The condo market headwinds that have nothing to do with the Fed
“If you start to control inflation, then the construction costs may go down, which will allow pricing to maybe go down to attract new buyers,” he said. “Right now, construction costs are high, so the pricing has to be high. Insurance costs are high, so pricing has to be high. So if these things are too elevated, that also pushes people out.”
That cost pressure is layered on top of a supply problem building for years. Simkins said land transactions in South Florida have slowed sharply, even as a wave of new condo projects works its way toward the market.
“You have fewer land transactions, and you’re not understanding the values today on commercial development potential sites,” he said. “But then you also combine it with a heavy supply of new projects. And if those projects don’t succeed, then they won’t inspire other developers and other buyers to come in to transact those underlying land parcels.”
That imbalance creates a risk for projects that were counting on early sales to unlock construction financing, Simkins said. Vaster finances land acquisition for these projects rather than the vertical construction itself, putting that risk close to home.
“You’re going to get caught in the next 6 to 18 months, with either those projects not reaching their thresholds to go vertical and get construction financing, or having construction financing and not being able to satisfy their debt obligations,” he said. “That’s occurring in some key projects in Miami now.”
