Key West Real Estate 2011 Year End Assessment

Duval Street fifty years ago

A couple of months ago I lamented over the horrible summer we had in Key West real estate sales. I know there are a couple of agents who have perpetual smiles glued to their faces because of all the sales they had. But for the rest of us, the sales this past summer were few and far between. Season started out great, but the year ended much worse than I expected. I decided to see how it ended by comparing recent sales years.

I did a very simple comparison of single family home sales for the Key West sales market (Areas 1 through 5 in our mls and totally excluded all sales in Big Coppitt Key). The comparison was for years 2009, 2010, and 2011. The results are shown below in a very simple graph. There were 250 single family homes sold in 2009 at an average price per sq ft of $341. In 2010 the number of homes decreased to 246, but the price per sq ft rose to $355. In 2011 there were fewer homes sold than in 2010 but again at the higher price per sq ft of $368. Sales volume declined 9.5% during the three years, but the average price per sq ft rose by 9.26%.

Perhaps a look at recent history will help us understand what happened in the world that may have affected real estate sales in the Key West area. You may recall an event in the fall of 2008 just a few weeks before the general election when the US economy nearly collapsed. Much has been written the late months in the Bush administration that almost brought the country into a second great depression. Putting aside who is to blame for what occurred, the fact is that vast segments of our society had their comfort level for future investing shaken. Many decided to take a wait and see approach to buying that Key West getaway until they perceived the time was safe.

The downturn in the real estate market did have a positive outcome. A great number of houses previously priced beyond the reach of many buyers were repriced downward. The lower prices made Key West real estate a better investment for potential second home buyers and also permanent Key West residents.

The fear of the future decline inhibited investment from 2009 through 2011. The economy did not rebound as heartily as it has after past downturns. Unemployment continued to be a drag on the overall psyche. Government inaction, political stalemate, and a lethargic economy caused many would be buyers from buying that lower priced property in Key West even though it was priced cheaper and financing was at an all time low.

If the bad news in Washington wasn't bad enough, the April 2010 BP oil spill in the Gulf of Mexico made things worse - especially in the Gulf states and particularly in Key West. Media reports of oil slicks hitting the Keys had a huge impact on Keys businesses here including real estate sales. I am aware of several contracts written before the spill occurred were cancelled because buyers feared their intended purchase would not be worth the price paid if the waters and beaches of the Keys were contaminated with oil. Many feared that blobs of oil would decimate our islands and our economy.

Tourism did not die, but it did not flourish like it had previously. After the oil leak was successfully capped, tourists returned to the Keys and spent their money. However, tourists first made phone calls to negotiate room rates at hotels and guest houses. Room revenues in 2011 made a strong rebound.

In 2011 the political rhetoric in Washington geared up for another Presidential election. The Do Nothing Congress did nothing. The Democrats blamed the Republicans and the Republicans blamed President Obama for everything wrong with the economy. The unemployment is finally declining. Buyers seeking a second home in Key West are not among the unemployed. However, second home buyers are still influenced by the lagging economy because it depresses the overall urge to buy.

In January 2012 there are less bank owned properties and fewer short sales for sale in Key West than in years past. I think our market area has stabilized or adapted to the economic climate. The unemployment rate for Monroe County is about 4.2%, and it is even less in Key West. Many locals have two or more jobs. We don't have a lot of new construction in Key West, because we don't have lots on which to build new homes. But we do have a lot of renovation occurring again. There are contractors all over Old Town and in the Casa Marina area working again. If you check The Key West Citizen or Craigslist for Key West rentals, you will find very few available. That scarcity of rentals makes what is available more expensive. And I guess that is a good thing if you own rental property in Key West. I'm not sure renters like those economic realities so much.

There has been a flurry of new listings and new sales during the last couple of weeks in December and the first week in January. The buyers are back and they are buying up the few properties on the market. Buyers follow trends. If buyers see houses in Key West selling again, I think we could see a spike in the home sales over the past three years where sales declined. I also anticipate that the price per sq ft on home sales will continue to rise.
Most experienced Key West Realtors know that before the insane Key West real estate price hikes of the mid 2000s that Key West real estate sales appreciated about 10% per year on an year over year basis. The decline changed that. But if you look at the trend from 2009 through 2010 you will see that maybe, just maybe, the old 10% appreciation factor may be back in play. As Martha Stewart would say "It's a good thing!"