There's a Storm a Brewing

The conventional wisdom of Realtors in Key West has been that if we get through this summer without any hurricanes that the buyers will comeback sometime after Christmas and start buying the good supply of now reasonably priced homes and condos.

I have been following the annual and predictable rise in the Key West real estate market every year since I first came here in 1984. And with the exception of 1989-190 and 2006-2007, the market has consistently risen without fail. You will remember there was a recession in 1989-1990 that really hurt most of the American economy. But Key West bounced back more quickly than other parts of the country. I was in commercial banking at the time and we could not sell anything. It was not that there was no interest in buying, but buyers were deterred by high interest rates and uncertainty in the economy.

Fast forward 17 years to 2007. The White House says the economy is robust. Hooey! There is a storm a brewing. Many of our manufacturing jobs have been outsourced to Mexico or Southeast Asia. Detroit has lost its market edge on domestic cars in the USA. Affordable health care is unavailable for millions of Americans. Our borders are being overrun by illegal aliens. And the cost of oil and other commodities is on the rise again.

Congress has allowed market makers to create new "financial markets" that have dramatically impacted the cost of just about everything. When I was a kid in the 1950s and 1960 we had hurricanes in the USA. But the cost of gas and heating oil stayed the same for year after year. I am not an economist so my assumptions are just based on real life experience, but I think the oil companies back then just built the short term uncertainty of supply into their cost of doing business. Then about 1972 or 1973 the price of gas jumped overnight about 30% because of OPEC. I remember the cost of gas in Colorado went from $.22 a gallon to $.33 or $.34 in a week of so. The public went crazy. There were lines of cars waiting to be filled. The world was coming to an end. But we eventually got used to being hosed. Now those that high price seems so reasonable.

But consider what has happened to the price of milk. When I was a kid the milkman delivered two gallons of milk twice a week directly to our front door. I think the price was about $.45 per gallon. I know that when started buying groceries myself when I entered law school in 1969 the price was just about the same. And it stayed that way until 1971 or 1972. Then the price of other commodities skyrocketed. We were still involved in the Viet Nam War and the Nixon Administration instituted was and price controls. That eventually (in the early 1980s) led to 20% interest rates.
Fast forward to 2007. The emergence of corn oil as a bio-fuel has caused the price of corn to be as manipulated as the price of crude oil. That same corn is fed to cows and other animals, and that price increase has caused the price of milk to rise in Key West to $4.49 per gallon for MacArthur's Milk. Store brand milk is about $.50 cheaper. The price of beef and chicken is likewise higher.

Yesterday Countrywide Financial Corp., the leading US mortgage lender, said it borrowed $11.5 billion from 40 banks to boost its stressed finances, sending shock waves through the markets. Cost of mortgages and even availability of mortgages just got higher and more doubtful--especially in Key West where the cost of housing is higher than the national average.

So I guess I am doubtful that even if we get through this summer without a hurricane that buyers will return. They come down and look at property, but they have not been buying. This may be a good time for cash buyers to pick up some bargains in Paradise.

If you are feeling a little adventurous, CLICK HERE to checkout all of the current mls listings for Key West and the Lower Florida Keys. Then give me a call at 305-766-2642 or send me an e-mail at garyethomas@aol.com, and I'll gladly help you find a little piece of Paradise at a bargain price.