Welcome to the Beginning of the Real Estate Crash

Bad news for those looking for a turnaround in the Key West real estate market.

The number of Key West residential properties for sale continues to increase. I've been keeping an eye on the number of listings on the Key West MLS over the past month.

For example, a March 28, 2007 search of the Key West MLS showed 1135 residential properties for sale. One month later (today), the same search showed 1173 residential properties for sale - a 3.3% increase.

Local realtors continue to beat the sales drum, claiming it a great time to buy a Key West property. But if one understands the laws of supply and demand, then further price drops are likely. Simply put, more sellers than buyers equals lower prices. This could be one of the worst times to buy - especially for investors.

This data comes at a time when national home sales are plummeting. Sales of existing homes in the United States plunged in March by the largest amount in 18 years - causing the National Association of Realtors to say a rebound in housing may not occur until 2008. According to data released by the National Assn. of Realtors, sales of existing homes in the US fell by 8.4% in March, a decline that was three times what was expected.

So how much will prices fall? It is tough to estimate, but given the irrational rise in prices over the past 6 years, a significant drop in prices seems certain. Historically, price declines lag behind downturns in sales by 12 to 18 months.

I'm going to go out on a sturdy limb here and say this: Real estate prices will not surpass what was experienced, at least in your lifetime.

The fallout for this, both nationally and for Key West, is likely to be immense. Key West is especially vulnerable, as our basic industry, tourism, has been gobbled up by the real estate monster. Hotels that converted to "condotels" and luxury condominiums are going to have a very difficult time finding buyers, and some of the projects may find themselves unable to survive. This could leave a big deficit in the number of hotel rooms available for tourism.

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Florida Keys Veterans in Need

Many complain. Few actually do something about it.

For those traveling along US1 highway, you may notice a raft just off the 7 mile bridge.

There, a decorated Vietnam War veteran, William Sampsel, has been living on the raft for nearly a month trying to bring attention to the plight of veterans in need in the Florida Keys.

He has a website with a live webcam located at http://www.veteranonaraft.com/

Here is a copy of the press release I received from his organization, Veterans Haven, Inc:

William Sampsel, a 2 tour 5 time wounded decorated Vietnam War Veteran, has been aboard a raft for over 26 days. His cause is to raise awareness and funds as well as gain support for his dream.

After returning from Vietnam in 1972, Mr. Sampsel struggled for decades trying to get help from our government run veterans system. He was turned away, ignored, and worse. He found himself homeless and depressed.

In the mid-nineties after struggling with alcohol and medications, he met his wife, Mary, and his life started to make a change for the better. He and his wife traveled the Caribbean and the Florida Keys. They spent their days boating, fishing, diving and just relaxing.
Along the way, they met many Veterans who shared experiences. The recreation of fishing, swimming, diving, and boating while sharing his experiences with fellow veterans and being surrounded by the relaxation offered by the sheer beauty of the Caribbean and Florida Keys finally put Mr. Sampsel back on his feet.

After their journey, they settled in the Florida Keys. Together they started a charter fishing business, Wild Willy Charters located in Vaca Key, Marathon. It wasn't until 2004, Mr. Sampsel finally received the Bronze Star of Valor. That was 32 years after he earned it for a mission in which a platoon member died in his arms. Remembering that fallen solder spurred Mr. Sampsel to dedicate himself to our forgotten veterans. Soon after Hurricane Wilma Mr. And Mrs. Sampsel took over management of Whispering Pines campground in Grassy Key.
At their own expense, they purchased two mobile homes and began housing veterans in need. He took them fishing, boating, sightseeing, etc. Sometimes he just sat and just listened to their experiences. It was just what he did himself to get it all together. Well fed with a with roof over their heads and a relaxed mind, Mr. Sampsel began helping these veterans find jobs. After spending well over $10,000 of their own money helping veterans in need, the Sampsels knew they needed outside support. Veterans Haven, a Florida registered non-profit organization, was born.

Mr. Sampsel has a dream. He wants to build a facility in the Florida Keys for veterans in need. This facility will not be a permanent home for any one veteran but a retreat for any veteran in need from anywhere in the United States. An eight week program is what Mr. Sampsel is envisioning. A program based on what Mr. Sampsel himself did to recover, and what he has done for veterans with his own money. Veterans Haven will temporarily house these veterans in need. It will provide them with the recreation of fishing, swimming, diving, and boating while sharing their
experiences with fellow veterans and being surrounded by the relaxation offered by the sheer beauty of the Florida Keys. Veterans Haven's goal is to re-acclimate our veterans in need so they can return to civilian life as hard workers or hard working business owners.

Mr. Sampsel is now living on a raft anchored just off the Seven-Mile Bridge.

The live webcam can be found at http://www.veteranonaraft.com.

"Please carefully consider how you will support our vets and do so."

Veterans Haven, Inc,
P.O.Box 501803
Marathon, Florida 33050
Phone: 1 877 743 4801
Fax:
305 289 1606
http://www.veteranshaven.com/

I encourage you to visit his site and support his efforts.
And THANK YOU Mr. Sampsel. We all owe you a debt of appreciation for your service and continuing support of veterans.

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Back from Sailing the Bahamas

I haven't posted the past week (or so) because I was sailing from the Bahamas to Key West - a wonderful and restorative thing to do.
At sea, with the wind, waves, and sea surrounding you, land-based problems seem as distant as Pluto. Time, which often comes at us too quickly or too slowly, seems to steady itself and come at you at the right speed...just as it should be appreciated.
I've attached a few photos from the trip. At times, I couldn't help but feel like I was in a painting, surrounded by a level of beauty that one would orchestrate if one could.


Here is a photo of the approach to Andros Island. The sandy bottom that surrounds the island causes the sea to look like an immense swimming pool.
Andros is a large and mostly undeveloped island. I'm amazed about the number of people who flock to the Atlantis on Nassau - a seething theme park and completely devoid of anything authentically Bahamian. But, to each his own.
Next is a photo of cannons that "guard" the Fresh Creek on Andros.
Next is a photo from an allnight sail. With no moon, I cannot remember ever seeing more stars.

Our last night before the crossing to the Keys, we were treated to a spectacular sunset. The deep red of the setting sun was caused by the smoke from wildfires in Florida.

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New Statistics Confirm Tourism Slowdown

Statistics released by the Key West Chamber of Commerce confirm what many have been saying: Key West tourism is down.

Here are some highlights of the data:

• Over 20,000 less cruise ship passengers arrived in Key West in January 2007 compared to January 2006 - a 21.4% decline


• Over 12,000 less cruise ship passengers arrived in Key West in February 2007 compared to February 2006, a 14.6% decline


• Cruise ship port calls declined 18% for January 2007 and 13.6% for February 2007


• Number of tourists arriving by plane declined 8.1% for January 2007 and 9.2% for February 2007 (a total decline of 5000 fly-in tourists for the two months)


• Bed tax "3rd penny" collections were down 5.6% (approximately $20,000), the first decline in 5 years

The past few years tourism has faced many new challenges including the hotel to condo conversions, hundreds of hotel rooms offline, doubling of room rates, lack of affordable housing for workers, and a city leadership that looks mostly pleased that tourism is taking a backseat to luxury development.
The tourism industry here should recognize that their businesses (and much of the island economy) are in jeopardy.

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What Your Realtor Doesn't Want You to Know

There is an only saying on Wall Street: "When the doorman starts giving you stock tips, it's time to sell your portfolio."

I'm often reminded of that when I hear real estate agents' rational for why you can't lose buying real estate. A local advertisement from the realtor association gives many reasons why it is a great time to buy real estate (all of its reasons are incorrect - something deserving of a post all by itself). This mornings radio magazine had a mortgage salesman saying he couldn't understand the press stories about how bad the real estate market is. Over at Conchette's excellent blog an anonymous poster contributed:

"But over the long haul, more Americans have generated more wealth from home ownership than any of their pure investments."

As they say, "patriatism is the last refuge, to which a scoundral clings."

But lets look more closely at the facts.

I have included a now-famous chart of US home values from 1890 to last year (click on the chart to see a larger version). This chart is in real terms - meaning that inflation has been removed from the equation. Therefore, the chart is truly relecting the value of homes over the period studied.

According to the data, if you purchased a home in 1950, the value of that home had not increased until the turn of the century. Or maybe worse, if you bought at one of the peak periods in the 1950s, at the time a small housing boom, you were at a loss for the next 25 years. And there were plenty of other periods where housing was a bad investment - for example if you bought at the end of the 19th century. Then, you would have to wait 50 years before you could sell your house for an actual profit (again, in real terms). According to the chart, real estate values spend most of their time doing nothing - for decades at a time.

Maybe even more interesting is looking at each of the spikes that are on the chart - noting the huge price appreciations of short periods of time. Notice that the next move is down - nearly as sharply - then a long "sideways" period (often decades).

Also notice how large the housing boom of the past decade was. The gains are completely unprecedented. Therefore, I expect the fall will also be unprecedented in magnitude.

Don't believe you realtor into believing that real estate is a "can't lose" situation.


You most certainly can lose - and if this chart is any indication - the chances and effects will be signficant.

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Say Hooray for the Life of the Manatee!

Two days ago a friend phoned and said "You should see how many manatee are around my boat right now. I don't think I have ever seen this many." He had just returned to Garrison Bight after a morning of fishing and discovered a large group of manatee swimming around Garrison Bight Marina.

I headed over and saw at least 12 majestic manatee slowly swimming around the basin. There may have been as many as 15. One had noticeable boat-propeller scarring on its back, but otherwise they looked happy and healthy. I snapped a few photos and am posting them here to share with you.
Then yesterday it was announced that the manatee population in the state of Florida has improved to the point that the animal may be removed from the endangered list and instead put on the threatened list. This years manatee count numbered 2800 in Florida - a large improvement from just a few years ago.

No wake zones/manatee zones have no doubt improved the manatee population. I hope that the manatee continue to improve. Officials have claimed that downgrading the manatees designation will not remove protections - such as the Marine Mammal Protection Act. Lets hope so.

Above all, laws or no laws, it is humans that can do the most to protect manatees. Boat SLOWLY AND BE ON THE LOOKOUT in areas that manatees are likely - especially marinas and nearshore waters. And do not feed manatees water, lettuce, or anything else. Otherwise, you will be training them to visit the most dangerous places for them.

Say Hooray for the life of the manatee!

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Video: Global Warming Submerges Florida Keys

It has been said that Key West (and the Florida Keys) are on the front lines of the effects of global warming. Many are debating the causes of global warming, but few can deny that it is happening.

The National Environmental Trust, "a non-profit, non-partisan organization established in 1994 to inform citizens about environmental problems and how they affect our health and quality of life", has put together a video showing the effects in the Florida Keys & Key West of a 1 meter (3 foot) sea level rise.

The first part of the video shows what would happen to Key Largo and the Upper Keys: all would vanish.

The second part of the video focuses on Key West and shows two scenarios if our sea level rises 1 meter higher: 1) effect on Key West coastline, and 2) storm surge flooding in Key West caused by a Category 2 storm. The effects are just as devastating.

See for yourself by clicking on the play button on the youtube viewer I've installed into this post.

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Santa Maria Condos Raise Question of Fiduciary Responsibility

This week it was reported that the Santa Maria condominium developer and real estate agents are being sued for fraud.

The plaintiffs in the case are admitted "flippers" - purchased pre-development units while planning to sell them before closing. The plaintiffs had to put up close to a quarter-million dollars for a unit and now are about to lose their deposits since they are unwilling to close on the property.

The plaintiffs blame development delays and incomplete work for not being able to sell before closing. They feel they were defrauded by the real estate company and the Santa Maria developers who they allege promised them a huge return on their investment.

Most local reaction has been against the flippers - saying, as in today's Citizen's Voice, "I have no sympathy for those who bought the Santa Maria condos. Come on...a fool and their money are soon parted."

I'll admit, my initial reaction was the same.

But maybe we should look at what realtors in general have been saying, and questioning if they have been irresponsible in their "buy at no limits" pitch. I've pointed out more than once Regina Corcoran's (a realtor) foolish advice to load up a credit card to purchase a house.

There was a time in the US that purchasing stocks was considered a gamble, and if an investor lost his or her money then tough luck. But that attitude changed in the late 1980s - when courts, states, and regulators began to look at stock brokers as fiduciaries with a responsibility to the financial welfare of their clients. Maybe it is time for realtors to be treated as fiduciaries and not be allowed to bury a client in an investment. And what about the idea that the realtors and developer may have actually committed fraud by promising gains to these plaintiffs, knowing that these purchasers couldn't afford to close on the property?

So, how bad were the Santa Maria purchases? Apparently horrible.

It is no wonder why the plaintiffs cannot sell the units. They are priced at $1401 per square foot! With the crash in the condo market, these units are priced at more than twice what nearly any other condo costs.

Seriously, $1.3 million dollars for a 907 square foot condo? (and for another $200,000 you can own a "larger unit" with an extra 38 square feet. That works out to $5263 per square foot for the extra 38 square foot area).

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