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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