Key West Realtor Predicts Prices Will Fall Further

So how bad is the real estate market? For one of the first times, I suggest you listen to a realtor.

According to a local realtor's blog, Gary Thomas writes that much of the real estate market is still overpriced and, like the doomed ship Poseidon, will likely fall further.

One property Thomas mentions was listed in 2005 for $1 million. Today it is listed at $395,000. Amazingly, even at this price, he believes "it isn't even worth that much".

Here is an excerpt from his post dated January 17, 2008:

What you can't see are the daily entries of new listings, price reductions, contingent sales, pending sales, solds, and expirations. But I can. And the number of Price Reductions that are happening is alarming. There are not just a few. There are a lot--everyday. It's like the sellers are finally coming to the realization that we are near the end of the first month of our sales season and that if they have not been getting any positive action on their property that maybe, perhaps, probably their sales price is too high. "Duh!" to quote Homer Simpson.

Yesterday for example one Broker/Owner reduced the price on four separate over-priced properties the Broker/Owner owned and this time included language that each individual may become a "Short Sale" requiring lender approval (shorthand for loan forgiveness) to get the deal accomplished. I specifically recall showing one of these properties in the early summer of 2005 when it was priced just around $1 million. Today it was reduced to $395,000. And it isn't even worth that much. I think the Broker/Owner has finally capitulated.

Yet there are still Realtors listing properties at prices that are out of touch with reality. You will note that I normally recite the price per square foot when I discuss a particular property. That is so the reader can compare other properties to make an evaluation of the real value of the particular property I am discussing. There are a few properties that are so well located and so perfectly done that they may qualify for an astronomical asking price, but the emphasis is on the word "few".

It will be interesting to see how the asking prices shake out during the next three months. The properties that are selling right now are following the traditional Key West sales pattern for years gone by: high end, very low end, and very well located and well priced Old Town homes. The stuff in the middle just languishes. If the market cycle theory holds true more and more sellers will capitulate and that, in turn, will drive more and more prices downward.

My applause to Gary Thomas. Thanks for keeping it real.

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Harbor House Condos Largely Unsold

With a straight face, I've heard it said that the Harbor House condos are selling "very well".

But according to the current MLS, 29 of the 32 Harbor House condominiums remain unsold.

Maybe their problem is the price: pre-construction prices range from $1,950,000 to $3,120,000 .

This equals over $1000 per square foot!

For that price, maybe it comes with a time machine that will get you back to the top of the real estate bubble where you can sell it for a profit.

Currently, condos in Key West are actually selling for much less - most below $500 per square foot, some as low as $250 per square foot. (Granted, these may not have quite the same level of "sumptuous bathrooms" - LOL!).

With the glut of unsold condos that have flooded the Key West market, one has to wonder how long before prices on these pricey condos return to earth?

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Beware of the Predatory Lenders - IN YOUR WALLET

With the constant headlines about predatory mortgage lending, I've wanted to write about what I see as the biggest predatory lender - credit cards.

Now, thanks to Pier One and Chase Bank, I've decided to write something about the abusive credit card industry.

Credit card companies are largely unregulated and, thanks to some states' dismal laws, are able to charge interest rates equivalent to loan sharks - we're talking 25%-40% interest rates. I wouldn't doubt there are higher rates being charged (especially with fees tacked on).

Credit card companies are notorious for giving people more credit than they can afford - meanwhile handing them terms that will bury them in bottomless sea of debt should they become even momentarily late with their payments. In the process, credit card companies are systematically destroying the credit of millions of Americans - most of whom can least afford it. Charging anyone 25%-40% is dooming them to failure and, therefore, is predatory.

How is this possible?

Summed up by the PBS Frontline :

If you've ever looked at the return address on your statement, you may notice your credit card issuer is located in a state such as South Dakota or Delaware. That's because these are the states that have either weak or no "usury laws" meaning there is no cap on the interest rate that is charged. (View this map that shows the states where the top ten credit card issuers are located.) The federal government once had national usury laws that set a cap on the amount of interest that could be charged on a loan. But after the Great Depression, it repealed them and some states put no new usury laws in place. That's why Citibank, the issuer of Mastercard, moved to South Dakota, which has no cap on interest rates. (For more on the South Dakota story and how the credit card industry took off in the 1980s, read The Ascendancy of the Credit Card Industry)

It is time to end this predatory behaviour that is destroying too many lives.

If a borrower is so risky that the bank claims they need 25%-40% interest rates to compensate, then the bank should not be lending money to that borrower. 25%-40% interest rates will surely doom the borrower - and this is the heart of predatory lending.

I call upon our Representatives in the State and Federal government to do something about this. Protect and help consumers. Here are some ideas of what the government should do:

• Encourage competition in the credit card industry. Offer favorable lending terms to banks that agree to interest rate limits.
• End loan sharking. Stop charging the poor rates that will doom them.
• Don't allow credit card companies to make predatory loans. Force lenders to establish that borrowers can pay off reasonable penalty rates, otherwise don't allow them to make those loans.
• Lend money directly to consumer. Why should banks and institutions be the only ones to get fair borrowing terms.
• Increase credit card companies' disclosure obligations. Make it mandatory for a credit card company to let customers know how long it will take to pay off their credit card if they pay the minimum balance.
• End "Universal Default" - the raising of a borrower's interest rates when they default or have too much debt with different lender.

If our government is serious about ending predatory lending, then they should not ignore the credit card industry.

What's Pier One Got to Do With It?

Pier One & Chase bank "congratulated" me by "upgrading" my account to Platinum level and issued me a new Pier One store card. However, after a call to the credit card's Customer Service, I learned that Pier One and Chase were deceptively issuing me a Mastercard. There was no Mastercard logo on the card nor mention of Mastercard anywhere, including in the agreement, nor did I ever apply for a full-blown credit card. This was supposed to be a "store" card. Plus, the new card's agreement obligated me to spend at least $1000 over the next 12 months at Pier One - something I'm not likely to do - thereby violating my "agreement" and harming my credit rating. The Customer Service supervisor said they felt consumers would appreciate the upgrade. I didn't and closed my account.

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Key West Real Estate Prices Will Continue to Fall

Prices for Key West residential real estate will continue to fall in 2008 - part of a downturn that may not recover for many more years to come.

Prices will be further depressed by too much property for sale, continuing overdevelopment, tightening lending standards, and a lack of buyers.

Realtors looking to sell homes are often quoted saying "Its a great time to buy", but the sales statistics reveal a deeply overbuilt and overpriced market.

At the current sales pace, there is an estimated 3.75 years worth of supply (135 sales in the past 6 months versus 1010 residential properties currently for sale in Key West). Keep in mind there are hundreds more properties on the market that are not in the MLS - and a drive around the island clearly shows many more projects underway that will continue to add to the oversupply.

If you are looking to place blame for the falling market, look at the builders/developers who have flooded the market - and continue to do so.

According to the Marathon and Lower Keys Assn. of Realtors spokeswoman, prices fell 20% in Key West while days on the market increased 34% (2007 versus 2006).

With evidence of no real improvement from 2007, expect real estate prices in Key West to fall, on average, another 20%. And those properties still in the pricing stratosphere will have an even greater fall.

Strangely, this happened before in Florida - nearly a century ago. Here is an article about the Florida real estate crash of the 1920s, much of which sounds like it could have been written about Key West's recent housing bubble:

"Starting in 1920, many Americans became enamored by the materialistic and prosperous lifestyle of the time. During this time, the stock market was moving forward at an extremely fast pace. Many investors were becoming quite wealthy.
Florida became a hot spot for these newly rich people, who didn’t enjoy the cold. Many whole families took vacations to Florida. It was at this point that tourism started booming and land prices were skyrocketing. Many astute investors took notice and started buying Florida real estate. The population in Florida was growing exponentially and housing couldn’t meet the demand. Florida became the “playground of the rich and famous”. Illegal casinos and drinking parlors became widespread in Miami.
At this point, almost anybody could invest in Florida, even without much money. Credit was plentiful and soon everybody in Florida was either a real estate investor or a real estate agent. In 1922, the Miami Herald became the heaviest newspaper in the world as a result of its humongous real estate advertisements. People in the North heard about the real estate prices “doubling and tripling”, causing a snowball effect. Capital was rapidly pumped into the real estate market. Whole golf communities were developed, such as Temple Terrace. Resorts and retirement communities were developed almost overnight. Mansions were sprawling in every area, as were swimming pools. As always, waterfront property was the most desirable. Florida was seen as a veritable Utopia.
Real estate prices quadrupled in less than one year. An elderly man invested $1,700 in property and by 1925 the property was worth over $300,000! It seemed you could do no wrong by just buying any property in Florida and become a millionaire. By 1925, real estate prices had become so exorbitant that buying land wasn’t affordable any longer. New investors failed to arrive and old investors started to sell. Panic arrived, as it always does, and the real estate market crashed. Prices kept moving downwards as heavily indebted investors tried to sell to avoid bankruptcy. In most cases, no buyers arrived, and the investors were bankrupt from the enormous mortgages.
To make matters even worse, a highly destructive hurricane ravaged South Florida in September 1926. The 125 mile an hour winds eventually turned Palm Beach County into swamp lands. After the storm, a huge tidal wave crashed upon the towns of Belle Glade and Moore Haven. Due to these horrible turn of events, over 13,000 homes were destroyed and 415 people died. Additionally, the arrival of the Mediterranean fruit fly obliterated the large citrus industry. It took years for Florida to fully recover, even through the highly prosperous time from 1925 to 1929. Florida was barely affected in the stock market crash of 1929 and the Great Depression, because of its poor financial state from the start.
Market crashes always occur in the same manner. Regardless of the market, the same simple psychological underpinnings are always at work. People who are caught up in a bubble never look back for historical examples. For this folly, they become paupers.
“Those who cannot remember the past are condemned to repeat it.”"

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FUNNY: The Ever-Changing Michael Jackson

Michael Jackson's too-numerous plastic surgeries have left him unrecognizable. But when I saw this video on YouTube, I thought I forgot what the "King of Pop" actually looked like.

Will the real Michael Jackson please stand up! This video was produced in Bolleywood, the India film and movie capital. LOL

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