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Everyone needs a place to live, right? That\\u2019s one of the arguments that underpins the demand for real estate. But in some markets, that is not an appropriate statement.  Let me take you back to the financial crisis of 2008 and it\\u2019s aftermath. There were a few counties in the US that stood out for the very high rate of foreclosures. 

Two markets that come to mind are Florida\\u2019s Dade county and Arizona\\u2019s Maricopa County. Miami is in Dade County, and Phoenix/Scottsdale is in Maricopa County. In fact it\\u2019s a long list of communities including Mesa, Tempe, Chandler, Glendale, El Mirage, 24 municipalities in total. 

Let\\u2019s be clear, a lot of people lost their primary residence to foreclosure in the financial crisis. The scale and human impact of that hard to comprehend. 

But both Miami and Phoenix have a few things in common. They are both sun destinations, and a lot of people own second homes in those markets. 

Given a choice, people overwhelmingly chose to protect their primary residence and allow their second home to fall into foreclosure. There was a much stronger attachment to the primary residence than a second home. At the peak, there were 42,000 brand new vacant condos in Miami. Most were pre-sold in 2005-2007. When the financial crisis hit, buyers chose to walk away from their deposits rather than get financing on a property that would be underwater. That was then. 

Eventually, over time those units got absorbed by the market and new construction resumed. 

When I was in Miami a few months ago, I was struck by the large number of construction cranes. It felt like the market was becoming overheated again. Back in 2015, some 80% of condo purchases went to foreign buyers. Today that number is about 20% of buyers come from outside the country. 

Again, one of the reasons I believe the demand is highly variable, is the high proportion of second homes. A second home is a luxury. It\\u2019s an investment. But it\\u2019s not essential to everyday living. 

Developers often don\\u2019t seem to realize the difference. When units are selling quickly, It\\u2019s too easy to assume the demand will persist.  

Unlike in past cycles, this time around, developers have been asking buyers for a 50 percent deposit to purchase a condo. Those funds have helped developers pour more equity into their projects, which meant they didn\\u2019t have to borrow a lot of money from banks. As a result, their leverage is a lot less than in the past cycle. Back then, projects were over-leveraged and developers had no room for sales prices to drop because they needed every dollar to pay back the construction loans. Also, back then, developers only required a 20 percent down payment, so it was easier for buyers to walk away from the closing table when the market turned. Now, buyers are motivated to close because they already paid 50 percent of the purchase price.