Margaritaville

I am pleased to bring you a singing Key West update with help from my friend Richard, a doctor who currently lives in Key West Florida. The song comes later. First let's tune into some commentary about Key West from Richard. Here goes:

My landlord died two weeks ago.
There are 4 apartments and 3 rooms renting in an old decrepit building he owned.

He had it on the market, For Sale By Owner, for $2.8 million.
Last Thursday, his son came down to take care of his estate.
The price dropped to $1,950,000.

I know the attorney who is working with the son.
The price will soon drop to $1,800,000.

Across the street, a former homeowner took a similar sized house to the one I am living in. He spent hundreds of thousands to subdivide it into 3 condos, the cheapest was $900,000, most expensive one was $1.3 million, the third unit went for $1.15 million.

Those three condos were on the market for over a year. Four months ago, some guy finally bought one of the two more expensive condos. I found out yesterday that this new owner had already folded his tent. He couldn't make the second or third payments on his new condo. He sold his condo for an immediate $400,000 thousand loss.

Now he doesn't have a place to live in Key West and he still owes some lender $400,000. Wow. Shades of buying on margin in year 2000 and having the brokerage wipe out your account and calling to say, "Hey, you owe us more!"

Next door, there are five condotels. They were formerly part of the great White Street Inn, which stayed fully occupied most of the year.

Well the White Street Inn owners wanted one grand big kill. So they closed down the nightly rentals, renovated the place into 5 condos and opted for the condotel designation which meant renters had to rent for a week. But the benefit is the new owner of the condotel had to pay no bed taxes to the city for infrastructure in return for not renting the place out nightly.

A funny thing is happening to all of these condotels: they are not occupied more than 25% of the time. Most of the time, they are dark and vacant.

Those units initially sold for $1.2 million.

Two of those units are on the market now, today, for $750k and $800k respectively. We can only speculate that the sap investors who were assured "Key West is HOT, HOT, HOT and you'll never have a problem keeping this place rented out," are now so deep underwater carrying mortgages that their sparse rentals can't possibly cover, they were forced to drop the prices on their places to meet new realities.

Anybody buying a house in this town at this time is trying to catch a falling guillotine.

Wait. There's one more statistic which news reports won't speak about especially if you are a realtor being quoted for the paper.

I think I told you about the young respected realtor in Key West who last year this time was quoted as saying, "You will never see another house in Key West sell for less than $600,000 again." His reasoning, like most of the Realtor herd: Key West is a very tiny island, land is at a premium, real estate prices are finally catching up to “Realtor Vision”: real estate will continue to double every few years."

Last week, the newspaper resurrected his quotes. There are houses not only under the $600,000 mark, but at this moment there are 11 houses in Key West under the $500,000 mark.

I looked at two of them yesterday. One was a "cottage, 284 sq. feet", the other was a "cute little condo bungalow" of 300 sq. ft. These two "investment properties" listed for $390,000 and $395,000 respectively. In former years, they were basically tool sheds. Those two tool sheds will be back to reality before this is all over.

The MLS listings down here do not include "For Sale By Owner" signs which have sprung up everywhere in Key West. All these homeowners upside down on fast depreciating homes are now trying to save the commissions the realtors would have gotten by doing it themselves.

If you averaged in the "For Sale By Home Owner" prices, the fastest falling on the island, prices have easily fallen over 25% in 6 months. But the MLS only averages the MLS listings. They don't want to mess up the cartel pricing with reality. That could cause a bigger rush to the exits than what is just beginning now.

Things are much worse in Key West real estate than the Real Estate cartel, i.e., realtors, appraisers, mortgage shop owners, builders, et al, are letting on.

If you want to buy a Key West home, here's what you do: keep working. Save your money. Come down here several years from now. Buy while there is blood in the streets.

This cartoon has just begun.

The above was from Richard. I will take the blame or credit (whichever you prefer) for putting the above post to music. It's now time for a song.

Sing with Mish - Margaritaville

Towin' my Chevy
From the back levee
My credit is now such a mess
But it was a fun time
With bottles of French wine
The Corvette is now repossessed

Wastin' away again in Margaritaville
Searching for my lost window pane
Some people claim that Katrina's to blame
But I know it's all Greenspan’s fault

I don't know the reason
That condos were screamin’
I’ve nothin' to show for 800K
The condo’s now empty
My loan's still a plenty
And how it got financed I haven't a clue

Wastin' away again in Margaritaville
Searching for my lost window pane
Some people claim that Katrina's to blame
But I know it could be my fault

I blew out my credit
But how did they let it
Get purchased without insurance
It seemed like a steal
They said it's a deal
It's now yours for a song and a dance

Wastin' away again in Margaritaville
Searching for my lost window pane
Some people claim that Katrina's to blame
But I know it's my own damn fault

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/