Key West Bargain?

(click on photo to see a future Key West Realtor ad)

Hello friends. Rock coming atcha from out of the blue in the Watchworld.

For all of those wondering when is the time to buy Key West Real Estate, let me assure you, it is not now.

When is an "Original" price in the MLS not the first asking price by the seller?

Realtors and sellers alike are now playing this game with listings whereby the homes which are not selling at just reduced prices are suddenly taken off the market. There are several benefits for listing, de-listing, and re-listing the exact same property so as to keep the unknowing and shrinking flock of Snowbirds from figuring out this game of 3 Card Monte.

Case in point:

The complex where I rent was For Sale in 2005 for only $5.5 million.

When I moved in to my place in September 2006, the new asking price for the whole compound of three cottage style homes, with a smaller cottage in back and community shared swimming pool was $4 million.

In the MLS listings, you did not see Original Price: $5.5 million, Reduced Price: $4 million because my landlord took the complex off the market before re-listing at $4 million.

Recently, my landlord took my $4 million listed housing complex off the market in April or May of 2007. He then changed Realtors.

He told me before he listed the new price he would be asking $1.95 million for the complex. A few days later, it was officially listed at $1.885 million in June 2007.

So in a few months time, the asking price was shaved by more than a cool $2 million, yet this price reduction never showed in the MLS listing. On top of that, there was a previous drop of $1.5 million asking price and that reduced price never showed in the listings.

So what was the last thing showing in the MLS for this property?

You got it, $1.885 million with a start date for Days on the Market in June 2007. Nowhere is there any mention in the MLS how many real reductions have taken place. Nor was there a true accounting for Days of the Market which by this time would have shown over two years on the market.

Now what?

Last week, after only one month on the market at this new price, our complex was taken off the market again. The brand new Realtor sign has been removed.

To make the "math work", you would have to drop the price on this complex by over another $1 million so that your rentals could help you cover your mortgage for the whole shooting match. Of course, if you are a dumb rich kid who isn't in the market to make money or buy sanely, come on down, buy the whole shooting match, and open up an Animal House campus of your own. Just give me my two months notice so I can move to a cheaper place which is bigger. (A future blog will show photographic proof of the new realities of renting in Key West. There truly hasn't been a better time to rent in this town in my 17 years of living here.)

"There has never been a better time to buy a home in Key West!"

Is the local chapter of the NAR kidding?

We have a loooooooooooooooooooooooooong way to fall in pricing.

It's not prospective buyers sitting on sidelines who are on Ecstasy.

Happy Day Real Estate aside, demand for Key West condos and homes only hit the skids in mid-2005 after years of above normal appreciation, and 5 to 6 years of super-leveraged appreciation. There is a whole lotta excess to be squeezed out of this market yet. (A tip of the cap to Led Zep for my lame attempt to combine imagery from "The Lemon Song" and "Whole Lotta Love".)

Today is July 24, 2007. Not a single house or condo has sold on this island proper since July 12th. If you batted 0 for 12 in baseball, you'd be benched.

Seven homes or condos have sold since July 1st. That's it. And as Dave Barry would say, "I'm not making this stuff up."

Think about it: twenty-four days of July have elapsed. And only seven condos or homes have sold all month. Woo hoo! This is a sign the market is bottoming?

Maybe the Real Estate Cartel isn't on Ecstasy. Perhaps they are sharing a hookah filled with crack. I don't know. Although recently, the Key West Crime Report carried a story about a 59 year old Real Estate Agency owner who was arrested for DUI. Her husband, a local lawyer, tried to intervene on her behalf . . . but the cops didn't listen . . . and off to jail she went. So alcohol abuse is still on the table as to what is making these crazy people tick.

The Key West MLS is showing a slowing down of inventory growth. On the other hand, sales are declining more quickly than inventory growth. Hence, sellers who cannot sell at the price they want . . . or make that . . . the price they need . . . are taking their homes off the market to play to the Realtor's hopes of jump starting sales again by making housing more scarce.

The problem with all this stinking thinking by Realtors is this: home ownership is not a commodity need. It's simply a want. If I want to live with a roof over my head, I don't need to buy an overpriced home or condo. I can rent.

Still, with sales only averaging 26 to 30 homes or condos a month in Key West for the first 7 months of 2007, we are looking at enough remaining inventory in which it would take an easy 36 months at the least to sell it all. My guess is we have enough inventory to take 5 years to sell off.

Yes, I see 410 houses in Key West listed on the MLS today. I also find 419 condos on the market via the MLS. But what the average web surfer/potential buyer is not taking into account is the "real" inventory floated for sale in Key West.

Here's the rub on real Key West inventory:

1. Massive amounts of new condo/hotel conversions are on the market and not showing on the MLS rolls. We are talking hundreds of extra dwellings which have price ranges of $1.0 million up to $3.0 million. If you want an idea of what is missing from the MLS, go no further than the top of the island where the old Holiday Inn once resided. Look at all those brand new empty condos and the high rise parking garage which was built to accomadate hundreds of cars. None of these units are on the market's MLS rolls because this is new construction being sold by local developers at their development-o-rama offices at Fleming and Simonton.

More simply, all one must do is view the big mounted posters on easels in the development-o-rama windows to see for yourself that there are four or five developments with hundreds of new built condos with no mention of them in the MLS rolls.

2. We have hundreds of do-it-yourselfers with "For Sale By Owner" signs in front of their place. As most of you know, FSBO's do not show up on the MLS. (A few months ago, I traveled up to Venetian Drive where out of 14 houses in a 2 block stretch, 3 were for sale with a Realtor sign out front, and 3 had "FSBO" signs out front. That's almost 50% of houses in that 2 block run are up for sale. A Realtor friend of mine in Atlanta tells me that when 10% or more of houses in any block are up for sale, you have a distressed market.)

3. And let's not forget all the businesses, condos, and homes for sale by Realtors who are discretely not showing their hands on the MLS. As an example, take Croissant de France, one of Key West's oldest and most established restaurants/bakeries. It's in the Key West Sunday paper with a $5 million plus price tag. (Wishful thinking, but ain't gonna happen with anyone who studies this sour Tourism Recession.) That's a big notable restaurant which isn't showing in MLS rolls.

4. Certain out of town "Seller" realtors are repping big homes and businesses down here which don't show on our local MLS rolls or in the Key West Citizen. I've seen one famous bar advertised in the Wall Street Journal classifieds. I've had people tell me they've seen Key West condos for sale in their local newspaper classifieds. Keep in mind that many gated and planned communities do not allow homeowners to plant "For Sale" signs in their front yards (think Truman Annex). The same can be said for all high rise condos. Many times, the seller is an out-of-towner who is attempting to sell their badly timed purchase of Key West Real Estate in a Northern newspaper to people who don't know what is going on down here.

5. Certain homeowners are not planting FSBO signs in their yards and are instead opting to market them via the internet only. Many are using Craigslist. The amount of Florida Keys Realty on Craigslist for rent and sale is growing leaps and bounds as the new Craigslist heading for the Florida Keys is less than one year old. (If I were a code enforcement agent trying to curb illegal rentals in the Keys, I'd certainly find enough miscreants in a month on Craigslist to keep me busy.)

6. Furthermore, foreclosures, auction represented homes, and bank owned homes in Key West are not showing up on MLS rolls.

At this moment, Realty Trac is showing 59 homes in pre-foreclosure. This means 59 owners of Realty are at least two months behind on their mortgage payments.

Six homes are about to be auctioned off by lenders in Key West on the Court House steps.

And 65 homes or condos are now back in the hands of the banks who lent the shaky borrowers money to buy a place they could not afford.

So, that's 130 "distressed" properties not being shown on MSL rolls in this town.

(Memory pause: Last year this time, I was a subscriber to Realty Trac. I could actually puruse the listings minute details, but soon thought it was a waste as I realized this Crash has many more years to attain its old historical median. Still, at that time, only 12 or 13 homes were in pre-foreclosure . . . most of them at the Key West Golf Club. None were being auctioned off. And maybe 5 or 6 were in the hands of banks.)

The take away from this small bit of trivia and snippets is this: Key West Real Estate's Crash is only in inning 2, maybe 3, of a 9 inning game which may go into extra innings.

Just keep in mind that Japanese Real Estate peaked in 1990 and went down and sideways for the next 15 years. Today, Japanese Real Estate is only back to 1981 prices. This means if you bought Japanese Real Estate back in 1990 (at their Housing Bubble top) you'd still not be back to your purchase price seventeen years later. And one more thing, even if prices do get back to 1990 prices, you still haven't figured in what normal inflation would have done to those 1990 dollars spent on your initial purchase. (I wonder how one says "Oh my aching scrotum" in Japanese?)

You say a Real Estate Crash can't happen in Florida because everyone wants to retire here? Better Google the great 1928 Florida Real Estate Crash which preceded our nation's Great Depression. There are mansions on the mainland of Florida which still haven't gotten back to their 1928 inflation adjusted values.

Sic Semper Greedheadus

And as I have predicted in the past, the butt-sucking moneyed class of gluttons who want all of Key West to themselves is about to be spanked hard . . . just like the Roaring 20's Cigar Smokers who bought Florida Real Estate in 1928.

(In due time, I will be speaking out on an interesting development in expensive Key West Real Estate which I have been observing for the past month. Something major is afoot in that big money bets are going awry. I can't believe the Key West Citizen hasn't run a front page photo with story showing how the mighty are beginning to fall. I will place photos on this blog soon to back up my observations and opinions about how Prime money is beginning to implode . . .)

Realtors down here keep pounding the table to buy Real Estate now. The same ad running in every Sunday paper keeps inaccurately stating that Key West Real Esatate goes up in price year after year. My answer is, "Why say one thing in print ads, when data is showing prices are rapidly falling while sales have hit Deadman's Curve at 120 MPH?"

All those unlisted and unsold condos taking up valuable Real Estate . . . who is going to buy them as "investments" when the numbers simply don't work?

Since the Housing Boom has gone Bust, people with a few candle powers of brain cells have quit listening to their emotions, greed glands and especially those cheerleaders from the Real Estate Cartel who look at potential buyers as just a commission check. With the bust finally taking up headlines in hometown papers all across America, potential buyers have gone back to doing elementary school math on the back of envelopes before rushing into a lifetime purchase which makes no sense whatsoever.

Rule No. 1 in purchasing a business or home: If you can't do the math, find somebody who can 'splain it to you.

Here's an example of stupidity in advertising: a "beach biz" is on the market for $69,000. This would get you 1 of only 25 vendor licenses for all of Key West. This vendor biz is located on Smather's beach.

This particular business sells blow up life preservers, cheap flip flops, sunscreen, etc. The nice woman owning this business is out there at Smathers Beach every single sunny morning of the year. Let's say, 300 days out of the year.

Now her Realtor says in the ad:

Profitable business on Smathers Beach. The Beach Store grosses over $40k/year with a net of over $30k. This turn-key business includes a City of Key West Mobile Vendor License permitting rentals, sale of retail goods and food sales. The City of Key West only issues 25 of these Mobile Vendor Licenses; they rarely become available. Comes with two parking spaces and over $10k of inventory including a custom painted & outfitted truck, rafts & chairs, and a generator & air compressor. Work by the beach with no boss, no fax machine and no corporate middle manager telling you what to do every day!

I'm going to be very generous here and estimate her inventory, truck, generator and other salable assets don't even hit the $8,000 mark. I don't care what the ad says, I can eyeball what's she's got and a lot of it is inventory which is not moving. It's dead inventory. In fact, in all my years of passing this Step-van truck on my daily jaunts at Smathers, I've never seen this woman in the process of selling one single thing to anyone. But I digress. The ad says she nets over $30,000. I'm willing to bet dollars to doughnuts that she's lucky to net even $30,000 this year with the way vacancy signs in front of hotels, motels and guesthouses have become the norm.

Okay, for illustration purposes, I will be generous and say she nets $30,000. Divide that by 300. She nets about $100.00 per day.

Now who in their right mind will pay this woman $69,000 for a business on a stretch of skanky beach with muck on the shoreline, polluted water, and which depends on a declining tourist base of disappearing lower and middle class tourists while only netting $100 a day? Tourism numbers, year over year, have been declining since 2003. (I wish the Chamber of Commerce would could break down bed tax numbers on hotels and motels to show what is happening to weekenders from the mainland.)

There are fewer hotel rooms on the island due to condo/hotel conversions . . . and way fewer cheap rooms for people who would venture to Smathers where one would also have to ignore the usual "WARNING" signs about fecal colliform bacteria being at above normal levels. (I don't know about you, but I am mystified by literate or aliterate . . . I did not say illiterate . . . people who ignore such in your face red warning signs and who wish to bathe in sewage.)

You net $2,500 a month, and you still have that loan to pay off on your business while paying rent or a money sucking mortgage on an overpriced place to live in the Keys? Hell, my ex-roomate pays more on insurance and real estate taxes on his Key Haven home per month than this Beach Biz nets. And there are plenty of $500,000 condos for sale right across from Smathers (and those are the cheap ones) which have monthly maintenance and tax fees which are $1500 and up. So how would a retiree live off just $2500 net every month? You think they can "build" the business as tourist numbers decline?

And with hotel to condo conversions, you are gambling against the trends of marketing to upscale tourism which our boneheads in power are trying to force on the Keys. Hoity toity tourists don't spend their day at Smathers. They charter boats, the spend time at their pool, and they don't mingle with lesser mortals who would spread a towel at Smathers, Higgs or South Beaches.

Even more, lower and middle income people are opting for cleaner beaches and cleaner waters elsewhere where more affordable motels and hotels beckon, and the proof in the pudding is how many businesses everywhere in this town are For Sale today. Look at the numbers for Monroe County's population exodus. People are not moving to the Keys . . . we see our population decline year after year since 2005. Yet this poor woman has this idea sold to her that her business should fetch $69,000?

Her realtor had to be the one selling her on this totally misconceived price.

And her ad has been running in the Key West Cititzen's paper since last Autumn?

The only way to sell her business is to start dropping her asking price.

I'll put it like this: only a retiree who is bored staying at home will buy such a business. And how many retirees can afford $69,000 for an overpriced business in a declining tourist market today? Well, that pool of potential Baby Boomer buyers is declining weekly now as their Housing Miracle wealth up North continues evaporating into thin air.

I have to wonder about this woman's Realtor: how long does one keep running the same ad, same price, and keep seeing the same results of No Sale before they decide to drop the asking price? Nine months of ads and that business is still on the market. Nine months of watching the Real Estate market further deteriorate and you can't see it's time to drop your price? Doesn't make sense to me. And the same can be said about many Key West properties which have been on the market for over a year now which show no reductions in price. The homeowner and Realtor are crazy not to experiment with lowering the asking price . . . especially when the MLS listings are loaded with "Reduced" prices falling like prices in a Wal Mart flip chart commercial.

The most overused expression by Key West Realtors

"Everybody wants to move to Key West."

Yeah, but if they can't sell their homes back in BF, Kansas, how can they "afford" to go way out on a limb to buy a full time residence or "investment property" in Key West which is still today extremely overpriced when you figure in mortgage payments, maintenance fees, insurance and taxes?

And let's not mince words here: Key West is being eviscerated of its charm as developers push the glut to shorelines, making us look more and more like Anywhere, USA. We can't swim in our polluted waters. The government keeps expanding sanctuary boundaries to help cut back on overfished species. Tourism is down, way down, from just five years ago. And one great business after another goes down for the count. (Valladares Bookstore, the Deli, Dennis Pharmacy Lunch Counter, etc., R.I.P.)

My retort to the Key West Real Estate Cartel is "So where are all these people who absolutely must own Key West residences? Why hasn't one single buyer bought in the past two . . . almost . . . three weeks?"

The rotten sub-prime fruit has been smushed into the ground by pushers of mortgage fraud rioting at the base of the Consumer tree. The easy Alt-A fruit has been picked and churned in Lender's blenders. The Prime fruit requiring the ladder is beginning to rot on the tree. There isn't any more easy fruit to shake from the Borrower Tree. It's gone. The tree is bare, and this season, and next season, and many seasons to come, the harvest shall be skimpy.

As condo and home prices do not bottom in Key West . . . and as more panic ensues . . . I predict what I see in the stock market every day after a "Dead Cat Bounce": mass dumping of overbought assets.

Changing and mixing metaphors and analogies, the picture isn't any better.

Sub-prime stuff was simply the fuse which ignited the Housing Bomb.

The explosives packed into the bomb are the Alt A and Prime owned properties. It's the stuff the nouveau riche had been buying hand over wine glass back in 1990 through 2005. The big hunk of C4 packed into this bomb . . . i.e., housing which was in demand three years ago when high rolling developers decided to mow down hotels and put up expensive $1.2 million 800 sq. ft. tubes to resell to the unshorn sheeple with new money . . . is now exploding outward in slow motion . . . like that famous scene from the movie "Zabrinksi Point".

My latest prediction which I will flesh out in another blog soon . . .

Prediction: very soon, before this year is up, the game will end or turn against a greedhead or two who has destroyed the charm and charisma of Key West. And I'm refering to local greedheads, and not the outsiders such as Cay Clubs which my buddy Cayo Dave talked about in his blog post of May 14, 2007 . . . "Has Cay Clubs Bit Off More Than It Can Chew?" (Click on red highlight, and when Dave's blog opens, scroll down to the May 14 post which I can't directly link to today.)

Mark my words. A hard rain's gonna fall on local developers. And as Jimmy Cliff sang in one of the best reggae songs of all time, "The Harder They Come, the Harder They Fall, One and All."

Buy Key West Real Estate here and now? Don't delude yourself. Don't save a greedhead's ass. Save your own.

Save money, go fishing, get together with the few old friends who haven't left town for upstate New York, the mountains of Carolina, or the desert in Santa Fe, and party like a rock star when prices return to a mean which is 50% or more below this summer stupor of falling sales prices and stalled sales.

When some of the big developments blow down, it's going to take out all Real Estate in this whole town. We will see massive government layoffs as the tax base shrinks. (I'd like to see County Mis-Manger Tom Willi keehauled off a schooner in the Bight.) We will see many more businesses go bankrupt. We will have old timers remebering, "This is what it was like when the Navy pulled out of Key West in the 70s."

In the stock market, I have seen the unthinkable happen dozens of times to formerly stalwart, impregnable and arrogantly run companies such as Tyco, K-Mart, Winn Dixie. Brokerage analysts cheerleading those companies were as wrong as today's Key West NAR cheerleading housing on the way down. What we are waiting for in Key West Real Estate is an Enron or Globalstar type collapse where the company never comes out of bankruptcy. What we want is to buy a condo or house for 30 cents or less on the dollar. What we want is to chase the Destoyers out of our town's real wealth, i.e., it's cherished slices of Old Key West which weren't shrink wrapped in hermetically sealed blister packs for the masses waddling off cruise ships, airplanes, and doorsteps to Humvees which make our narrow streets impassable.

Make no mistake: We have bigshot local developers with dollar signs for eyes about to have their heads fed to the sharks down here. One family of developers who own controlling interest in one of our biggest local banks has to have such tight sphincters at this time that atoms could fuse in their rectums. My question is how do we harness this free energy?

Hence, it's never been a better time to fill the cooler, head out on the water, and forget all the lies from the Key West Real Estate Cartel and all the problems the Big Shots are facing. They created their own Big Lies so as to enrich themselves. But karma is coming back like a huge drill sergeant's steel toed boot about to kick them in the ass.

Caveat emptor,

Rock Trueblood