Thursday, January 4, 2007
Real Estate Market Cycles--Key West
I am an attorney by profession and still maintain my license in my native Colorado. I worked for the largest bank in Colorado and did "commercial loan workouts"-- I managed the collection of problem loans, bankruptcies, litigation, and the sale of bank owned real estate.
Denver was a "boom town" in mid 1970s until 1982 or so. Then the oil market crashed and the boom went bust overnight. Property values plummeted and there was a glut of homes to sell. The economy was also paying the cost of the Viet Nam War. The Prime Rate went as high as 18% and that made the cost of permanent residential loans almost impossible for new homeowners.
I then went to work for the RTC-- Resolution Trust Corporation. The government agency set up clean up the savings and loan debacle. The real estate projects got larger and the associated legal problems more complex. The economy still had not healed and we had to work hard to sell huge volumes of real estate without giving it away. Although the RTC did give away a lot of its assets.
Since traveling to Key West for the first time in 1984 I watched as prices grew on an annual basis--usually beating the national rate of inflation. In the early 2000's the rate of increase approached 20 - 30% per year depending on the area of town. I wrongfully believed that Key West was immune from the economic woes of up north because of the scarcity of real estate, the limitation on constructing new real estate, the height restriction on buildings in Key West, and the fact that so many baby boomers are always looking to purchase a second home in Key West.
But Hurricane Wilma occurred and caused a lot of damage most of which has been repaired, but the fact that we got hit scarred some people. And others reacted to the slowdown up north and that translated in to a major correction in the real estate market in Key West. The amount of homes for sale went up, and number of sales went down. The sellers who were used to pushing buyers to the limit met their match. Buyers stopped buying unless they perceived the property to be a deal. The sellers that had to sell, dropped their price or the property did not sell. Many "sellers" took their property off the market hoping that prices would rise again.
I don't know where the market in Key West is going to go this year. The number of properties for sale is not as large as a year ago, and the prices have been lowered pretty much across the board. But some sellers still have unrealistic expectations about what their homes are worth.
Numerous writers have discussed the Real Estate Market Cycles. So I am not creating any new theory here. Depending on which writer you cite, there are between 6 to 13 events that make up a market cycle. Here are the basic six:
As the number of foreclosures rise in Key West, I think it is safe to say that our market is at least in the "panic" phase and may have passed into the "hope" phase. Some sellers have reached the "capitulation" phase and dropped prices or taken other actions to try to minimize their losses.
I have advised sellers who had to sell to set a realistic price on their property. The internet has made it possible for people to see in real time unfiltered information as to what is available at what price and what similarly property recently sold for. Buyers have turned the tables on the sellers and buyers are now in control. So pricing correctly is necessary if a seller has to sell in the near term.
Likewise, I have advised buyers (and they are out there) that now is an excellent time to buy. Location is still the critical value when picking a property. But price is now almost as important. And the term "price" is more than the asking price. It includes other considerations that make a deal acceptable to a seller such as closing date or being able to pay cash and taking out the "financing contingency". More on that at a later date.
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Gary Thomas in a Nutshell
- Gary Thomas
- Key West, Florida, United States
- I first read about Key West in a magazine called "After Dark" sometime in the mid 1970's. But it wasn't until March 1984 that I made my first visit to the island that would become my home. I had two weeks for a vacation and reserved a room at Colours Guesthouse (now Marrero's Guest House) for one week. I thought that if I didn't like Key West, I could always go back to Miami or Ft. Lauderdale for the rest of my trip. But after a couple of days in Key West, that was no longer a consideration. But when I wanted to extend my stay for the extra week I found there was no room at the inn. The guesthouse owner did find me a room at LaTeDa, the infamous guesthouse/restaurant. That's a story I'll write another day. But those two weeks in Key West gave me the realization that I had found Paradise. Key West has been my home since 1993 and my only regret is that it took me so long to get here. I am a full time Realtor at Preferred Properties CRI. Let me help you find your new home or business in Paradise. Living in Paradise is not a slogan, it's a way of life.