Strange. Today's Key West Citizen editorial, titled "A Keys buyer's market offers opportunities," read as if written by a real estate broker. The editorial makes a case for why it is now a good time to buy.
No doubt, the Keys are a wonderful place. But market indicators show that Key West real estate has further to fall before bottoming.
Like it or not, the Citizen's editorial staff may have recommended catching the proverbial falling knife. It may be one thing for the editors to look the other way while the real estate pros continue to publish an erroneous and misleading advertisement. But I found this use of the editorial space to be a disservice - mainly because it overlooking the apparent problems with the real estate market.
Supply continues to heavily outweigh demand. Before a bottom in the market is achieved, supply and demand will need to find equilibrium. Although the bear market is into its second year, the technical indicators have not improved. In fact, they have deteriorated.
The number of properties for sale in Key West for the first three quarters of this year continued to swell higher.
Meanwhile, total sales, value of sales, and average sales price continued to fall. Further compounding the bear market in real estate, average days on the market swelled higher.
According to data recently published for residential Key West real estate, comparing the first 3/4 of 2006 versus 2007:
- total sales were down 0.5% to 366
- dollar value of sales dropped 15% to $305 million
- average sales price dropped 14% to $833,000
- average days on the market grew 29% to 174 days
- average list price was down 7% to $991,000
- the number of properties for sale increased 9% to 1394
We have likely not seen the bottom of the real estate market here. The Zillow chart attached to this post shows the Market Value change for Key West over the past 10 years. (Notice, on the chart, that a double bottom is trying to hold (the right side of the chart). But given the supply/demand numbers, prices are likely to continue to fall - thereby breaking the double bottom. When this happens, it is often referred to as the "other shoe dropping".)
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30 comments:
Just when did the Key West Citizen get so lovey dovey with the real estate agents on this island? Don't they usually bash them? Why the change?
Keep in mind: real estate advertisers are likely the largest source of revenue for the paper over the past few years. Nowadays, the real estate section often has more space devoted to public notices about foreclosures than big ads by realtors.
A time of crisis in a real estate market is often a time of opportunity for buyers. Just because prices may have not hit bottom, it does not mean that there are not some great bargains to be had for the educated and savvy buyer. When sellers and buyers stop looking at real estate as an investment and start looking at it as a place to live, over the long term, one is always better off being "in" the market than "out" of it.
Elizabeth Chasse: As much as I appreciate you taking the time to comment, I cannot remain silent about your conclusions.
It is a fact that for most decades over the past 150 years, being "in" is not better than being "out". Most times, residential real estate underperforms most other asset classes - barely beating the rate of inflation.
When given the choice of renting for $1500 (and saving and investing your extra money) versus paying $3000 for a mortgage/taxes/insurance, choose to rent. In the end, you will have built up more equity.
A previous post of mine goes into detail about the numbers involved.
Our market is still wildly expensive. I would not suggest people buy unless they don't mind not getting their money back when they sell.
Cayo Dave - did you read the article in the Sunday a week ago Miami Herald about gold being a bad investment overall? Low appreciation since 1980 as it has gone up and down and is barely above the mark from 27 years ago? The article was not favorable on gold and the metals market. I don't have a copy - maybe online you can find it. It was in the front section of the Sunday Miami Herald of 10/14/07.
It is far more better to have a secure roof over your head THAT YOU CAN AFFORD then to play games in the real estate market. Remember - just because it is a short sale or a foreclosure doesn't mean any savings on taxes, insurance, condo fees and the like. And as for money to borrow - forgetaboutit! Unless you have 750+ credit score, AT LEAST 10% down (preferably 15-20%) and DOCUMENTED JOB STABLE INCOME wher you have been for AT LEAST 3 YEARS you ain't buying nothing in Key West. No bank will finance you on this island so you better have a good source elsewhere and be able to come to the closing table with CASH and realize the you still may not get the house/condo you want as BANKS ARE STILL PLAYING GAMES up to the last minute!
GOOD LUCK any potential buyers in playing the waiting game with banks and short sales - it's a nightmare!
anonymous - I missed that Miami Herald article. I'll have to look for it.
Gold is not a good investment: if you use the definition of investment being to outperform inflation. At its best, gold is a hedge against inflation.
Unless the market is manipulated and/or constrained, housing is not much better.
CD posited:
> When given the choice of renting for $1500 (and saving and investing your extra money) versus paying $3000 for a mortgage / taxes / insurance, choose to rent.
Let's look at those numbers....
Assuming you put down $50K (not easy for some, but a reasonable expectation for many) on a $400K house (there are plenty of those in Key West these days) you'd be financing $350K. You might qualify for a 6.5% loan, which means payments of about $2200.
Add $800 for taxes & insurance and we meet your $3000/mo criteria.
You'd be hard pressed to find a comparable rental for $1500/mo, but we'll grant it (if you'll let us ignore possible home owner association fees). That means your out of pocket is $1500 more per month, or $18K per year.
Thus on the average the house would have to increase in value by 18/400 a year to break even. That's 4.5%. Let's call it 5% to also cover the lost interest on that $1500 a month (which most renters see very little of anyway).
Though the market now is flat or a bit negative, in the long run it wouldn't be unthinkable for a house to increase by an average of 5% a year. Not in the next couple of years, but over the next 10 years, sure.
If you're going to live in it for some time, I'd recommend buying.
I wouldn't recommend purchasing a declining asset. Once we are at a lower price (or enough time has gone buy that the inventory has diminished), then would be a better time to purchase.
Since it looks like there will be another shoe to drop, why not wait and save $xxx,xxx?
Let us not forget about daily/monthly/yearly maintenance on that $400K home investment. Hope you are handy and have a nice open credit card at Home Depot (or know enough tradespeople) when it comes to cleaning gutters, painting, caulking, lawn maintenance, and anything else like replacing a broken faucet, repairing a cracked driveway, sealing a deck, replacing anything missing from that 'short sale' (you know if it ain't bolted to the ground the last owner probably took everything in site!) and anything else big ticket like a/c or water heater replacement, any glass breakage, plumbing or electrical issues, even shingling a roof if need be. And we haven't even covered any previous water damage not fixed or not reported.
Plus don't forget closing costs, home inspection, survey, elevation certificate, and title insurance and PMI. Oh sure, you can roll it into the closing and at about 6-8% of the cost of your new property you are now looking at more like $408,000. And lets hope you have a secure job NOT in the tourism industry as your INCOME FOR THE NEXT 5 YEARS at least better keep up with your NEW HOUSE PAYMENTS! And since you probably didn't do this on your own, hope your relationship with your spouse/lover/significant other is smooth. Otherwise, you can kiss the whole thing good bye when you both split and divide what is left of your so called 'happy home'.
I am always amazed at how stupid people can be to buy a home when they have:
-no retirement funds set up let alone never contribute to their 401K or IRA each year
-no short term savings in case of emergency
-no health care
-no life insurance
-no idea what they are doing in their financial future
yet these idiots will buy a home and either borrow from mom and dad for a downpayment or worse, take a withdrawl from their 401K or IRA to put down on a home they can't afford.
Yes, now is a great time to buy but even the National Association of Realtors aka NAR has stated that they don't see an upswing will 2009 at the earliest in the real estate market. We are slowly heading towards recession and this dumb people want to buy a house now. Are they crazy or just ignorant or both?
It you want security start SAVING some instead of SPENDING everything you make each pay period. I have no sympathy for those who got into the housing mess and are in chapter 11 or 7 or whatever. They have learned a hard lesson and if their butt is on the street because of their ridiculous actions I could care less.
What do "stupid buyers" (who rally can't afford to buy in the first place) have to do with whether a qualified buyer should buy now? Qualified buyers do actually exist. Not everyone looking for a house is stupid, unstable or over-extended.
And regarding the costs of maintaining a home, even when you rent there are costs involved. Unless you have a great landlord, some fixes for the mundane things (like broken gutters, etc) are either going to come out of your own pocket or remain unfixed. And when you own, other than emergency repairs, you can spread them out over time (ie, let them ride until you decide they're getting too inconvenient to ignore anymore).
I think some of the anti-homeowner fanatics here must not have actually owned a home, and have inflated in their own minds how much hassle it is....
The Landlord is responsible for the fixes and no, it is rarely the tenants responsibility. If, as a renter, you do the work, you can be sure to take the amount paid plus labor off your next rent check.
As for qualified buyers, as stated before you better have the best credit, enough downpayment and be willing to stay AT LEAST 5 YEARS in your new PRIMARY RESIDENCE. This IS NOT A GAME like the idiots in bankruptcy and foreclosure thought they could make a fast buck. Appreciation is NOT why you buy a home - you buy to LIVE in it FOR A LONG TIME to have a roof over your head. Vacation homes, second homes, third homes are all a thing of the past because unless you hav ALL CASH you won't get financed.
Now as to timing, sure, go ahead, buy now and realize that next year your new home will be WORTH EVEN LESS than you paid. Can't you see beyond your limited sight that HOME SALES ARE THE LOWEST IN YEARS and that the HOUSING MARKET HAS YET TO BOTTOM OUT?
I am still amazed at those who think they know better than the experts. I just sit and watch them lose their homes and end up with nothing to show for it all.
As for anti homeowners, I have owned more homes than you will ever know and I now rent because in this market I won't be the sucker. That's your job.
Even if more significant repairs have to be made to the house that you OWN (rather than rent), the cost of those repairs is likely offset (in comparision to a renter's costs) by the tax deductions for the mortgage and property taxes. (The tax deductions weren't even factored into the cost comparison done up above.)
So the net is still that you'd come out ahead by buying now (at the hypothetical $3000 PITI rate) instead of renting (at the hypothetical but somewhat unrealistic, at least in Old Town, $1500 rate), as long as you stay in the house for a good while.
Is this a good time to "INVEST in housing"? Nope. But it's a reasonably good time to buy a HOME. If you keep waiting for that house you like to drop even more, somebody else is going to get it before you...
If you have not saved for the future, have no retirement strategy and have no money in savings or whatever why do you want to buy a home? Do you really like going into debt up to your eyeballs so you can live in stress and fear that it will all disappear? And what are you gonna do if an emergency comes up? Cry? Ask the government for help? Beg from your parents? Or just live on the street? I say the last if you are lucky. If you are in your 20's and haven't started saving you are truly an idiot. And if you are in your 30's and don't have at least 50-100K saved for the future (401K, IRA, stocks, bond, whatever strategy works for you) outside of your downpayment, you are in no position to by a home. And is you are in your 40's and don't have at least 200K or more saved you are really screwed. Remember, time is something you can't buy back and once it is gone it's gone. Time to invest is precious so don't waste it!
If you keep waiting for that house you like to drop even more, somebody else is going to get it before you...
I call bullsh*t. The glut of properties will continue due to the lack of capital available and the overpriced market. Meanwhile, more and more development is coming online and will further flood the market.
If you pay $1500 per month, you should demand a satisfactory place to live from your landlord.
And to the last anonymous commenter who believes you are going to hell if you haven't saved X dollars - you are smothering yourself with consumerist and elitist attitudes. I have seen plenty of people quite content living within their means and without all the distractions of the current fad.
Buying a house for a tax deduction just shows how little you know - the entire aspect of buying a home to get a pittance back each year is ludicrous. Read up on tax law.
SO Cayo Dave thinks saving is 'elitist'? What are you gonna do when you get older? Guess a cardboard box and a stolen shopping cart full of your belongings is your future. That is unless you save and save now!
Don't misconstrue my words: saving is not elitist. I am an advocate for saving.
But calling people idiots for not doing so is elitist.
You have no idea why people may not have saved, including: health, education, access to opportunities, etc.
Maybe that "idiot" is a farmer, living year to year, with nearly nothing saved. Tell him/her that they are an idiot for the way they live.
But mainly I'm offended by your notion that people are f*cked for not saving. This sounds grounded in fear.
Would you still be the same person if you didn't have your money?
I have to agree with the poster Cayo Dave. To not save is ridiculous in this economy and in this climate. If you don't earn enough to survive now living paycheck to paycheck, what's your plan for the future? Don't rely on social security or medicaid. I want to know that if something happens I have a cushion to fall back on to live. If that means living without now so be it. I don't need the cable tv or the fancy iphone or another vacation. I will take two or three jobs, go back to school at night for an advance degree and instead of struggling I will get ahead. Do it while you are young, save for the future, quit living on your credit cards and if you can't make it here go somewhere else and realize the paradise dream isn't for everyone. There will always be the haves and have nots and to complain when someone speaks up in favor of saving is just plain dumb. Careful Cayo Dave as ignorance is not bliss. And to use the farmer analogy is like comparing apples to oranges. From my understanding we are talking about Key West, not Nebraska.
I can't help but think of the millions of people wasting their lives in unsatisfying (and underpaying) jobs - all in fear of losing their "one" path to a secure life. They must, according to the other commenter, keep up with the Joneses...you will be REALLY SCREWED if you don't have 200K in the bank when you are in your 40s.
But to each his own, and I entirely support your right to spend you life however you please (so long as it does not impinge of others' pursuits of life and liberty).
Let me just say: yes, you should save. And more importantly, you should not become too indebted. But fear not kind citizens of our fair land - you will survive perfectly well so long as you make one investment: a good philosophy.
Twas posted:
Buying a house for a tax deduction just shows how little you know
Just shows how little you paid attention to the discussion. The tax deduction was just an ADDITIONAL factor in the overall cost comparison, and it was definitely pertinent within that context. Show where the math is wrong if you like, but don't accuse people of being know-nothings based on a single out-of-context statement...
And I can't help thinking that is everyone thought as Cayo David with no plan for their financial future is one very good reason why our economy and our housing mess is in the state we are today. I guess to each his own is correct but I would rather live in my paradise with security in the bank than in Cayo Dave's fools paradise with nothing to show in the long run. Guess I will laugh all the way to the bank. Ha!
To buy a home just for the purposes of a tax deduction is not logical. This discussion, by the way, is about the bottoming out of the housing market in Key West and not about taxes. Please try to keep up with the program!
Once again we are hearing from the master of disaster a tale of doom and gloom. It appears to me that based on your figures it will never be a good time to buy or sell real estate in KW. It is this type of negativity that helps to keep the market down. Did it ever occur to you that a lot of us bought real estate not for an investment but for the lifestyle that KW offers us. My house is a home not a stock, mutual fund or other investment. So once again I will say that if you are looking to buy for the LONG RUN 7-10 years this is a good time to do so as long as you are careful. If you are looking for an investment property GET THE HELL out of KW. !
Well, we will consider buying when it actually saves money instead of costing more.
The condo I rent for 2k , the owner wanted 700k for, even if I could buy it for 500k , it would still make more sense to rent it.
No it is not a good time to buy in Key West now as most forecasters are predicting that the bottom isn't here. Most ARMs (the typical 5 year type) have not yet set that were purchased in 2003; that means bottom may not hit till 2008 to 2009. Most banks are trying to get 50% of the purchase price. Don't believe the hype from realtors that we are in an upswing or even the latest quarter earnings from Countrywide. They have all lied in the past - why believe them now? No, your justification that now is the time to buy is so you can prove to yourself you didn't get taken to the cleaners by purchasing in Key West in the last few years. Sorry, we aren't buying crazy today - but I do feel sorry for you who bought into the 'lifestyle' of Key West. You missed that boat years ago and a Conch you will never be. So either way you are the one who got screwed. I'll wait and purchase a home just like yours in 2-3 years for half of what you paid and will be more than happy pursuing the life in Key West on MY terms and with MONEY IN THE BANK to boot!
Oh, when I said banks are trying to get 50% of the purchase price I meant those in foreclosure. We have so many here in Key West! Just to set the record straight.
No matter what, don't forget that no other investment or business has ever made as many millionaires as REAL ESTATE. Also, if you rent, are you safe from rent increases? If you bought a home 20 years ago with a 30 year fixed loan you still would have the same payment from 20 years ago today! How much will your $1,500 rent be in 20 years from now? Maybe about $6,000? Still, buying a first home right now is baaad timing. Rent till it really buttomed out and then buy. Buy low and sell high!
Again you are insisting that buy in real estate you must buy low and sell high. What idiot told you to treat real estate like a stock or a commodity? Probably the same realtor who sold you that overpriced home you live in with taxes increasing every year along with insurance. So if my rent increases, I move. However, a good tenant is hard to find and most landlords know better than to increase rents to a point that the home remains vacant. I will wait to buy my home and in the meantime I live in a home you or I never could afford and live the Key West lifestyle at a fraction of the cost. Ah the good life - don't you wish you were me?!
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