2Q23, according to a report by Knight Frank Global Super Prime Intelligence.
This recent surge in luxury real estate activity can be traced back to the COVID pandemic, which prompted a major shift in the global distribution of wealth, as Bailey suggests in the firm’s report.
“Substantial wealth creation has supported the growth in the global super-prime sales market. The transformation of markets like Dubai, Palm Beach and Miami has more than offset the slowing experienced by some more mature markets,” said Bailey.
Wealthy foreign investors are the main drivers behind the growth in Miami’s luxury residence sector, according to UBS Florida International’s Managing Director Catherine Lapadula.
“Miami has long been a key hub for wealth migration from Latin America. Florida attracts wealthy individuals from countries like Argentina, Colombia, Mexico, and Brazil, often due to economic instability or political unrest at home. Miami offers them stability, favorable tax conditions, and real estate opportunities,” said Lapadula to Invest: reporters last week.
Due to the steady influx of affluent buyers, Miami’s premium real estate economy has also outperformed more mature domestic markets, like the ones in Los Angeles and Orange County, over the last quarter. In fact, Los Angeles only sold 42 homes listed at $10 million or higher over the second quarter of this year, representing a 29% decline in sales.
By contrast, South Florida offers an appealing quality of life and a lower cost of living for those looking to buy — and all-cash offers for those looking to sell.
“Miami is a cash-based real estate economy, so we are seeing a lot of money come in from out-of-state buyers in California and New York. California has so many high-tax problems that it’s lost its allure,” said Stein.
“New Yorkers are also facing high property taxes and high cost of living, so it’s not good money to spend. Miami is on par with New York in terms of price, but here you get a lot more for your money,” he explained.
Nonetheless, Miami’s relative shortage of luxury-finish homes in high-end neighborhoods, combined with the rapid appreciation of prices and “fair share of problems with construction, insurance, and HOA,” according to Stein, has raised concerns of a ‘bubble’ burst among financial experts.
“Miami is a barrier. You can’t build far west….In luxury buildings you have one or two apartments per floor. A row of units are premium — and residents want big space, but there’s not so much in Miami, believe it or not,” explained Stein.
And given the increasing demand, more deluxe housing stock is expected to come to market in 2025. Major developers are already investing in the construction of single-family homes around Miami’s key neighborhoods. The Calta Group, which specializes in the construction of luxury residential real estate, unveiled plans to build five ultra-luxe homes around Coral Gables, Pinecrest, and South Miami — with $11 million being the benchmark price.
Despite fears of a bubble burst, the outlook for ultra-luxury homes in the near-term appears strong as both prices and demand remain high, and supply grows.
“With rates moving lower, total transaction volumes are likely to tick higher into 2025,” said Bailey.
For more information, contact:
