Analysis of Key West Real Estate Chart

According to the real estate site Zillow.com and their metric "Value trends", residential Key West real estate saw a 14.1% decline over the past 12 months. (According to Zillow, "Value trends are based on Zestimate and Zindex values, not sale prices".)

I've included their 10-year chart of "market value change" - showing the market peaked in early 2006 at approximately $740,000.

Today's value, according to the chart, is around $590,000 - a BIG drop.

But if you believe in technical chart analysis, the bottom is still a ways off.

A fundamental idea of technical chart analysis (a.k.a. "charting") is the statistics concept of "regression to the mean". Basically, "regression to the mean" says that, in time, things tend to return to normal. No matter if you look at rolls of the dice, flips of a coin, stock market manias, or real estate bubbles. Most things don't stray from the norm for too long. And when they do, they'll need to do the opposite to balance things out.

For chart technicians, the "mean" is represented by the historic trend line. This is a straight line that touches as many low points on a chart as possible. This line is often called "support", because at that level a market bottom is usually seen.

Below is the same chart with the historical trend line drawn in black.

According to chart analysis, for today's market to be at the historical trend line, current values would be around $350,000 - a long way from today's value.

But in reality, a market does not have to go down to get back to the historical trend line. Instead, it can go sideways through time until reaching that trend line. To get to the trend line with today's values, it will take approximately 6 years.

Will the Key West residential real estate market go lower? Or will we go sideways? I suspect a bit of both. Lower, since there is a wave of foreclosures about to hit a saturated market. And sideways since interest rates are rising.

No matter what, if you believe in the laws of statistics, probability, and mathematics, we'll return to the mean - one way or another. And that means prices won't be rising for a long time.

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Less Cruise Ships Visiting Key West

The number of passenger arrivals to Key West via cruise ships declined dramatically in May, down 28.1% compared to May 2006.That decline marked the 6th consecutive month that Key West saw a drop in cruise ship passenger arrivals.Less ships are coming to Key West: May 2007 saw a 27.6% decline in the number of port calls compared to May 2006.
Data from Key West Airport arrivals also showed continuing weakness. May 2007 passenger-arrival numbers were down 4.9%, the 7th consecutive month of declines.

Not sure what is going on here. The room rates at Key West hotels have steeply risen - especially with the number of rooms offline. This has likely contributed to the decline. Also, the bursting housing bubble has tightened purse strings for Americans - something showing up in the latest sales reports from our nations largest retailers.

Some tourism businesses are doing fine. But Duval Street businesses have been complaining that things are slow. With nearly 20,000 less cruise ship passengers wandering Duval Street than last May it is no wonder. Notably, the May cruise ship passenger numbers are down 40% from 2003 levels.

This may be a good thing - especially since Key Westers were fed up with too many cruise ship arrivals spoiling the quaintness of our town for the valuable and desirable land-based visitors.

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Why the Federal Reserve Can't Bail Out the Real Estate Bubble

The real estate bubble was mainly a result of record low interest rates followed by a complete relaxing (forgetting?) of sensible lending standards.

Basically, the entire real estate bubble was dependent on lowering interest rates.

Without lowering interest rates, properties no longer rose in price. Once prices began to fall, banks closed the spigot of lending money.

So, if you want to know the direction of the real estate market, then look at interest rate trends.

Which way are interest rates headed? Clear signs point to higher rates.

And here is the reason: INFLATION.

Inflation is the number one concern of the Federal Reserve. Why? Inflation robs everyone of the value and purchasing power of money. Think of it this way - you may think you have a good amount of money in the bank. For example, maybe you have enough to buy a new car. But if inflation increases, your money will buy you less as the price of cars rise. So it is the Federal Reserves job to keep inflation in check - otherwise the wealth of our nation and population rapidly deteriorates. The primary tool the Fed has in its limited tool belt is controlling short term interest rates - the rate charged to banks to borrow money. To slow inflation, the Fed raises interest rates thereby causing the economy to slow down. This relieves demand and causes prices to come down.

So where does inflation come from? It comes from too much demand. With too much demand, you have inflation since too many people/organizations are competing for a limited supply.
Think of it this way. Every product you see - cars, televisions, clothes, appliances - have 3 major input costs: labor, energy, and raw materials. (there are other input costs, like machinery & facilities, but they usually don't fluctuate in price once established).

Today, all three major input costs: labor, energy, and raw materials, are all rising - some at near record levels. And historically, the Fed knows that once these inputs move higher, they get more and more difficult to control.

Here is how the inflation-making components currently look:

• Labor: Unemployment is near record lows causing wage costs to rise. Wages are a huge cost for all goods, and when they rise too quickly everyone suffers as inflation removes the purchasing power of money.


• Energy: Oil is currently trading above $72 a barrel - a number previously thought devestating for the economy. If prices rise much higher, the markets may panic as they digest this impact.


• Raw materials: Commodities continue to climb in price as world demand increases. And with China and other economies rapidly growing, this trend will likely continue.
  With all three major input costs rising and at record highs, inflation should continue to be the primary focus of the Fed.

The next move by the Fed is likely to be up. With the current backdrop of economic numbers, there is little choice for them.

And with higher rates, there will be no relief for the declining of real estate.

So for those looking for the real estate market to turn around, you have a long wait, especially with the massive glut of properites on the market.

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Key West Condo Listing Prices Rapidly Declining

The residential real estate market continues to show worsening deterioration in the United States.

Statistics released Monday reveal that sales of existing homes dropped by more than expected while inventories of homes for sale have continued to increase. The inventory of homes is up 23.5% above the past year - and increased another 5% from April to a record 4,430,000 properties. According to the National Assn. of Realtors, this is equal to 8.9 months of supply at the current sales pace.

In the face of swelling inventories and dropping demand, median sales prices have fallen 2.1% nationally. This is the 10th straight price decine compared to a year ago, the longest stretch on record. Meanwhile, home prices in 10 major U.S. cities dropped at the fastest pace in 16 years during the 12 months ending in April, according to Standard & Poor's Case-Shiller home price index released Tuesday.

South Florida's housing market is especially suffering. Most notable is the overbuilt condo market - where developers are abondoning projects and prices are rapidly falling. Here in Key West, the condominium market is seeing huge price listing drops.

Here are a few condo price reductions listed in the current Key West listings for the past 14 days:

• 3930 Roosevelt Blvd w101 - Original Price: $325,000 - Listing Price: $215,000
• 3930 Roosevelt Blvd S-104 - Original Price: $350,000 - Listing Price: $249,900
• 3314 Northside Dr 35 - Original Price: $499,000 - Listing Price: $299,000
• 2521 Fogarty Ave 4 - Original Price: $324,000 - Listing Price: $299,000
• 3314 Northside Dr 124 - Original Price: $449,000 - Listing Price: $335,000
• 173 Golf Club Dr - Original Price: $399,000 - Listing Price: $335,000
• 3314 Northside Dr 35 - Original Price: $499,000 - Listing Price: $299,000
• 3314 Northside Dr 124 - Original Price: $449,000 - Listing Price: $335,000
• 2601 Roosevelt Blvd 307 c - Original Price: $430,000 - Listing Price: $355,000
• 11 Whistling Duck Ln - Original Price: $669,000 - Listing Price: $399,000
• 1332 Seminary St 101 - Original Price: $525,000 - Listing Price: $410,000
• 1402 Olivia St 4 - Original Price: $598,876 - Listing Price: $499,000
• 21 Kestral Way - Original Price: $815,000 - Listing Price: $550,000
• 620 Thomas St 174 - Original Price: $729,000 - Listing Price: $595,900
• 1616 Atlantic Blvd 9 - Original Price: $1,212,500 - Listing Price: $905,000
• 2609 Gulfview Dr - Original Price: $1,270,000 - Listing Price: $923,200
• 31 Seaside south Ct - Original Price: $1,195,000 - Listing Price: $1,095,000

Currently there are many more condominums in development throughout the Florida Keys and Key West, and unless demand rapidly increases, prices are likely to further suffer.

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Florida is Epi-Center of Real Estate Meltdown

Don't blame me for the real estate meltdown. I didn't create it, and I surely cannot fix it. If you have been reading this blog for a while, you have seen that I warned about this real estate bubble and its negative effects on Key West.

With that said, I think it is in the best interest to tell it like I see it - and hopefully people will gain from it. (Oh, and by the way, if you need real estate values to skyrocket in order for you to enjoy Key West, then, frankly, you moved here for the wrong reason. But, to each his/her own - its not my money you blew).

Recent statistics released by bargain.com show that for the month of May, Florida leads the nation in foreclosures.The reasons are abundant - but mainly tied to the irrational speculative activity that persisted for the past 6 years. Basically, people gambled like crazy and developers responded to this increase in demand by building like crazy.

Here are some of the stats bargain.com reported for Florida:

• 1st in the number of homes entering the foreclosure process (29, 530).


• 1st in the share of homes entering foreclosure that were either condos or townhomes (14 percent).


• 2nd in the proportion of homes entering foreclosure (1 in every 245).


• 4th in the rate of increase since April (22 percent).

Other statistics are confirming Florida as a main epi-center of the real estate meltdown.
For example, three of the nation's largest van lines moved more customers out of the state than into it last year, reversing a decades-long trend.

The bad real estate market here is taking its toll on residents and people contemplating moving here.

School enrollment is declining statewide: Public school enrollment, expected to climb by nearly 49, 000 students last school year, dropped by 3, 571, the first decline in 24 years.
And now, more Florida drivers are seeking licenses from other states compared to out-of-staters seeking a FL license.

All of this is part of the national real estate picture which is getting worse. Rates are rising (the Fed is likely to raise rates too), the glut of homes on the market continues, and foreclosures are spiking.

U.S. foreclosure filings surged 90 percent in May from a year earlier as more homeowners fell behind on their monthly mortgage payments, according to RealtyTrac.
There were 176,137 notices of default, scheduled auctions and bank repossessions last month, led by California, Florida and Ohio.

Prices have fallen in Florida (and nationally), but more substantial declines are likely. South Florida is still vastly overvalued, according to statistics compiled by National City Corp/Global Insight. According to their data, Naples is 63.4% overvalued and Miami is 59.2% overvalued (Key West was not in their data).

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What $850,000 Gets You in Key West

How out of touch is the real estate pricing in Key West?

How far will this housing market fall? Expect prices to fall at least another 25%.

This is due to:

• the wave of interest-only loans expiring over the next 15 months
• tighter lending standards
• huge oversupply of houses currently on the market
• many more houses/units currently being developed and offered by developers
• the real possibility the Fed may raise interest rates as inflation worries bloom
• the possibility of a recession. Historically, any time there were 4 fiscal quarters that showed less than 2% GDP a recession occurred within the next 4 quarters.

Real estate values are tumbling across the United States and will continue to suffer for a long time. Depending on who you believe, the real estate market will not recover for the next two to ten years. I tend to think that in 10 years, people will be lucky to sell their home for what they paid for it two years ago.

Florida is one of the most affected states. Many homes are in "weak hands" - vulnerable to foreclosure due to the adjustable rate loans.
Key West is seeing its share of declines - but if this house is any indication - homes are still overpriced.
Here is what $849,000 will get you in Key West (this is in the current MLS):

Looks like paradise, eh?

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Florida's New Eminent Domain Law

First, I'm not a lawyer (hurrah!). Fortunately, it appears the City of Key West has a good one.

Eminent domain is defined by wikipedia as:

Eminent domain in common law legal systems is the inherent power of the state to seize a citizen's private property, expropriate private property, or rights in private property, without the owner's consent. The property is taken either for government use or by delegation to third parties who will devote it to "public use." The most common uses of property taken by eminent domain are public
utilities, highways, and railroads. Some states require that the government body
offer to purchase the property before resorting to the use of eminent domain.

Eminent domain is a constitutionally protected power given to municipalities. The rule of eminent domain is the governmental power to take private property for public use. The Fifth Amendment of the U.S. Constitution states, "... nor shall private property be taken for public use without just compensation." The framers of the Constitution included this clause as a safeguard to property owners in recognition that the government would at times have a public need for private property, but at the same time assuring property owners that they would be paid for its’ taking.

Property owners have long realized and accepted that the government has this power. Most property owners although distressed are not surprised that the government can force a sale of their property if the property lies in the path of a proposed public highway or public building.

In response to a US Supreme Court ruling a few years ago, States began enacting laws to further define and limit the abuse of eminent domain. Florida was the first state in the US to pass such legislation.

Let's look at Florida's eminent domain law - which became effective this year. I highly encourage you to read the law - especially any of you barristers out there. Please feel free to comment to this post.

In short, the law:

"Prohibits the transfer of private property acquired through eminent domain to another private entity with certain exceptions, including for use by common
carriers, public transportation, public utilities, or where the private use is incidental to a public project. Prohibits the use of eminent domain to eliminate blight conditions or to generate additional tax revenue. Authorizes the use of eminent domain under the Community Redevelopment Act if it is necessary to remove a threat to the public health or safety"

So, the law says you can't take private property and give it to someone else unless there are certain exceptions. Mainly, the law restricts taking property for private endeavors. But this is a street that will remain a street (not turn into a commercial project). I couldn't find anything in the law that said the street could not lead to a commercial businesses. After reading much of the law, my understanding is that a street would be allowed for eminent domain. Actually, the law seems to me to clearly allow this to happen. The city of Key West would have to compensate Truman Annex for the taking, but with my plan of gating and fencing along Southard Street, Truman Annex would still be a gated community (so far, the bulk of their damage claims comes from losing a "gated" status). Plus, the law provides for eminent domain for community redevelopment, which may or may not apply here.

Some commenters to this blog have attacked me and anyone who believes that eminent domain is a viable legal option.



For example, a commenter signed as Harvey J. Keck wrote

The issue is that the city does not have the necessary rational to succeed in this endeavor. 1. Bad faith in negotiations with a signed and enforcible agreement (with the issue of police powers removed). It looks very bad when the city unanimously signs an agreement (which they freely did) to obtain land and
then once it gets the land abrogates that agreement. What will the courts say
about that, I wonder? 2. Already existing public roads which allow access to the
property and are presently used for traffic both private and commercial.3. Recent Florida laws restricting eminent domain to further commercial development especially when there are alternatives already in place.4. The requirement for the city to pay for both sides of this legal dispute. (Where's the money for
this going to come from especially after the Duck Tours gets their payments).There are other arguments but these need to be addressed with legal arguments and not just fantasy rationalizations.

In response,

1. forget the agreement. that has nothing to do with eminent domain. if it makes you feel better, you can believe you won the case and got the contract enforced. NOW THE CITY FILES EMINENT DOMAIN. THINGS CHANGE. If a municipality needs a street for the common good - the law says they can do it. and since it is already a street, they could simply seek an EASEMENT - and Truman Annex would still own the street and the public could use it as the City sees fit
2. yes, we know about the streets. but it is up to the municipality to decide what is the best plan. and with a growing waterfront usage, Southard Street makes sense.
3. You keep saying this is a commercial endeavor. But that doesn't sound right to me. The eminent domaining of Southard Street would KEEP IT A STREET. And it would be leading to a property that is 75% park. It would not be difficult for the City of Key West to prove that this project is for the public good.
4. Yes, Harvey. We know. You're going to make the City pay. And pay big. Are you looking forward to making the citizens (AND YOURSELF) pay? I'm not so sure it will be as expensive as you warn - especially given my idea. Heck - What does an easement cost? And what if the Navy declares a need for an easement? Anyway, I don't think you know what any of this will cost. Bringing up the Duck Tours as a final salvo is lame. Your FEAR is not working on me.

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Rose Colored Eyeballs

With two big bottles of contact lens "juice" on my shelf I hear the news that AMO Complete Moisture Plus contact lens solution is being recalled. Not just some manufacturer lots. No, the entire product line. China has already banned the product - a notable move given the US's scrutiny of Chinese product safety (dog food, toothpaste). Amusing world.
If you have some of the product, the company has set up a "hotline" (not so hot) to receive a return package - allowing you to get your money back. Call 888-899-9183.
It is recommended that you don't use any more of the product, AND throw out any lenses that have come in contact with the solution.
Thought you should know.

Here is the story from the AP wire:

By MIKE STOBBEAP MEDICAL WRITER
ATLANTA -- Government officials are warning people to throw away a contact lens solution after an investigation linked it to a rare eye infection.
The warning concerns AMO Complete Moisture Plus Multi-Purpose Solution, used for cleaning and storing soft contact lenses, said a spokeswoman for the U.S. Centers for Disease Control and Prevention.
The solution seems to be a factor cases of Acanthamoeba keratitis, a painful eye infection that can lead to permanent vision loss or blindness.
The CDC and the U.S. Food and Drug Administration are investigating 138 confirmed cases.
The solution is made by Advanced Medical Optics Inc., a publicly traded company based in Santa Ana, Calif. The company issued a statement Friday night saying it was "immediately and voluntarily recalling" the solution.
"There is no evidence to suggest that today's voluntary recall is related to a product contamination issue and this does not impact any of AMO's other contact lens care products," the statement said.
The confirmed infections have been reported since January 2005, the company said.
CDC officials said people should discard the solution, throw out their current contact lenses and toss the lens storage case. All of them may harbor the infecting amoeba, said Michael Beach, team leader in the CDC's division of parasitic diseases.
An estimated 85 percent of U.S. cases of Acanthamoeba keratitis occur in contact lens users, but it's extremely unusual - the estimated prevalence is one to two cases per 1 million contact lens wearers. Contact lens wearers who practice proper lens care and people who don't wear contact lenses can still develop the infection.
It's hard to diagnose and treat - and some of the drugs used to fight the infection are available only overseas or from compounding pharmacies.
Doctors first suspected a problem in 2004, when a University of Illinois-Chicago ophthalmologist, Dr. Elmer Tu, noticed more than a dozen cases of the infection. Normally, he might see only one or two in a year, Tu said.
UIC doctors saw 35 patients with the condition from May 2003 through September 2006. About 55 percent used the Advanced Medical Optics product exclusively, Tu said.
UIC investigators think the infection is not originating in the manufacturing process, but that the cleaning solution is not protecting people from the infection, which they get in their eyes through showering or swimming, Tu said.
The amoeba that causes the infection is naturally present in soil and water. Wearing contact lenses while swimming or in the hot tub appears to increase the risk of infection.
The cases were reported to the Illinois state health department, which notified the CDC. A CDC investigation in about 35 states led to Friday's announcement.
The solution is not marketed to protect against the amoeba. But "it's supposed to be free of any type of microorganisms. It's not supposed to result in anyone getting an infection," said Julie Zawisza, an FDA spokeswoman.
The FDA will take information from the CDC investigation and try to discern what about the solution - or how people were using it - could be responsible for the infection cases, she added.
Health officials have interviewed 46 patients so far. Of those, 36 wore contact lenses and used some form of solution, and 21 used the Advanced Medical Optics solution within a month of onset of symptoms, Beach said. It was a strong enough association to cause health officials to issue Friday's warning, Beach said.
Dozens of cases of this rare condition can be significant, eye experts said.
"It's a large number if it's happening to you. It's a large number if there is a little pocket of it. It's not a large number if you consider there are 35 million contact lens wearers in the United States," said Dr. William Ehlers, a University of Connecticut Health Center ophthalmologist.
The company said in its statement that consumers who believe they have the recalled solution should call (888) 899-9183. It is contacting retailers, customers and distributors on return and replacement instructions, it said.

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Solution to Southard Street?

Depending on the outcome of the TAMPOA vs City of Key West (and the United States too), eminent domain may become necessary for the City for control of Southard Street.

TAMPOA has claimed that losing Southard Street would cause that community to lose a large amount of value. The reason, according to TAMPOA, is that Truman Annex would no longer be a gated community, and gated communities, according to TAMPOA, are worth more than non-gated communities.

But what about a smart solution?

Here is what I suggest.

Erect fences and gates along Southard Street - thereby keeping Truman Annex gated. The street and sidewalks/greenspace are wide enough that fences would fit. (I've include an artists rendition of what this might look like. Also, since the guardbooth would no longer be necessary, I thought it nice to show what Southard Street might look like without it).

If the City incorporates an idea like this into their eminent domain proceedings then they could show the judge that there are not significant damages to Truman Annex. Remember, unlike many eminent domain proceedings in the United States, no one is losing a house here. Its a street and it will remain a street.

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TAMPOA President Leaving Truman Annex?

Tom Tukey, president of the Truman Annex Master Property Assn. (TAMPOA), has his and his wife's Truman Annex house up for sale.

List price is $5.3 million. The house is described in the MLS as:

"Stately, showcase home. Grandly placed at the heart of the finest street in the most elegant enclave on the Island yet within walking distance to dining, shopping and entertainment. Built with an eye to historic aesthetics but with the most demanding modern construction; far above current code. 10' ceilings, crown and base moulding, mahogany floors throughout. Six bedrooms; all with walk in closets, full baths, French doors and porches. Seventh full bath near living area and office/library. Enormous great room. Solar heated pool. Double carport. Large Captain's walk with spectacular water views. Over 1000 SF of decks plus over 1000 SF of storage in addition to the 4572 SF of living space. Simply the pinnacle of Key West living."

The offering price equates to $1,159.23 per square foot.

Included in the listing are photos of the interior, exterior, and water views. The water view photo (included in this post, above) is interesting: according to the photo the Tukeys had a view of the water, the Navy's outer mole, and the Truman Waterfront property. This view would certainly change when the City begins to redevelop the Truman Waterfront.

You can view the listing at http://keywestmls.com/search/ under listing #104548.

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