Another Example of Why 2004 Was Bad Timing To Buy A Home In Key West

For the past 45 days or so, I have initiated the use of my own Excel spreadsheet in which I enter every newly listed property from the Lower Keys MLS. More importantly, I've also noted every single Price Change on every property in the Lower Keys.

Using my spreadsheet, I recently came to the obvious conclusion that today's Price Changes are now somewhere in the ballpark of the year 2003.

For the past month, I've been telling readers of this blog how my spreadsheet is showing over 90% of all current sales of homes which were last bought in 2004 are selling today at a loss from their 2004 price.

Then the very popular blogger Michael Shedlock in his post late yesterday confirmed (using different methods and data) that he sees the Case/Shiller 20 home index hitting 2003 prices at this moment. (See Mish's "Housing Update - How Far To The Bottom?")

Which brings me to today's illustrative example of a house bought in 2004 home selling just this month in 2009 at a much cheaper price:

Here's a recent sale which took place on July 9, 2009.

Please notice the difference in the selling price between 2004 and 2009.

This is typical of all the homes listing or selling in 2009 and when they were last bought in 2004, a year when almost every Realtor in town and all the hangers on in the FIRE Economy were assuring us that there was no Housing Bubble, that Key West and Florida were "isolated from a Housing Crash" and "that it was different this time" . We were told over and over by the FIRE Economy Kool-Aid sippers Housing was a sure fire Baby Boomer retirement plan or a way for young people to become millionaires by "investing" in Real Estate.

Anyway, here's the description of the town home and its MLS data:

Bring all offers. 3bd/3ba situated on gorgeous resort style pool in Coral Hammock. Licensed for transient use with a rental history & bookings to convey. Many quality upgrades include granite counters in kitchen & baths, tile downstairs double covered porches. Enjoy the convenience of modern construction complete with open floor plan, indoor/outdoor living with 4 sets of French doors to covered porches, private ensuite baths, soaking tub & walk-in closet.Gated entrance for security & privacy plus a beautiful club house for entertainment & exercise facility. This is a potential short sale transaction subject to lender approval.One of the owner's is a licensed Florida Real Estate Agent but is not the listing agent. (My note: If I had a dollar for every Real Estate Agent who drank the NAR Kool-Aid during the Bubble, I'd own this island now.)

MLS#: 104766 . . . .Sold
Address: 40 Coral Way
City: Key West
Mile Marker: 0.0
Original Price: $665,000
Listing Price $379,000
Selling Price: $319,000
Sale Price/List Price: 84.17
Price Per Sq Ft. $224.65
Listing Date: 7/22/2007
Days on Market: 710
Interior Sq Ft. 1,420
Lot Sq. Ft. 1,111
Year Built: 2004
Bedrooms: 3
Full Baths: 3.0
Property Type: Townhouse

Real quick, let's look at the price the "sellers" paid for this baby new back in 2004 when it was built.

On 10/19/04 this home was bought for $484,900.

Two summers ago (Spring of 2007) the owners put it on the market for $665,000,hoping to sell it then for a quick $180,000 gain in less than three years time.

Unfortunately for these owners (one of them being a licensed FL Real Estate agent), and despite the local and national NAR telling one and all that "There's never been a better time to buy Real Estate", the market was tanking.

Disregarded Internet bloggers saw the Crash happening and were reporting it blow by blow, doing the job much better than Alan Greenspan, Ben Bernanke, Hank Paulson, the Bush Administration and almost the entire Mainstream Media. Still, we find a Key West Realtor (and this Realtor was in the company of 100s of Realtor/Speculators in this town) in 2007 actually asking an exorbitant price for a house which was no longer "hot" in a market chilling like a South Pole ice cap during Winter.

Hence, in 2007 the year when the Housing Crash was definitely happening to alarm bells ringing, klaxons blowing, red flags flapping and Case Shiller waking up the Mainstream Media to a crisis which the likes had not been since the Great Depression, we had a local Realtor and partner(s) trying to unload a recently purchased townhome at a big profit.

Anyone looking over this property in 2007 but who was listening to Internet bloggers saved themselves from being the "bigger fool" and purchasing this place in 2007. (It amazes me now how many properties on the market now at major losses were actually purchased in 2006 through 2008 . . . where were these people's reading habits?)

The Housing Crash was a crested roller coaster in Spring of 2007 when this 2004 purchased town home first went on the market to sell again. After all, it was just the previous Summer of 2006 (two years after the first buyers bought it) that Time Magazine had come out with it's contrarian cover (for us bloggers) "Home $weet Home" . . . "Why We Are Going Ga Ga For Real Estate", but which the NAR poobahs were creaming in their pants over:

Needless to say, there was not a lot of pent up demand for a $665,000 house in a nice development on Stock Island (the next Key up from Key West) in 2007, especially when it had sold for $484,000 just 2 1/2 years earlier.

As I just mentioned, Case/Shiller were just beginning to report that Housing was crashing in 20 major U.S. cities. Blogs from this town were talking about developers such as Cay Clubs were facing insolvency. And developers and builders I knew were all cutting back on Champagne Room visits at the stripclub where I worked in the Summer of 2007. The wide angle macro-Economic look was clear as HDTV if you only head your head out of the sand.

The Housing Ponzi Scam was up in 2007.

Those who were buying then were screwing in a sandstorm. Today, they all know they should have never have listened to the NAR in 2007 or local Realtor Cartel members who were only in it for the money or urging people in a local Newspaper column to "use your credit cards" for a downpayment as credit began to get tighter in 2007.

Let's get back to our example.

1. Sellers bought in Oct. 2004 for $484,000

2. Not even 2.5 years later in Spring of 2007 they try to sell at an Original Price of $665,000

3. It sat on the market with price changes for 710 days without selling.

4. Then it listed at the last most recent price change: $379,000.

5. And on July 9, 2009, the house finally sells for $319,000

Hence, Oct. 2004 SOLD price: $484,000

July 2009 SOLD price $319,000

This is the Bizarro World of Smith Barney where we lose money the old fashioned way, i.e., Buy High, Sell Low.

The above example is very typical of what I see on almost every 2004 bought property (most exceptions seem to be drastic expensive renovations) which is now selling or has already sold in 2009 at a cheaper price.

When someone loses $165,000 on a house when at one time they thought they would gain $180,000, it should be a lesson to all that Real Estate does not always go up.

As always,

Caveat Emptor

Rock Trueblood