Friday, April 29, 2011
Mother May I Buy a House in Key West?
It's May Day. Spring break is over and the hordes of breakers and seasonal tourists have headed up north where Spring is in full bloom across much of the United States. The reason to escape the cold of New Jersey and Massachusetts and other temperature impaired states has abated for a few months. The exodus also means that many of the buyers who came to Key West to buy houses has gone north as well - at least for a few months. The warm weather lovers and those who dream of owning a place in Key West will return late this year when it starts to get cold and snowy up north. It happens every year. Like clockwork.
I have been selling houses in Key West since early 1997. I have watched the way buyers buy and sellers sell houses in Key West. I developed a theory that explains how housing prices escalate in value in our little town. I don't know if this theory works the same elsewhere. I see Key West real estate as not being like real estate "elsewhere" because I don't know that there is anyplace quite like Key West any place else. Sure there are little towns on islands along all three coasts. But Key West is unique because it is a year round destination as opposed to places like Martha's Vineyard, Fire Island, Catalina, or the San Juan Islands. And the people who live here are surely not the same type of folks you would expect in Martha's Vineyard. Thank goodness.
Remember the game Mother May I? It is premised on one child being "mother" who commands the other children as they attempt to reach mother. The children are required to ask Mother for permission as take a few steps toward mother. Mother may say yes or she may give a response which makes the child do something else. The first child that reaches Mother gets to become the new Mother.
I see buying houses in Key West as being akin to that game. The majority of houses are priced in "sets" or "price points" that define the kind of the type of property the house is. Those price points include cheap "fixer-uppers" or modest homes that are normally located in the Mid Town and New Town areas of Key West but there are some houses in Old Town that fall into that category. (The inexpensive Old Town houses normally have very small lots, need work, have no parking, no room for a pool, or a combination of factors that diminish the price.)
The second price point group of houses are houses in good repair that have many of the features a permanent resident or second home owner would want including good location, renovation, pool, and parking. Homes in this category are normally ready to move into but may need some updating down the line. They typically look good but may be a bit dated or need some work. Houses in this group may include larger homes in the Mid Town, New Town, Key Haven and Key West Golf Course.
Houses in the third price point tier are higher end houses typically located in Old Town or Casa Marina Area. These houses are normally ready to go from the day the house closes. Most houses have been recently redone and have the features wealthier buyers want including location, design, quality construction, and superior amenities.
Key West has a fourth price point group which are the high end and truly one-of-a-kind houses. These houses have the best locations and best features. While not all may be magazine material, they embody the types of second home owners dream about. These houses sell for the highest prices because they have the most sought after features and locations. In my opinion it is this group that performs the Mother function that gives permission to the children (buyers) as to when these big houses become worthy of being purchased. It is as if the buyers ask "Mother May I Buy a House in Key West?". The buyers test the price point cautiously often taking baby steps in hopes that Mother will not shoo them away. When one bold buyer makes an aggressive move toward mother, others watch to make sure the first risk taker does not falter and fail. As more and more buyers edge closer and closer to mother, prices increase as well.
I have noticed a repeated "resistance" to meeting the top price point. Buyers get near it but don't quite reach it. It is when that price point finally gets surpassed several times that the market acknowledges that it is now safe to buy in the new (and higher priced) price point range. This is when Mother has granted permission to be replaced.
I think we have rebounded from the lows of 2005 through 2008. We had Hurricane Wilma in 2005 that damaged much of New Town and Mid Town and scarred buyers away from Old Town as well. That fear of hurricanes turned into a fear of short sales and foreclosures as the national economy faltered. As locals and second home owners walked away from houses and mortgages, the supply of houses increased and prices decreased. Between 2009 and today, most of the over supply of houses has dried up in the Key West area. Buyers came back and bought up the inventory. The inventory of houses for sale in Old Town is very low in all four price groups. As the supply of houses in each price point group shrinks, the top price point in each group edges up.
I did a quick search of the Key West mls database and learned that 28 single family homes in Key West went under contract in April 2011 and that an additional 15 houses went "pending" (all conditions precedent to sale have been cleared and the house is nearing its closing date). Even more interesting is the fact that 5 of the contingent contracts and 4 of the pending contacts in April were for houses priced over $900,000. (9 out of 43 contingent/pending contracts are for houses priced over $900,000 or about 20%.)
Thirty-five single family house sales closed in April, and 13 of those were for houses that closed higher than $900,000. Seven were priced over $1,000,000 and three were for houses priced over $2,000,000.
If my "Mother May I" theory is correct, the large number of recent contracts and closings on houses priced over $900,000 will act as a catalyst or "permission" for future buyers to buy in the Old Town and Casa Marina areas for houses in the higher price point niche. Since many of the would-be second home buyers are now up north for the summer, housing sales will start to diminish just like the always do. A smaller supply of buyers means a smaller number of houses that will go under contract. Sellers that held out for the high price may have to wait another six months or longer before they see a new offer.
Someone who reads this will surely mention a story on the front page of today's Key West Citizen which reads "Foreclosures Decline as Banks Slow Processing. CLICK HERE to read the article. I've been watching the County Clerk's website like a hawk for three years now. I disagree with the premise of the article which is a spin off what Realty Trac prognosticates for the rest of the country. I reject the idea of a shadow inventory of pending foreclosures. Yes, there will be more, but there will not be a deluge. (There are still many pending foreclosures already filed in the Monroe County Court system. Each contested foreclosure eventually has its day in court and most end up being sold at public auction. When you see new Bank Owned signs popping up on the Internet don't assume that this is a new batch of loans gone bad. They have been in the system for months if not years.)
Key West is not like Podunk, Nebraska nor Lost Wages, Nevada. We are not even like Marathon or Key Largo. Key West is limited by its size, location in the middle of the ocean, and restrictions on construction that prevent it from growing larger. The number of housing units in Key West stays pretty much the same but the number of units for sale can go up or down depending on the economy, the weather, or politics. Our location, wonderful year round weather, and limited housing supply entices people to come here but also causes prices to be higher because of the strong demand for housing.
If you are looking to buy a place in Key West, please consider working with me, Gary Thomas, 305-766-2642 or by email at firstname.lastname@example.org. I am a buyer's agent and a full time Realtor at Preferred Properties Coastal Realty, Inc. in Key West. Yes, you may buy a house in Key West.
The information on this site is for discussion purposes only. Under no circumstances does this information constitute a recommendation to buy or sell securities, assets, real estate, or otherwise. Information has not been verified, is not guaranteed, and is subject to change.
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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.