How Far And Fast We've Come, How Far And Fast We've Dropped

Remembering What The Housing Bubble Start Was Like In Miami Beach

Having once lived and worked on Ocean Drive on Miami Beach in 1996, I can still vividly recall the newly renovated condos which were next door to my domicile/workplace. Work had gone on for months and months, and finally, the day arrived where a huge cloth banner was hung from the condos' roof proclaiming, "New Condos Starting at $157,000".

My boss and I toured the condos, just for fun, and what we found were beautiful 1,000 sq. foot (and above) 2 and 3 bedroom places with incredible attention to details in all rooms: the bathrooms were tiled with exquisite Roman marble on the walls, one bathroom had the newest bidets from Japan (which also had driers built in the seats), the kitchen had marble, not granite, tops. And the windows of each condo looked over the famed topless beach (800 block of Ocean Drive), so each unit also came with a decent telescope for looking at heavenly bodies.

I left Ocean Drive every Friday and drove home to Key West for a very short weekend stay. And as I came back to work on Mondays in Miami Beach, I noticed that the prices of the condos next door started quickly climbing. Every month, a newer banner was hung from the roof and it wasn't long before the sign read "New Condos Starting at $250,000".

I bring this up because this was 1996 - which is the year most Real Estate followers say was the beginning of the Real Estate Housing Bubble.



Flash Flash Forward Just A Little Bit In 1996

Sometime in 1996 I quit my job up in Miami Beach and became a full-time citizen/worker in Key West. At that time, I and my wife were renting a house downtown on Catherine Street for only $800 a month. It was really a "cottage", poorly constructed, but it sat on a prime piece of Real Estate in Key West.

In Autumn of the same year, my landlords came to me and told me they were going to sell the house. They told me they would like to offer it to us first, and at the sweet price of $127,000. As I was going through a rough patch with my wife, and she had to move back to Virginia to take care of her ailing mother who needed hospice care, it was all I could do to just make ends meet by working 12 hour days 5 or 6 days a week. I had to pass on the offer by my landlords. The house was sold to someone else. And I had to move on.

Back in 2006, the house which I once was offered for $127,000 came on the market for $600,000.

The exact same house had more than doubled in price . . . twice . . . in 10 years time. I went by the house and stood by the fence, remembering many good times I and my cats and dog and wife had spent there. While standing there, one of my old neighbors came out of his house and asked was I thinking of buying the place. I said, "Are you joking? Do you realize the market is topping, do you realize we are about to have the worst Real Estate crash since the famed 1928 Florida Real Estate Crash?"

My ex-neighbor laughed and said, "Rock, if you don't buy now, you'll be kicking yourself in the ass for years to come." And then he said the local NAR mantra which everybody in Key West was still repeating as the biggest meme ever planted in locals' brains: "Key West is a small 4 mile by 2 mile island. They aren't making any more land. Everybody up North wants to move here. Buy a house, Rock, and become a millionaire as the price will double in 3 to 5 years tops."

Well, here we are. It's 2009 and that same $600,000 home would not fetch $300,000 today, so in just three years time, that one bedroom house has lost more than 50% of its perceived 2006 value.



Another Example Of How Far We've Dropped

Key West has no beach like South Beach in Miami with long wide expanses of sand and beautiful rolling waves crashing on shore. The closet thing we have is a beach called Smather's Beach on A1A. It's about a mile down A1A from our airport.

Because there are reefs surrounding Key West, pounding surf is quieted down on Smather's shoreline. Sometimes, the ocean water is "like oil" (a fisherman's term) smooth as the surface of a lake. Because there is no surf, dying sea grass collects on the shore of Smather's and smells like rotten eggs. It's such a problem, the City has a contractor run tractors with giant rakes up and down the beach every morning. A front end loader dumps the pungent seaweed into a dumptruck. And this process happens over and over, week after week.

If you are a local you get used to the stink. I believe the seaweed is more an eyesore and turns off people from swimming in the near shore water. So most of the activity takes place on jet skis, catamarans, parasails, etc., offshore or you stay back on shore in the sand. By the way, the sand here is not natural. After every hurricane, were the sand not replenished, there would be no beach. Mother Nature takes, man replaces.

Still, Smather's Beach is a nice place to people watch. Girls and guys play volleyball. Couples are always getting married out there. Kite surfers rock and roll to and from the shoreline on windy days. And loads of people walk, run, skateboard, rollerblade, and bike the sidewalk along the seawall.

Across from Smather's Beach are one hotel and two condo developments.
One of these condos, Key West By The Sea, is now marketing a 2 bedroom, 1 bath condo for $200,000. (Just a few years ago, this condo would have fetched $500,000 to $600,000 easily.) These condos are some of the oldest on the island. They were built in the 1967. They do not have central air (notice the boxy A/Cs hanging out the front of the walls), so if you go out on your balcony, you'll do so to the hum of air conditioners cranked to full max.

Keep in mind that oceanfront condos in this building can see brilliant sunrises and beautiful sunsets. That's a big plus. This is prime "scenic view" real estate in the truest sense of the word.

But condos further back are prone to noise from planes taking off and landing at the airport. And this particular condo I'm telling you about faces the inside courtyard and its front doors face the salt ponds surrounding the airport.

Does This Sound Like A Bottom To You?

Here we are today looking at a $200,000 condo listing price (original price was $310,000 and has been on the market 149 days) just a few years after a noted Key West Realtor was quoted in the newspaper as saying, "You'll never see a Key West condo or home sell for less than $600,000 again."

And now the cheerleading Realtors are telling us the bottom is in? Does a reduction in price from $310,000 to $200,000 in just 149 days sound like a bottom to you? Sounds like seller's panic to me.

Wait, you want to see how bad it was? What if I told you this same condo was bought for $520,000 in September of 2004?

Folks, look at it like this:

Key West Realtors were dead wrong about Real Estate as the bubble blew. Do you think they cannot be wrong again?

Do you think a $200,000 listing price with condo fees approximating $400 a month is a deal when you are now aware that a tsunami of Alt-A loans, prime and especially Option ARMs are about to take millions of Americans to the woodshed where they will be foreclosed upon?

Is this really a bottom?

70% of current foreclosures in the USA are "Shadow Inventory" not even seen on any mls data sheets. These homes are burning holes in banks' off books accounting. And that's why banks are not putting all these foreclosures on the market at one time: they know if the market is flooded with foreclosures, housing prices will continue their freefall. And the last thing insolvent bankers want is to "mark to market" the real prices of assets they carry on their hidden books at great losses already.

Again I ask, "What's the rush to buy?" There's going to be so much more inventory from foreclosures coming on the market that I believe we are going to see another 20 to 40% shaved off prices of homes and condos down in Key West. And if I'm wrong, and this is a real bottom, let me ask you one more thing:

Do you think the Economy is going to rebound and housing will take off again with homeowner's equity building at breathless double digit rates year in and out?

The middle class in this country is being disassembled. Bankrupt GM, now owned mostly by US taxpayers, is laying off another 20,000 or more employees. I just googled the word "layoffs" and see Cessna, IBM, Capital Group, Trane, ABB, John Deere, Seattle Schools, Sacramento, Vermont, Lodi, Reno, University of Central Florida, Harvard University, Temple University, Stamford PD, and dozens more companies, municipalities and schools are announcing layoffs just today, June 4, 2009. Does that sound like a bottom to you?

How can people retire when they have to live off their meager life savings after being fired? And we know that middle class Americans were net spenders, not savers, during the insanity of the debt fueled Housing Bubble.

The Housing Bubble was a black swan event. We can't expect to return to normal when millions of Americans are losing their jobs, have no savings, and one in four with mortgages are upside down and sitting on negative equity in their homes. Go ahead, Realtors, tell me how people want to move to Key West. I am simply saying people want things they can no longer have. DEBT is knocking on the doors of Americans everywhere and DEBT wants to be paid for playing the piper's song during the biggest run up in Housing prices ever seen since before the Great Depression.

Wise people, don't give into the Siren Song of the vested interest types in the FIRE Economy. Instead, save your money, pay off all debts, you'll be in the catbird's seat when we hit the "real" bottom. And this ain't it.

Caveat emptor,

Rock in Key West