Buddy, can you spare $35 for a haircut?

I turned 60 years old on January 1st. When I was a kid someone aged 60 was a relic. But I don't see myself that way--now. When I was a kid I did respect older people. But I don't know if young people respect older people much these days. The youth culture (defined as anyone under age 30)has pretty much taken over the way this country functions. And maybe that's part of the problem with the economy as a whole and the real estate market in this little blog.

Age and experience help teach us how to do things correctly so that we do not have to correct costly mistakes. Here is an example: I used to do commercial loan workouts. I was the muscle guy in the back office that delinquent borrowers had to deal with when they defaulted on their loans. Over the years I learned the stages of borrower default and the gimmicks they come up with to try to avoid litigation, repossession, foreclosure, or bankruptcy. Interestingly I also learned about lender misconduct in making some loans or in trying to hide a delinquency from bank management in the hope that the borrower would somehow turn his loan around or that the lender would find a new position elsewhere before the bad loan was discovered. Some very ingenious defense attorneys successfully defend cases on the defense that "the bank should have never loaned me that much money because they knew I couldn't pay it back." And that is true in more cases than you could imagine.

Banks reward young lenders that "produce" by giving fancy job titles, good salaries, and bonuses based on loan production. The more one produces, the more one makes. It's all about the numbers and the perception. Non banks like Countrywide and American Home Mortgage book loans (mortgages), repackage them and sell them to institutions like Chase, Bank of America, or Citicorp. As a lender (or underwriter) the more you produce, the more you make. Production rules.

So it is no surprise to me that we have another bank crisis on our hands. The downturn in the real estate market is now taking its toll on the some of the banks or quasi-banks such as Countrywide and American Home Mortgage. Today the Dow tumbled again on news after mortgage lender American Home Mortgage said it could no longer fund loans and was considering liquidating its assets. That reminds me of how the S&L meltdown started. What we had back then was a bunch of greedy banks doing risky deals to make a quick buck. When the U.S. economy hit the skids in the mid 1980s, the S&Ls risky investments collapsed. The problem was not that the S&Ls had lots of non-performing residential loans that went bad. Rather it was that the S&Ls risky investments tanked as the U.S. economy turned down.

I have talked to several people who have home loans from Countrywide that are in foreclosure or that are nearing foreclosure. They all report that Countrywide is consistently inconsistent and very difficult to deal with. Countrywide and American Home Mortgage are not the issue. But they may be the omen of worse things to come.

On July 27th President Bush stated "And so I want the American people to take a good look at this economy of ours. The world is strong -- the world economy is strong. I happen to believe one of the main reasons why is because we remain strong. And my pledge to the American people is we will keep your taxes low to make sure the economy continues to remain strong, and we'll be wise about how we spend your money in Washington, D.C." At the same time the National Association of Realtors was reporting dismal existing home resales and sluggish new home sales. Ten days ago the Dow was at 14,100. Today it sank to 13,200. He did not mention the "imbalance of trade" with the Chinese or how we are going to have to deal with it. He did not mention that we are eventually going to have to pay for the wars in Iraq and Afghanistan. And that repayment will come from taxes!

We went through all of this hoopla forty years ago. We were in a different war and had a different President, but the political jawboning was the same. The hawks said that if we left Vietnam that the communists would takeover all of Asia. It did not happen. The Vietnamese people reconciled after the U.S. left similar to the way the East and West Germans did after the East German government collapsed in 1989. Likewise, the U.S. military ran up a huge war debt that had to be repaid. A Cornell University study placed the overall U.S. cost of the Vietnam War at over $200 Billion. The Congressional Budget Office estimates the War in Iraq is currently costing $9 Billion per month. The numbers are so large that they lose meaning to normal people like me. But I understand enough to know that eventually the U.S. will have to raise taxes to pay the debt or that we will have to forgo something else (new roads, new schools, health care, social security reform, improvements to a failing infrastructure or some other worthy cause).

Thirty years ago (1978-79)there was a a major crisis of confidence in the dollar. U.S. interest rates were more than 20 percent in the early 1980s, leading to the deepest recession in the post war period. That was the time period when I was doing commercial loan workouts. I remember it well. But I wonder if the MBA schools teach about that time period.

I believe in the validity of the saying "those who do not learn from history are doomed to repeat it." I think the youth culture dismisses history as being irrelevant to the present. At the beginning of today's blog I said "Age and experience help teach us how to do things correctly so that we do not have to correct costly mistakes." I don't think the youth culture has time or inclination to consider the value of history.

Greed and Stupidity

Back on April 4th I wrote about a story in the Key West Citizen regarding some Key West investors that sued the Realtor who sold them units in the Santa Maria Condominiums that were under construction. CLICK HERE to read that blog. The plaintiffs alleged that the Realtor misled them about their ability to flip the condos and make a profit once the units were completed. The market in Key West declined and the buyers were forced to either perform under the contract (close on their sales) or lose their substantial earnest money deposits.

Today's Key West Citizen reports the results of the lawsuit: Judge tosses condo lawsuit. CLICK HERE to read the article. According to The Citizen "The buyers also admitted in the lawsuit that they had not read their investment contracts, but had relied on their Realtors' claims."

The defendant Realtor's attorney stated "The written contract was very clear and unambiguous," said Ed Scales, one of the lawyers representing Santa Maria. "The judge held that we didn't do anything to prevent these folks from reading their contracts. He said it was 'entirely unreasonable' for people to plop down [that amount of money] as a deposit and not read the contract."

I specifically remember the time around Christmas in 2004. People were buying up everything in sight including blue sky condos under development. Four condo developments were in various stages of development and each enjoyed hearty pre-sales,including the Santa Maria Condominiums. Another property at the site of the old Holiday Inn was demolished for a new Ritz Carlton style condo-hotel project almost sold out in about 30 days time. Again, locals were buying the units.

I remember discussing this buying frenzy with fellow Realtors at the time stating that I didn't think the market could support that many new high end condos. And it didn't. Even if the market had not cooled off in Key West, the number of high end condos was just too great to absorb so quickly. So it is no surprise that "investors" who relied on their own greed and stupidity failed to consider that the might not be able to resell their condos at an inflated price.

When I have a buyer who is ready to do a deal I suggest that he/she/they do two things: (1) get a professional inspection of the property and (2)engage a local real estate attorney if there are any legal issues (title, zoning,etc.)that may affect the property. Had the "investors" in the Santa Maria Condos hired an attorney before the contracts were signed, the lawsuit probably would not have happened because the lawyer would probably warned them that they were risking a lot of money on something that might not occur.

CLICK HERE To find your own good property in Key West's mls database. And then call me for more information. 305-766-2642.

1124 William Street

This morning's Business Report on CNN.com says Tough Day on Wall Street."Dow tumbles 226 points on worries that housing, subprime mess will dent corporate earnings growth." A few days ago I wrote about my experience in the ever unpredictable stock market. When prices are rising people want to go there and make their fortune. And when the market dips, they cringe, hoping it is just a momentary hiccup. Well,we've got that same situation going on in the Key West real estate market right now. People bought everything in site at the drop of a hat just three years ago. Then the market moderated a bit and people were still buying, but acting more cautious thinking that we were in a bubble. Then Wilma occurred and knocked us to the ground.

There was a falling down worthless shack at the corner of William and Amelia Streets. The lot was 3939 square feet and a quiet location across the street from the rear of St. Mary's Catholic Church. Most of the other properties in that neighborhood have not yet been gentrified.(Read about the exception a bit later.) It was purchased by a local contractor-developer in February 2006 for $675,000.

The builder just completed building an entirely new house on the property and listed it last week for $2,250,000. Brand new two-story home with beautiful finishes and elegant details. Boasting bright & spacious rooms with high ceilings and hardwood floors. Features 3 bedrooms & 2.5 baths, gourmet kitchen with granite counters & top-of-the-line stainless appliances and an open living & dining area that opens onto the poolside terrace. Lots of windows and glass doors, crown molding, custom built-ins, covered porches & balconies and off-street parking. It has all the bells and whistles a buyer wants in a Key West home--except the location. And there's the rub. More on that later.

The same contractor-builder built four single family homes on Ashe Street two years ago. They had all the bells and whistles as well, but they were constructed on basically 0-lot line lots, meaning no yards. They had pools and off street parking, but everything is cramped and that particular block on Ashe is not one of the best Old Town locations. The same contractor-builder is currently building a house almost identical to 1124 William on the corner of Grinnell and United Streets. Untied is a busy street during the day. The neighbors include an elementary school playground, a four story warehouse, newer townhomes, an adjoining renovation, and older Conch homes in need of renovation. Again,not the best location.

The houses on William and Grinnell were both started at about the same time and it looks like Grinnell is almost near completion. So I assume it will be listed for about the same price. It does have a larger yard and may be a little larger in usable square feet as well.

Back to 1124 William and its location. The real estate axiom "Location, Location, Location" rings true when thinking about the price point for this house. It is priced at a whopping $2,250,000 for 1782 sq. ft, or $1,262 per square foot . That's expensive. Especially in this market. The high end of construction costs a normal person would pay in Key West for this type of property would be $400 per sq. ft (or $712,800) in my opinion. And I think the builder brought the property in for less than that. Add his purchase price and construction costs and his stake is around $1,387,000. So he looks to make a hefty profit if he can sell the house near the asking price. My guess is that he can't and won't.

If you were a buyer looking for a second home in Key West and had over $2 million to spend, would you prefer a location right in the heart of Old Town, a property with a water view, a large lot in the Casa Marina area, or a new house in a quiet, but marginal neighborhood? My guess is that the last option would also be the last choice. A block to the east another contractor known for his superior construction and high prices built two spec homes at the corner of upper Windsor Lane. Both were on the market for two years and neither sold. He is now living in the larger house and the adjacent house appears to be rented.

My experience has been that second home buyers buy price first, location second, and amenities third. Most buyers know the market before they start to shop so they know about what they can get in their price range. And I don't foresee anybody running to buy 1124 William at the asking price or anything near it. That' my opinion.

There are a lot of well located properties on the market at better prices. Check out the mls listings below.
CLICK HERE for more information on 1124 William Street. CLICK HERE to search all current mls listings. Then give me a call to help you find your home in Paradise. 305-766-2642. Or email me at garyethomas@aol.com.

Please won't you be my neighbor?

Please won't you be my neighbor? That's the last line of the Won't You Be My Neighbor, Mr. Roger's theme song. The first line goes "It's a beautiful day in this neighborhood" and that makes me think of why I love Key West so much: it's neighborhoods.

Tourists come and go and most only see Old Town or areas visited by the Conch Train or perhaps a sojurn to the Overseas Market or Searstown. I know that when I am taking prospective buyers around looking at houses many often ask about where we buy groceries or clothes or lumber. Some just see Old Town as the center of the tiny universe that is Key West and wonder how we manage to live here. And many dream of being able to live here.

I have previously mentioned that I live in the Casa Marina area which is located onthe Atlantic Ocean side of the island. Old Town is located at the west and north side of the island. Then there is mid town located, naturally, midway between Old Town and New Town at the east end of the island. But each of these areas has its own separate neighborhoods. And that makes life here so interesting.

Take the area at the intersection of Southard and Grinnell Streets where the Five Brothers Grocery is located. Five Brothers is an institution where locals go every morning for coffee con leche and gossip. It's like Starbucks without the attitude. You will see cops and lawyers and contractors and city government workers hanging out on the street corner in the shade dishing the dish on everything Key West. Contractors meet to talk about what they are doing and where. And Key West politics is alaways the dish du jour. That little building is the anchor of that couple of block section of Key West.

A few blocks away on a not so nice location is the Blossom's Grocery. There you buyer the daily special which is advertised for everyone to see on a sign posted out front--just next to the chicken crossing sign. The area has several gay guesthouses and many apartments. The Sunbeam Grocery is located exactly one block to the south. And it has a totally different clientel and distinctly unfriendly vibe--in my opinion.

These neighborhood groceries harken back to the era before big supermarkets where locals would buy there food supplies at the corner grocery. And like I mentioned earlier, those grocery stores are the anchor for that neighborhood.

But there are other neighborhood hangouts as well. Take Page's Paint on upper White Street. If you spend 30 minutes in the store you will get a good idea about how busy the construction business is by listening to the painters buying paint and the guys in the store telling stories. Paulie, a 60-something Conch who is a paint mixologist, will give you a quick lesson in Key West history at the drop of the hat. I was there yesterday and learned about a city sewer project being constructed on Duncan Street and how much two houses recently sold for. (I previously wrote about everybody in Key West knowing everything about each other's property values.)

You may see people in a store, on a bike, walking their dog, driving in their car talking on a cellphone on a daily basis. You may not know their name, but you know their face. And you know they are your neighbors. You learn not to be rude or pushy, if you ever were either, when dealing with your neighbor. We all live on a tiny little island in the middle of the ocean. And it is a great place to live. Please won't you be my neighbor?

If you are thinking about buying a place in Key West, now is an excellent time to start looking. Prices have dropped, there is a good selection of properties in all price ranges. The remodeling business has slowed, so you may be able to engage a contractor at a better price as well. Give me a call and I can help you find your little piece of Paradise. 1-305-766-2642. Thanks.

CLICK HERE to search all active Key West and Lower Florida Keys mls listings in real time. Then give me a call.

P.S. make sure you have your POP-UP Blocker unlocked so you can see full size photos and all of the mls listings.

1009 Southard Street--Such a Deal!

The grand two and a half story home at 1009 Southard Street is another bargain looking for a new owner. The 3719 square foot home sits on one of the great streets in Key West. Just a few doors to the east is the big house that sold last year for $5.5 million. And across the street is the home of the former Vice Chairman of AOL Time Warner. (It was featured in a huge Architectural Digest piece a few years ago.) White House Chief of Staff Joshua Bolten owns the house next door to the west. All in all it's a pretty good neighborhood.

The house is presently configured as a 3 unit building with a studio apartment downstairs in the front, a two bed two bath apartment on the second and third floor, and the owners quarters are at the rear of the main level. The tenants have their own private pool, but the large pool at the rear is the domain of the owners. And the owner's guests have their own cottage accessed off Lowes Lane. Oh, and there is also a garage.

The house is in very good condition as it sits. The kitchen and bath in the owner's quarters are about 15 to 20 years old. But they are perfectly liveable as is. A new owner may want to restore the house to a single family residence. There is plenty of room to do whatever suits your fancy. This property was originally priced at $1,950,000 when it was put on the market just before last Thanksgiving. The owners want to downsize and have found a replacement home in Old Town that suits there present day needs. They have just reduced the asking price to $1,595,000. And the price at $428 per square foot is a bargain. But I believe the sellers are very motivated to sell, so I would strongly encourage potential buyers to make a strong, all cash, no contingencies offer. This is a deal in the making.

CLICK HERE to see more photos and read more about this great Old Town home. And then please give me a call to see it. I think you will be surprised at how wonderful a property this is. My number is 1-305-766-2642.

Market Timing

Were you in the stock market on 9/11? Do you remember what happened to the stock market when it reopened after 9/11? I do. It tanked!

I had a bunch of stock in various good companies like Pfizer, Citicorp, and Microsoft. I had several shares of Berkshire Hathaway that I bought in 1995 that had more than tripled in value. I bought a bunch of stock on margin in a variety of good companies. But all of the stocks tumbled after 9/11. And I got several margin calls. I had the cash to avoid having to sell. But it hurt. A couple of years later the market dipped again and this time I had to sell one share of Berkshire Hathaway for $85,000 if I remember correctly. Then it went down again to $80,000 per share. I got really nervous and told my broker I wanted to sell all of it when the price returned to $85,000 and asked him to call me beforehand. It came right back up; he did not call, the stock got sold and my margin account went away. I had money in the bank.

I did not complain. I was tired of nervous nights wondering what would happen next. I had experienced 10 years of ups and downs in the stock market with "profit taking" by market insiders at the expense of everyday investors such as myself. I did not day trade. When I bought a stock I bought quality and looked for long term appreciation. I made a bunch of money during the 1995 to 2000 period. But 9/11 changed all of that. The four years after 9/11 were not fun at all. I just looked up the last quote on Berkshire Hathaway: $111,600 per share. CLICK HERE. The 52 week high was $114,500 or $29,500 more per share than the price I sold mine.

My shortsightedness got the best of me, I think. I knew that Berkshire Hathaway was a great company. That's why I bought it. I did not have to think. Warren Buffet would think and act for me. My problem was one of my own creation. I bought other stocks using the capital from Berkshire. The other stocks tumbled and did not recover. (Microsoft went from $120 a share to $25. I had 10,000 shares. I bought it at different prices but the loss was very damaging.)

So how does my tale of woe relate to what is going on in the Key West real estate market you ask. A lot of "investors" bought homes and condos here "on margin"-- if you will. They borrowed funds to buy properties that they could sell at a profit in the future. It worked like a charm for years. The town is a testament to the truth of it. Key West today does not look like it did 20 years ago.

The problem is that the real estate downturn across the country has frightened would-be buyers from buying in Key West. (That and fear of another Hurricane Wilma.) Many investors put their "investments" on the market and drove down the prices further. Many of these investments will be sold at a loss. On the other hand, investors who bought three or more years ago and who have no need to sell are doing fine. They are enjoying the use of the property or the income from it, or both. And when the market comes back their investments will have appreciated even more.

There are many would-be buyers out there looking. Hovering actually. Like vultures. Waiting to see what tasty piece of property goes on the chopping block, I mean auction block.

I remember another fact about what happened after 9/11. Town was dead as hell until Christmas. Then the "buyers" came back. Big time. Prices soared. And those market timers who procrastinated got hit. I think it will happen again.

Iguana Soup

One of the first items in my blog was a piece on home renovations in Key West and I referred to the old school Cary Grant film Mr. Blanding Builds a Dreamhouse. It has always been a favorite of mine. I loved that guy. I wanted to grow up and be as handsome. And I loved the idea of the movie of turning a dump into a great comfy home.

I have done some renovating over the years. I have done some work myself, but I hired builders to do things I could not do. I know the limits of my ability and my propensity to mess stuff up.

Right after Christmas I decided to replace the dishwasher in my kitchen. It died as a result of 3 inches of water during Hurricane Wilma. All of my house had at least 3 inches of water, but a couple of rooms had up to 9 inches. Then I got the idea of replacing the kitchen cabinets with a cheap set from Home Depot. You know, the $3500 10 foot kitchen. I thought I would add some granite to make the cabinets look better. That shouldn't cost that much since I was only buying 10 feet of cabinets.

I visited the model kitchen of the new homes being built on Petronia Street and saw the GE Professional Kitchen appliances and I thought I would add them since they looked so good. They were expensive but worth it for resale later. Then I did a Google search to checkout Viking Appliance costs for comparison purpose. Viking was more expensive for sure. But then I reasoned that the kitchen would really "pop" if I had Viking appliances.

I also decided to add travertine marble floors throughout the house. That would really make the house look much better. I had to repair some of the old wood floors that were damaged by years of too much dampness under the house. A wise and necessary investment I thought.

You are getting the picture I trust. One thing led to another and I got to become Cary Grant. Not the handsome gent,the guy who spent a fortune building his dream house.

Now things are not done, but progress is being made. I tore down the house I owned next door and now have a huge backyard that also needs to be landscaped. And more money to be spent. So here's where the Iguana soup comes into play. Just about every person who has worked on the house is not an American. The contractor is from Rhodesia, the lead carpenter is from England, the carpenter's helpers are from Nicaragua, the electrician is from Ireland, and so on. Two days ago the Nicaraguans saw a 3 foot Iguana in the backyard where we were working. They tried to catch it. They couldn't. So the carpenter said he could and picked up a large 6" x 6" post and hit the beast on the head, killing him instantly. The time was 11:45 AM. He took the Iguana home at noon. He returned at 12:30 and announced he had thrown the Iguana into a pot and was making Iguana Soup.

Later that day after everyone had left I saw a baby Iguana about 12 inches long walking by my pool. It wasn't even afraid. I thought buddy, you better move or you could get thrown into the pot with your mom. Yesterday the carpenter retold the story of his slaying the Iguana and reported on what a tasty tail the beast had. Best Iguana I ever ate, he said.

P.S. I didn't buy the $3500 kitchen at Home Depot. No, like Mr. Blandings I had to have the best. I'll post more on this when the cabinets arrive in later September. They are being custom made.....

House w/pool in Old Town under $449,000

Want to buy a single family home in Old Town with a pool for under $449,000? Call me. Quickly. This little charmer at 722 Galveston Lane is located just two blocks from Duval and across the street from Bill Butler Park. It is a tropical cottage (628 square feet on a 1481 square foot lot) on Solares Hill, the highest point in Key West. This one bedroom, one bath home has a new pool, roof, kitchen, bath. Quaint hideaway, lots of privacy yet within easy walk of all downtown attractions. Nice retreat for selective buyer.

This house was originally priced at $583,000 and the price has been progressively reduced to the new asking price of $449,000 which means the price per square foot is $714. Now that price is still a little high for today's market. But if you consider what you would be getting for your buck (pool, location, old town), it really isn't that high. This is the kind of bargain buyers were searching for three years ago. But today it sits unsold.

The photo to the right shows the pool in the front yard which is enclosed by a fence with lush tropical foliage. There is a walking lane on the north side of the house that provides easy access to Elizabeth Street.

This is not my listing, but I really would like to show it to you if you are looking for a bargain. The present owners bought this little gem in January 2006 and paid $583,000 or $134,000 more than the asking price. Give me a call if you are interested. You may be pleasantly surprised. 305-766-2642.

Second Quarter Sale Report for Key West Real Estate

The second quarter of 2007 is over. How did the real estate market do in Key West this year as compared to 2005 and 2006?

I did a quick search of SOLD homes, condos, duplexes, and 3-4 units from Key West through Shark Key priced over $200,000 from March 1st thru June 30, 2007. There were a total of 109 such sales. The least expensive sale was a one bedroom condo listed and sold for $250,000. The average sale was a 3-bedroom home with 1457 sq ft listed for $920,702 and that sold for $845,707. The most expensive sale was a home listed for $4.675million that sold for $4.34 million.

In 2005 there were 189 sales during the same time period. The least expensive condo sold for $200,000. The average sale was a 3 bedroom, 1325 sq ft listed at $1,002,561 and sold for $954,714. The most expensive home was an Old Town home on Sunset Key that was listed for $7.4 million and sold for $6.950 million with only 105 days on the market

The year 2006 had a total of 124 sales during this period. The least expensive was a 215 square foot condo that sold for a whopping $240,000 ($1116 per sq ft). The average sale was a three bedroom 1,525 sq ft home listed at $1,146,748 and sold at $1,038,578. The most expensive sale was a 5,000sq ft home listed at $5,900,000 that sold at $5,500,000 (on the market 440 days).

What do the numbers show? Well, I am no statistician but is easy to see that the overall sales are down and the overall sales prices are down across the board from low end to high end sales as compared to both 2005 and 2006 sales.

I have also noticed something very bothersome. There have been a very large number of properties that were put under contract (both seller and buyer agreed to all contract terms) during the past quarter but that later went back on the market. There are usually four things that cause a property to fall out of contract: buyer remorse, poor homeowner inspection report, insufficient credit, or property failed to appraise for the contract price. My suspicion is that properties have devalued and are not appraising at the contract price. If the seller will not lower the price, the property goes unsold.

The hardest part of the market to sell is the mid-range priced home. If you go back through Key West real estate sales to 1997 you will see that the mid range priced home has always been the most difficult priced property to sell. Back then the affordable fixer-uppers in Old Town sold around $250-280K. Homes over a million sold quite easily. But the majority of homes in the $500-800K range languished. Those homes are now just priced a lot higher. And I think the pessimism or skepticism about the lack of sales is failing to recognize this fact. Doom sayers are comparing the "boom market" sales of 2003 thru 2005 to today, and they are seeing doom and gloom.

The next three months are traditionally the worst. Town is hot, locals go away, not much sells. The hurricanes of 2005 and the market downturn have put a chilling effect on a traditionally down market. We shall see what happens this year.

My suggestion: if you are a seller and don’t need to sell now: Don’t list your property. If you must sell now, price it correctly. If you are a buyer, now is the time to buy. The market may not have totally bottomed, but good properties will get purchased before the dregs. Get the right property at a price you feel comfortable with.

If you are thinking about buying, please CLICK HERE to preview all current Key West mls listings. Then call me at 305-766-2642 to help you find your deal. And there are some good deals out there.