This is the message that the mayor of Miami Beach, Dan Gelber, delivered this week as it moved to sell $97.6 million of new municipal debt. The proceeds are intended to help the city fund more cultural projects and move away from its "old economic model" of selling Bellinis on Ocean Drive. But it is also a case of Miami Beach flexing its rising property values.
Residential property values across Miami Beach grew by about 125% over the past decade
Between 2019 and 2022, the number of "million-dollar zip codes" more than doubled (presumably these are just zip codes with median home prices above $1 million)
And from 2012 to 2022, the number of high-net-worth individuals in the city increased by about 75% (I wonder how many moved to the city versus just got richer while already living there)
All of this has been good for property tax revenues:
And now the city is leveraging them to invest in culture.
Chart: Bloomberg
Reading Howard Marks' investment memos is up there with reading Paul Graham's essays. You just need to do it. Howard's latest is about "taking the temperature" of the market and I think you'll find the lessons invaluable for everything from equities to residential real estate.
Here's an excerpt that I liked:
We don’t say, “It’s cheap today, but it’ll be cheaper in six months, so we’ll wait.” If it’s cheap, we buy. If it gets cheaper and we conclude the thesis is still intact, we buy more. We’re much more afraid of missing a bargain-priced opportunity than we are of starting to buy a good thing too early. No one really knows whether something will get cheaper in the days and weeks ahead – that’s a matter of predicting investor psychology, which is somewhere between challenging and impossible. We feel we’re much more likely to correctly gauge the value of individual assets.
These are investing words to live by. Avoid your own emotionality and value the asset. If it's not cheap, don't buy it. If it's cheap, buy it. Then take a long-term view. It all sounds simple enough, but it's clearly not so easy. And that's why we have extreme highs and extreme lows in the market.
Eighteen months ago, everyone wanted to buy residential real estate. Today, prices are lower, but fewer people want to buy residential real estate. Part of this is obviously because of interest rates. But part of it is also just because of emotion.
https://twitter.com/NewsLambert/status/1667548612040052737?s=20
When interest rates are low, people generally want to buy more highly-levered assets, such as real estate. This, of course, makes perfect sense, because lower rates mean more buying power. But how badly someone wants to buy more real estate should, at least in theory, depend on their particular situation.
If you're buying a pre-construction home, the current rate should matter less than what it might be in the future when it comes time to close (usually you can only lock in a rate for so long). That said, lower rates can help people feel richer because it buoys the value of their other assets/investments. So in this regard, low rates do help the pre-construction market.
On the other hand, if you're buying a home to immediately close on, then current rates matter a great deal. This is the rate that you are going to be paying. However, in Canada, the typical term for a fixed-rate mortgage is 5 years. Meaning that after 5 years the rate resets to whatever market is at that time. So eventually, the mortgage does become an adjustable-rate one.
In the US, this isn't the case. The most popular mortgage is a 30-year fixed-rate loan, meaning the rate stays the same for the entire 30-year period. What this means is that Americans should -- again, in theory -- want to buy more real estate -- the most -- when rates are low. That's the time to back up the truck and lock in a sweet rate for the next three decades.