Foreclosures & Other Forces Pressure Key West Market

Countrywide, America's largest mortgage bank, currently has 14,451 REO properties for sale on its website (click here to see the Countrywide website inventory) - these are foreclosures that the bank now owns. This totals nearly $3 billion in current listing price. In Florida alone, Countrywide is trying to unload 1,561 properties they have foreclosed on for a total price of $315,324,354.

Key West is not immune. Currently, the Countrywide website lists 10 Key West properties that are REO = Real Estate Owned (by the bank, that is).

The chart included with this post shows the rapidly increasing number of Countrywide REOs since the beginning of the year.

Despite real estate prices falling significantly these past two years, the number of properties for sale in Key West remains stubbornly high. Currently there are over 1000 residential listings for the island of Key West - far outweighing the few small number of transactions occurring - and roughly the same as two years ago. Until the inventory level drops and more closely meets demand, prices have no way to go but continue down.

Even if the high inventory levels magically disappeared, there would still remain downward pressure on prices due to:

1. the very uncertain state of hurricane insurance in Florida. Hurricane insurance already costs roughly 2% of your houses value each year. Currently, Citizens' Insurance (the State-backed insurer of last resort) is proposing doubling premiums. Though valiant efforts by grass-roots organizations have managed to keep increases at bay, when the next hurricane hits Florida, all bets are off.
2. the Florida budget is a disaster - and the county budget isn't much better. Currently, the Florida legislature is working on a budget $5 Billion less than last year. This will devastate many health and educational programs statewide. One has to recognize that this contraction in spending will have its own recessionary effect on Florida.
3. the US is, by some measures, in a recession. House prices will not make any progress upward with these headwinds.
4. the developers throughout the Keys are still planning to build hundreds more luxury units, which will more than meet any increase in demand
5. banks are in peril due to their own lax lending standards and falling house prices. Even if people wanted to buy, they would have difficulty finding financing - especially since South Florida is just about the epi-center of the national housing crash.
6. despite the big drop in real estate prices in Key West, many sellers continue to list their properties at stratospheric levels. Anyone listing for more than $500 per square foot should lower their price if they want to sell their home anytime soon (most property is selling at around $350 per square foot and less). Many are probably upside down, and will end up foreclosed upon, further pressuring prices.
7. housing prices in the Florida Keys dwarf income levels - an unsustainable imbalance.
8. many more foreclosures are coming. despite interest rates being lowered, mortgage rates haven't fallen very much. Borrowers are "upside down" and trapped in variable-interest-rate loans. Foreclosures pressure housing prices lower since banks are eager to drop prices in order to sell property and raise capital.

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Northern Lights Coming to Southernmost Point?

According to an article in the latest issue of Wired Magazine, the Sun is entering a more volatile period, characterized by "solar windstorms" - sunspots that bubble and send plumes of "electrons, protons, and heavier ions toward Earth at nearly the speed of light." (The photo shows the sun "flaring")

Periods of higher sun storm activity occur roughly every 11 years and can cause problems with electrical grids, television broadcasting, and satellite communication.

The peak activity from this storm is predicted for 2012.

Interestingly, the article notes:

"Auroras occur when waves of charged particles light up gases in the upper atmosphere. As more particles stream in, the so-called aurora oval grows, bringing the "northern lights" as far south as Key West."

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Chart: Key West Real Estate Declines Worsening

According to a chart provided by Zillow.com, the Key West, Florida residential real estate market is still in a steep decline which has worsened since late-January. The chart, pictured above, details "Market Value Change" in residential real estate over the past 12 months for Key West and the 33040 zip code.

The Key West real estate market is still flooded with inventory (more is in development) and sales are slow. As of this morning, 1053 properties are listed in the residential category of the Key West MLS.

Also noteworthy is that minimum price-per-unit has fallen to levels not seen in many years. For example, currently listed are condos that are listed for as little at $159,000. Just a few years ago, you'd pay twice that, minimum, for anything residential.

Key West is not immune to the foreclosure wave hitting the United States. The nation's biggest mortgage lender, Countrywide, currently lists 8 Key West properties they now own, due to foreclosure, for sale on its website.

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A Free Cuba Over the Horizon?

Today Fidel Castro announced his resignation as President of Cuba. This is certainly good news. But, with the appointment of his younger brother Raul as President, the future of Cuba still remains very much uncertain.

Nevertheless, Key Westers are debating the impacts of a future non-embargoed Cuba to Key West.

Key West is the closest point in the United States to the island of Cuba - only 90 miles across the Straits of Florida. That point is marked in Key West with the Southernmost Marker (pictured above).

Will Key West gain visitors interested in ferry boat travel to Cuba? Will Key West lose visitors who bypass our island to visit a new, and admittedly fascinating, destination? Will there be a wave of migrants - as seen during the Mariel Boat Lift? Will cruise ships skip Key West on their Carribbean itineraries? Will this open up a whole new world of Key West Cuba relations - something our islands have historically shared? Will real estate in Key West benefit or lose?

There are a large number of questions that, in time, will be answered.

Until then, let us today savor that Cuba is likely one step closer to freedom and prosperity. And we, as United States citizens, may soon gain back our right to free travel. Cuba Libre!

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Paradise Has Its Worries

We all know the pleasures of living in the Florida Keys: great climate, fishing, history, lifestyle, acceptance, and inspiration.

But there is plenty to be concerned about with Key West and the Florida Keys lately, including:

• Big budget shortfalls at the state and local level that will likely mean significant cutbacks to services.


• Cruise ships could abandon Key West should Federal rules currently under review change as some have suggested. Cruise ships account for 12% of Key West's budget. Many local businesses are dependent on cruise ships for survival. If cruise ships abandon Key West, the city would be in dire financial straits. (Changing the cruise ship rules may actually be a good thing for Key West and the US, but that is a subject for a future post)


• The Monroe County Commission is a bad joke - with three commissioners apparrently so devoted to developers that they appalingly let them write recent development agreements. Shame on you Dixie Spehar, Mario Di Genarro, and Mayor Charles McCoy. Their combined fiscal mismanagement is nothing short of sheer lunacy. Voters are very aware of the fiasco and should vote the two who are up for re-election out of office. And also worrisome - Key West's mayor, Morgan McPhearson (McFearsome?) is "best friends" with Digenarro, who's behavior on the County Commission more often resembles a thug than an elected representive.


• Florida, for the most part, doesn't recognize evolution in its public schools. Egad. Do I really live in Florida? That's why I think Key West isn't in Florida - it really is different here. Applause to Monroe County for taking the lead - but it is embarassing that 80% of schools in Florida don't include evolution as part of the science curriculum.


• The real estate market is overbuilt, overpriced, and collapsing. Affordable housing is nearly non-existant, and employees are moving away in droves. The community, for the most part, is dwindling.

But the biggest worry of all is rarely mentioned - global warming and its effect on the low-lying Florida Keys which could be profound. Key West's highest point is 16 feet above sea level. The rest of the Florida Keys rise only a few feet above the water.

According to a new study released by the University of Buffalo, "...the sea level rise estimated during this century could be twice as high as what they (United Nations Intergovernmental Panel on Climate Change) are currently projecting." The IPCC is currently estimating a 17-23 inch rise in sea levels over the next century. But if Greenland, whose massive ice fields are on land, melts significantly, sea levels could rise 20 feet (this is not currently projected for this century, but the data keeps moving and evolving).

Tuvalu, a tiny island in the South Pacific, spoke at the United Nations this week - appealing for help in the face of rising sea levels due to global warming.
According to the country's deputy prime minister, ""I only need to highlight the fact that our highest point above sea level is only four meters (a little over 13 feet) to emphasize our vulnerability to the impacts of climate change, especially sea level rise"

Today, Tuvalu is feeling the effects of rising sea levels. In a few decades, the islands could disappear.

One must consider if the Florida Keys are in real danger of disappearing under rising sea levels. In the long geologic history of the islands, it wouldn't be the first time.

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Bank of America - Our National Loanshark

Think my recent post about Pier One & Chase Bank's deceptive store-card program (and credit cards in general) was alarming? (all right, maybe I was the only one alarmed)

It's nothing compared to what Bank of America is up to.

Be warned - if you have a Bank of America credit card (they are among the largest credit card issuers), your interest rates may soon double - even if you've been a good borrower.

Business Week reports that Bank of America, apparently desperate for cash, sent letters to cardholders in January informing them that their rates are going to double but failed to give a reason for the increase. Cardholders were given a phone number to call for more information, but reportedly still didn't get an answer as to why their rates were doubling.

This is a troubling story and well worth a read.

Here are a couple particularly shameful cardholders' experiences mentioned in the article:

Michael Jordan, 25, a software developer who lives in Higganum, Conn., says he received a letter from Bank of America in late January advising him that his card rate would rise from 9.99% to 24.99%. The software developer, who earns $80,000 per year, says he was "shocked" because his payments had been on time and his credit score hadn't changed in the last year. In fact, Jordan says, he has only $4,500 in overall outstanding credit-card debt on two cards and that, on the Bank of America card in question, he had paid down his balance to $3,000 from $3,700 last August. "His rate increase seems unjustified based on his credit profile," says David Robertson, publisher of The Nilson Report, a credit-card industry trade publication.

Bank of America is trying to get ahead of Amanda Pennington, 29, of Euless,Texas. She says the bank raised her credit limit three months ago from $5,000 to $8,000 because of her strong payment history. Then she got the letter from the bank in mid-January notifying that her rate would rise from 15.74% to 25.99%. When she called, she says, the bank told her it was raising her rate because her balance was now too high, though it was still under the higher new limit the bank had previously granted.

Nice, Bank of America. You're a real class act. I won't cry when you lose $10 billion on your Countrywide bailout.

Once again I'll say it: Beware of the predatory lender in your wallet.

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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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