The 2006 Florida Keys Real Estate Market and Beyond.
By Brian C. Schmitt
We’ve heard and read a lot about the stark contrast between The Florida Keys’ sluggish real estate market this year and the high-flying, “no-price-too-high” market of little more than a year ago. Sales went from an all-time peak to what many perceive as a dead stop.
We see a different picture, though, if we put perception aside and look at the reality of historic real estate trends from the Multiple Listing Service data for The Keys.
2006 has the unenviable position of being compared to the prior three years, the best for real estate in the history of The Keys. Taken alone, however, 2006 has not been a bad year, and, in fact, is actually the fourth best year for sales volume in The Keys, ever. The average 2006 sale price eclipses those of even the past three years, and it’s almost triple that of 2000. Some market segments, including commercial retail/office and residential development property, have enjoyed never-before-seen prices.
What’s more, as a lifelong resident of The Keys, and one whose family has been in real estate since the early 1950s, I believe the outlook for 2007 is very positive.
So what’s all the current moaning and groaning about?
Most sellers believe it’s a bad market because they are not getting offers. And why are offers scarce? Because, compared to the peak of the market, there are roughly twice as many properties for sale while there are only about half as many sales, leaving the average seller with one-quarter the opportunity to sell his property. It’s little wonder, then, that most sellers are unenthusiastic about the 2006 market. The reality, though, is that due to unrealistic expectations fostered by gains of the past three years many properties are just not priced to sell in this new market. The large inventory also means a lack of buyer urgency, one of the boom time ingredients missing in the 2006 conditions. Buyers have been cautiously waiting to find the bottom of the market.
Many real estate agents also think it’s a bad market. Despite the downturn, there are still about 1,250 licensed agents competing for half as many sales. Those fewer sales are going to the best agents. The top 25 percent of agents control better than 80 percent of the sales leaving more than half of all agents with one sale or none at all in 2006. No surprise those 700+ agents don’t feel it’s a good market either!
So what caused the slowdown and what’s the prognosis for 2007? The 2006 downturn actually started in 2004 in Key West. Key West is now Florida’s most expensive market as determined by the Coldwell Banker® National Home Price Comparison Index, and has typically registered the highest average price increases in the Keys. Sales started to decline as prices escalated and many buyers were priced out of the market. This trend worked its way up The Keys until two back-to-back years of storms ending with Wilma struck the final blow. Since then, the market has been slowly recovering.
I believe that 2007 will be a very good year; probably the third-best year for sales in The Keys, and markedly better than 2006. This belief is based on a number of factors some of which are national in scope and others, endemic to The Keys.
The evidence suggests the market hit bottom this past summer. The sales increases of August, September and October were contrary to the normal pattern. More buyers will commit once they understand the market has passed its low ebb
Interest rates are at 40-year lows with rates this week at their lowest point in 8 months, and likely headed even lower. The national economy and stock markets are very healthy and growing. There are over 1,000 people net moving to Florida every day. We have only started to witness the exodus of the affluent Baby Boomers from the north and I believe many more of them will want to come to The Keys over the next 10 years than we’ll be able to accommodate.
We experienced an extremely mild hurricane season and great strides have been achieved in resolving our wind insurance issues mainly through the grass roots efforts of F.I.R.M.
The Florida Keys continues to be one of the most unique places to live in the U.S., and I believe, one with unrealized value from many perspectives. Because of our significant growth and development restrictions there is little opportunity to create more product, so what we have today in number of units is essentially all there ever will be, a finite resource in the face of increasing demand.
Certainly, we have our challenges with insurance, central sewers, affordable housing, etc. but we have survived and prospered through much worse calamities that we are currently dealing with. The Keys has survived hordes of mosquitoes, numerous hurricanes (including Donna in 1960 which made U.S. #1 impassable for months), the Cuban missile crisis with tanks rolling down the highway, 18% interest rates, gas rationing, the Mariel boatlift, national economic recessions, the Growth Management Act and Area of State Critical Concern, ROGO, etc Our current situation and current problems (and there will always be problems) are formidable, but represent just a blip on the screen, and, by comparison, are inconsequential to the market over the long term.
I believe that as with most things of real value, to realize that value you must have a long term perspective. Florida Keys real estate will continue to give great enjoyment and reap handsome rewards for those who understand its intrinsic value. This value will not be depleted by insurance premiums, or market slowdowns, or any other short-lived aggravations.
