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Monday, January 23, 2017

Where Have All the Buyers Gone? Key West

I have been selling houses in Key West for twenty years. In my earlier life in Denver I watched and participated the cyclical market there. I have seen high markets when sellers get their way as desperate buyers try to buy before prices go even higher. I have seen and been a participant in depressed markets when sales dry up.

The Key West market is a bit different than the rest of the US housing market. Our community has had a stable base of full time residents for decades  That base has not changed primarily because Key West cannot expand. It cannot expand out to the suburbs because we really don't have much undeveloped land on which to build. Developers cannot build up into the sky because of height restrictions and more importantly rate of growth restrictions mandated by the State of Florida. As a result we continue to sell the same houses over and over again. Sales in Old Town, the Truman Annex, the Casa Marina and Meadows Areas drive the real estate market here. Most locals cannot afford and probably do not want to move to any of the areas I just mentioned. Those areas have out-paced the financial ability of most buyers to buy into those areas. Most but not all.

A few days ago I had a brief discussion with a local Key West home appraiser. I asked him "How's business?" to which he responded "We're really busy - not in Key West. Sales have dried up here. But we are busy up the Keys where housing prices are lower and buyers can get a nice place, maybe on the water, for under $500,000 or so." That may not be an exact quote, but it is the very essence of what he said. We discussed Key West in more detail. He said housing prices here are too high and buyers have stopped buying thinking prices will fall. I have been saying prices are too high and are not sustainable. But each year I see a lot of sales that prove me wrong as the buyers come back into the market at or near the end of our buying season which now ends in May. Those sales usually close a couple of month later.

As of mid January 2017 there are 452 houses, condos, and town homes for sale in Key West and up to Shark Key.  The least expensive place is on Big Coppitt Key and is priced at $215,000. There are 281 places for sale priced up to $1,000,000. There are 116 homes available priced between $1,000,001 to $1,800,000. Most of the homes in this price range will be sold to out of state buyers looking for a second home or a potential new retirement home which may be rented to help defray some cost of ownership. There are 55 homes priced at $1,801,000 and higher. Between this date in 2016 through today 38 homes in the $1.8 price range and higher sold which suggests that 31% of the current houses on the market will not get sold by this time next year. That number could go higher if the market responds negatively to the new government in Washington. I don't see a boom in sales if buyers fall in love with the new government. But I could be wrong. I think there is a real skepticism of our current housing prices and that the skepticism is why buyers are staying out of the market. It is real and buyers are not buying. It's like they are playing chicken.

I have been watching as asking prices have begun to decline on over priced houses. Some sellers who really do not need to sell probably will not reduce their asking prices. Sellers who do reduce asking prices may need to negotiate to an even lower price to sell. It's the vast group in the middle that bothers me. I am not suggest potential buyers to wait for a market correction - it could correct upward just as easily as it could go downward. Many of the homes in Key West are literally one-of-a-kind properties. Once that one property is gone, it cannot be replaced. That's why I think buyers ought to remain in the market and buy now and not to wait and see what may be available tomorrow. I don't represent a lot of sellers, but I have got to think they must be getting nervous. And if you are a buyer who let the market escape your means like the the lady in the picture above, now may be the best time for you to get back in the market.


12 comments:

Anonymous said...

I have been wondering about KW real estate. It seems that houses are for sale longer and any price reductions are miniscule (as a percentage of the listing price).

Anonymous said...

Greed.

Gary Thomas said...

Price reductions have been meager. I don't know yet if it is just GREED or simply DENIAL.

I really don't know where all these rich buyers are coming from. People that spend $3 million plus do not walk up and down sleazy Duval Street with a Go Cup in hand. I have sold some very expensive houses and my buyers certainly do not do that. Beyond that $500,000 for an entry level home that needs a bunch of work or that is going to cost $18 to $20,000 to insure because of high flood and wind insurance just does not make sense - economically or common!

Gary

Anonymous said...

Gary, it's funny you mentioned denial. I've recently been thinking of one of your first posts. In it you talk about the stages of a market. It seems to me that what you called "euphoria" ended sometime ago.

http://keywestproperties.blogspot.com/2007/01/real-estate-market-cycles-key-west.html

Gary Thomas said...

Hey, Thanks for finding that blog. I think my "thinking" and my "advice" have remained pretty consistent for the past ten years. We have way too many over-priced homes. I know all of them will not sell. There are not enough millionaires that want to over-pay for a house in Key West.

The problem is that the entry level homes and mid-rage homes are equally over-priced.

Maybe I will be proven wrong. Maybe our inventory will sell this season. I hope it does, but if it does, look for even higher prices next year.

And if the houses do not sell, don't blame me. I am only the messenger.

Gary

Anonymous said...

Great conversation going here. The overpriced homes won't sell. Glad I got in before it all went to hell.

Anonymous said...

Wealthy buyers are coming to KW because of the weather, you can walk or bicycle almost everywhere and for the friendly laid back atmosphere that welcomes diversity and attracts good people. They are here because of an endless aray of cultural offerings each season from places like the Tropic, the Studios of Key West, the Waterfront, the Red Barn, the Tennessee Williams, the Key West theater, the San Carlos, etc. Not to mention the wonderful restaruants, art galleries and the many fine establishments on upper Duval along with the fabulous dinner parties and fund raisers thrown by friends. Yes, there is the lower Duval honky tonk. But that is in a parallel world that can easily be avoided. Agree many current asking prices seem a bit unrealistic, but who knows. People who can afford a 3 million house do not care about the people carrying red to go cups on lower Duval when choosing to buy in Key West.

Anonymous said...

"Greed is Good!" -- Gordon Gecko

Anonymous said...

I can't go to Publix without being accosted by a drunk hobo. Lots of places have nice weather minus the drunks passed out on the street and t-shirt shops. The rich aren't paying these prices. Dream on.

Gary Thomas said...

Agreed.

srk said...

Long-time reader here. I agree with the previous post on 1/25 that starts with "Wealthy buyers are coming to KW because of the weather, you can walk or bicycle almost everywhere..." That pretty much sums up how we feel about KW and why we purchased in Old Town a few years ago. We didn't spend $3m, but we spent a lot and we walk up/down Duval daily and have done so for a many years. But we do a lot of other things in and around KW as well. Gary - we agree with your suggestion about potential buyers not waiting for a correction. As you mentioned, KW is a unique market and there's just no telling which way prices are going to go. That was our thinking as well.

Gary Thomas said...

Dear Anon, There have been a few new listings and a private offering which I sent to a couple of buyers who have expressed an interest in buying another property. One such repeat cash customer suggested that I get off the train because it is about to crash.

I don't think that is the case, but I do think prices will get corrected because few people are selling anything right now.
Gary

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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.