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An Information Guide to Duck Key in the Florida Keys



 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Real Estate News Summer/Fall 2006

DEAD REAL ESTATE MARKET?

Some realtors in the Florida Keys think not. Schmitt Real Estate sees a slowly improving market and bases its assessment on increased buyer activity, a vibrant national economy, a lessening in the pace of new properties coming to market, low interest rates, " a more routine Hurricane season" and what appears to be a favorable resolution of the Windstorm rate issue. Because land in the Keys is a scarce commodity, many believe it will continue to be viewed as prime real estate. See Tropical Breezes Fall 2006.

Dennis Handa, Manager for Coldwell Banker Schmitts upper keys offices, in a September 2006 news release remarked:

There are Four very important scenarios about the Keys market that are attracting investors right now.

1. The Florida Keys are one of the world's most popular destinations and our tourism market is growing.

2. Due to environmental and transportation concerns, the Keys are in a restricted growth area. This means there are only so many properties and when those are gone, that’s it! Limited housing means above average appreciation.

3. Due to increased prices and a larger for sale inventory, sellers are making concessions such as holding paper back, lease options and creative owner financing.

4. Although home prices are high, Investors realize that ten to fifteen years from now, they’ll be the same in relation to the ridiculously low prices of the 70s and 80s which makes most of us wish we’d gotten more involved with Real Estate.

Other realtors believe the reason for the slowdown of home sales in South Florida is that appreciation of values has elevated prices beyond the reach of many buyers. Additionally higher taxes on second home owners who are not able to Homestead and the exit of investors and speculators is having a negative impact.

Nationally, realtors and economist also seem to disagree on the forecast. The National Association of Realtors chief economist David Lereah has proclaimed that ''the worst is behind us," while Robert Schiller Yale economist predicted in 2006 that the slowdown could last for years.

Many people still want to own a home in the Florida Keys, but upon investigation find out they can not afford to. The Miami Herald reported in October of 2006 that living in the Florida Keys is the "costliest in the nation for ownership."

The Miami Herald reported that homeowners in the Keys " . . . on average spend a higher percentage of their income on housing expenses than anyone in the state - possibly more than anyone in the nation."

U.S. Census Bureau reports that Monroe County home owners pay out 56.7 percent of their pre-tax household income for mortgages, property taxes and insurance. Such costs generally should not exceed 30 percent of the household income according to government experts. Close to half of Florida Keys residents exceed the 30 percent level for spending on home ownership.

The housing costs for Monroe County residents would appear to be the highest in the State of Florida and according to Miami Herald researchers housing costs in Monroe County may be the highest of nearly 800 U.S. counties surveyed and reported on in the United States census report.

The Herald calculated that to purchase a $500,000 Keys home a buyer could find themselves looking at a monthly payment of $5,000 for mortgage, taxes and insurance. The median priced home in the Keys was over $682,000 in 2006.


SOUTH FLORIDA

Money magazine says South Florida is a dead real estate market because it is over-built and seriously over-priced. "

South Florida's Sun-Sentinel reports June 28 2006, "Sales plunge, prices level off in South Florida housing markets".

On July 26, 2006 the Sun-Sentinel reported "South Florida home sales plunge again".

Perspective home buyers appear to be holding off and waiting for bargains. While waiting for lower prices and good deals buyers face climbing mortgage rates which possibly can offset any savings gained by waiting. Climbing mortgage rates in combination with rising costs of construction materials will effect potential savings. Contractors have experienced significant increases in building material costs. Cement prices went up 15 percent from last year. Drywall costs increased 26 percent and copper and brass supplies increased 87 percent.

Florida Association of Realtors reports that sales have fallen, and price increases are leveling off.

Realtors report that existing home sales dropped 33 percent in Miami-Dade County for June of 2006 when compared to 2005. in Palm Beach County existing home sales fell by 39 percent in June. In Broward County existing home sales declined 34 percent. In Broward there are three times the number of houses and condos for sale this June of 2006 as compared to June of 2005.

 

CONDO SALES IN BROWARD AND MIAMI DADE
Figures comparing June 2005 and 2006 When compared to 2005 the number of Condo sales continues to "plummet". Condo sales dropped in Palm Beach County 41 percent. In Miami-Dade Condo sales decreased 31 percent

The PMI Mortgage Insurance Company of California reports in a recent study that "Palm Beach, Broward and Miami-Dade counties remain among the nation's least-affordable markets, with a typical 30-year mortgage eating up more than 40 percent of a homeowner's income . . . "

STATE OF FLORIDA
The National Association of Realtors reported homes sales for the state of Florida declined 24 percent from May of 2005. A June to June 2006 comparison showed existing homes were sagging by 29%

 

FLORIDA KEYS: Source Schmitt Coldwell Banker Real Estate and MLS
Multiple Listing Statistics show that the Keys also has experienced similar sales declines for the last quarter of 2005 and the first several months of 2006. Sales for the fourth quarter of 2005 were down 43 from the same quarter of 2004. For the first half of 2006, the number of properties sold versus 2005 was 48 percent less.

The number of properties added to the market was up 91% for the year Keys-wide as of February 2006. This increase was due to a drop in the number of sales and an increase of homes added to the market. As of February 2006 there were 4,348 properties for sale. Understandably the average number of days Keys-wide to sell a house is between 5 and 6 months.

The Table below shows the total number of sales for the years 2002 through 2005. Also shown are the number of sales for the first two months and first six months of 2006. The average sale's price and number of sales are provided for each year plus the January - June interval for 2006.

NOTE: The drop in the number of sales between years 2004 and 2005 is significant. If the rate of sales for properties for the first six months of 2006 were to continue about 1800 properties would be sold in 2006.That is far less than sold in previous years. Also of note is the sharp rise in the number of properties for sale between 2003 and February 2006 followed by a reductionin the number for by June 2006.

Why the drop in the number of properties for sale? The Schmitt Coldwell Banker Real Estate Summer Newsletter states,


"Our take on this is that a number of owners tested the market during the past six months and found it not responsive to the price they sought, and, consequently, decided to either not sell or to wait until conditions improve. At the same time, property owners considering selling decided to hold off, as reflected in the declining number of properties being listed “For Sale” each month since February."

 

  end of 2002 end of 2003 end of 2004 end of 2005 First 9 months 2006
Number of Sales 3089 3390 3510 2752

1,208

Aver. Sale Price 323K 433K 563K 782K

800K

Number for Sale 1822 1810 1818 3469 4,337
           

 

REAL ESTATE TRENDS FOR FLORIDA KEYS
Fewer property sales and a longer time to sell seems to be the current picture, but realtors also have noticed that fewer properties are entering the market and sellers seem to be pricing properties more realistically.

 

 

NATIONALLY
For the nation, the National Association of Realtors (NAR) reported that sales of existing home fell 6 percent from January 2006 to May. The NAR's chief economist David Lereah earlier predicted that sales would fall as much as 8%. By June of 2006, Nationwide, statistics for existing-home sales showed a fall of 9 percent from June 2005, the National Association of Realtors said.

Nationwide, existing-home sales fell 9 percent from June 2005, the National Association of Realtors said.Interest rates for the average fixed rate loan are going up and adjustable rate mortgages which reset to higher rates are scaring away investors in resort areas and buyers who are considering buying a second home.

HOMES OVERVALUED IN MANY COMMUNITIES
Homes in many communities in Florida found to be overvalued.

Florida together with California accounts for 17 of the top 20 overvalued markets.

A study by Global Insight and National City reports that homes in Broward County are overvalued by 57 percent. Homes in Miami-Dade are 64 percent overvalue and Palm Beach County homes are at 65 percent overvalue. Homes in Naples were found to be 102 percent overvalued. Homes in Port St. Lucie-Fort Pierce were determined to be 77.4 percent overvalue.

Some Analysts predict price declines in overvalued communities because of increased housing inventories. More than triple the number of homes for sale compared with last year. Analysts anticipate a decline in home prices due to a glut of homes for sale, rising mortgage rates, insurance prices and rising property taxes.

Price appreciation of homes during the past several years has put homes out of reach for consumers resulting in fewer home sales.

In Southern Florida and the Florida Keys many homes for sale are out of reach for potential buyers because of increased costs of ownership, i.e., rising home prices, rising mortgage rates, drastically rising windstorm insurance costs and increased taxes for non-homesteaded property.

REAL ESTATE BUBBLE
Some authorities see no real estate bubble, but Warren Buffet says "We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market." Buffett points to Dade and Broward counties in Florida. He believes that this area has experienced a rise in housing inventory and price stagnation.

It's the Inventory, taxes, insurance rates, higher mortgage rates and soaring home prices. Fortune Magazine reports "The affordability gap is driving buyers to the sidelines, replacing the frenzy with a growing void as buyers wait for prices to drop."

What will it take to bring the Florida real estate market back to life?

Fortune states "Prices will have to come down, and incomes will have to move up. Right now the ratio of home values to incomes in the bubble zones is about 40 percent above its historical average."


WALL STREET JOURNAL

The Wall Street Journal in July of 2006 cited one expert who sees a "loud pop" coming, but with harm limited to inflated regions of the United States. "Much of the country will do fine", but "there will be a loud pop in the inflated markets" where folks have been buying homes at inflated prices with risky mortgages. Heeber cautions ". . . if 20% of home purchases are for investment purposes and so many borrowers are subprime, that says to me trouble is coming."

The Journal interviewed Kenneth Heeber who manages a real estate mutual fund, the $1.2 billion CGM Realty Fund. Heeber sees a "significant buildup of inventories . . . taking place" followed by " a major retrenchment in hot markets in California, Arizona, Florida and up the East Coast." Markets could fall as much as 50% from peaks according to Heeber.

Heeber worries that people will default on mortgages. As prices drop they will walk away from interest-only mortgages and adjustable rate mortgages requiring no principal amortization. "You're going to se increasing foreclosures over the next several years."
He worries about the "huge increase in inventories of unsold homes"


BUILDING CONSTRUCTION COSTS IN THE KEYS

During the ten year period between 1990 and 1999, the price of home construction per square foot of floor area increased steadily from $71.21 to $229.73 (a +322.6% change). The average price of a new house in the Florida Keys increased from $108,063 in 1990 to $508,204 in 2000.

BUILDING BOOM OVER
Fortune Magazine reporter Shawn Tully (May 2006) reports the building boom is over and a record number of new homes have been added to the market. He writes that there is no danger of a meltdown for " . . . the vast expanse of America between the coasts . . . never touched by real estate mania." The prognosis for Miami is different however.

Fortune reports "the great housing bubble has finally started to deflate, and the fall will be harder in some markets than others." Tully writes "things are looking very chilly indeed in four coastal cities - Boston, Washington, Miami and San Diego - as well as three Western boomtowns: Phoenix, Las Vegas and Sacramento. So far this year, monthly sales have fallen 11 percent to 25 percent in Miami, Boston, northern Virginia and San Diego, according to local housing experts."

Possible scenarios according to Tulley.
1. "housing prices would drop 10 percent to 15 percent in the bubble zone over the next 12 months, then remain flat for maybe four more years while incomes catch up."
2. the economy driving housing boom will vanish. "If corporate spending or some other force doesn't come along to pick up the slack, we could go into a recession that would cut income growth to zero. Then inflated housing prices would have to shoulder the entire, wrenching adjustment, falling 30 percent or more over several years."

SOUTH FLORIDA FORECLOSURE RATES RISE
Reporters Robin Benedick and Andy Reid of the Sun-Sentinal reported in early July 2006 that foreclosures are ballooning as some homeowners can't keep up with adjustable-rate mortgage payments nor can they sell quickly properties in a cooling housing market.

Among those most at risk: owners who used creative financing to stretch their budgets in the 2000-2005 housing boom. Buyers who took out a five-year in 2000 are seeing their house payments rise for the first time. Increasing housing inventory, higher prices, rising interest and rising insurance rates have made selling difficult.

So far in South Florida foreclosures have jumped 40 percent over the end of 2005. For the first quarter of 2006 foreclosures in Broward were up 57 percent, 69 percent in Palm Beach, and in Miami-Dade 17 percent over the last quarter of 2005.

LINKS :

REAL ESTATE NEWS 3/2006

Are Duck Key Property Overvalued?

 

Below are a number of links to the Schmitt Coldwell Banker Real Estate Newsletter. The newsletters are the most definitive source of real estate news and trends available on Florida Keys and Key West real estate.

2006 - Spring - Summer - Fall - Winter

2005 - Spring - Summer - Fall - Winter

2004 - Spring - Summer - Fall - Winter

2003 - Spring - Summer - Fall - Winter

2002 - Spring - Fall - Winter


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