The Key West MLS has reported that the number of homes sold in the first week of the year has dropped from 54 sales to 16 sales.
But maybe more telling is the tone of voice of local realtors. Most notably is Regina E. Corcoran, a Key West realtor with a column in Key West's biggest newspaper.
In this past week's column, Corcoran urges buyers to come out of the woodwork and buy, buy, buy. Her reasoning? In her view, the downturn in the real estate market is temporary and caused entirely by post-Hurricane Wilma anxiety. She goes on to argue that Hurricane Georges, in 1998, caused a short-term disruption to the real estate market, and that Hurricane Wilma will soon fade into memory.
Corcoran has completely ignored the major reason for the bull market in Key West: interest rates. After Georges, the Prime Rate dropped from 8.5% to 4% (a period of 6 years). This has led to easy financing and a speculative environment. Now, however, interest rates are heading in the opposite direction. Since bottoming in 2004 at 4%, the Prime Rate has risen to 7.5%, a huge increase. This is precisely what is deflating the housing bubble - not just in Key West, but in many overheated markets throughout the United States.
But Regina Corcoran continues to give horrible advice in her column, encouraging people to buy any way possible. Most astounding, in her column she wrote:
True "no doc" money exists. That means if you have a pulse, good credit and a 5 percent down payment you can own a home.
Think about it, Einstein. You need 5 percent down, but nobody asks where you got the money. You could even put it on your credit card.
I don't think I need to elaborate on why buying an overpriced house using a credit card is a moronic idea.
What a shame, that realtors aren't bound by the same rules as fiduciaries.
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3 comments:
Everything you said is true, with the exception of the using Corcoran as the "voice of local realtors."
The homes that are selling, post Wilma and post low interest rates, are selling to qualified buyers using more traditional loan products, and the majority of those are second homes for the buyers. The numbers have dropped, as you report, but the realtors I know are far from desperate. Their target market has shifted to upper income, second home buyers and their marketing efforts are reflecting that shift.
Advertising in the Nantucket and Martha's Vineyard papers, as well as outlets like the Harvard alumni magazine, are being used more frequently, as well as even more targeted solicitations.
Several Duval businesses I have spoken with, which target higher end traffic, had record months in December and January. And those were historic record months measured since the businesses opened.
Again, I think your premise is correct, but the market is still there and will continue to be, just to a different market. Realtors who recognize this continue to prosper, just not as fast as they used to.
Great blog, keep it up....
Greg: I agree with you that there is a valid high end buyer. But I am concerned that many homes are in the hands of "weak buyers" reliant on a rising market to bail them out before traditional mortgage terms kick in. Sideways pricing (or worse downward pricing) is creating an overhang in the marketplace that will likely restrain/depress prices until those properties are absorbed by "real" buyers.
My guess is the condo market is where the real danger lies.
Although it is often said, and for now I agree, that there is a housing shortage, the fact that hundreds, if not thousands of new units have been built in the past five years in the Keys, if demand in the condo market drops, Key West may find a glut of property.
To me, in Key West, there are two residential housing markets: one made up of buyers/owners who can more than afford their home, and the others who are extended and speculating and in great danger. I wonder how one will eventually effect the other.
Thanks for your great comment Greg! I appreciate your input.
Regina Corcoran is a little looney for even suggesting someone put a down payment for a house on a credit card.
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