By James R. Hagerty
Special to RealEstateJournal
Question: I purchased a two-bedroom, waterfront condo in the Florida Keys in 1998 for $170,000 and sold it for close to $400,000 in 2002. That same unit is now selling for close to $700,000. This in a building that is more than 30 years old with what can only be described as shoddy construction. The same story is being repeated all throughout the Keys. Prices in Florida have generally skyrocketed, but in the Keys they have become insane. I think it's a classic bubble waiting to burst.
This past hurricane season brought home the fact that the Keys are nothing more than barrier islands that will sustain horrific damage in the event of a major hurricane. According to forecasters, we can expect extremely active hurricane seasons for the next 10 years due to a shift in weather patterns.
All of this means that investing in the Keys is a risky proposition, made even riskier by the speculation of the last few years. What is your opinion about buying in this area?
-- Henry, Miami
Henry: What's happening in the Keys appears to be an extreme version of what has happened in the rest of Florida and all along the country's East and West coasts: A surge in demand, propelled by low interest rates, has smacked into a shortage of homes. It's hard to find space or secure permits to build homes in most coastal areas, but it's particularly hard in the Keys. The islands are considered such environmentally sensitive jewels that the state government severely restricts building there. In most places, local governments decide on such issues. But the state government decides how many permits can be doled out each year in the Keys.
The average sales price in the first half of 2004 for properties in the Keys, from Key Largo to Key West, was $548,000, says Eileen M. Albury, a broker-associate at Coldwell Banker Schmitt Real Estate, Islamorada, Fla. The average was up 32% from a year earlier.
Is that insane?
"We're an island," explains Ms. Albury, who knows about such things because she has been selling real estate in the Keys for 20 years. "They're not making any more of them." Indeed, she says the Keys are still a bargain compared with the coastal areas around Miami or Tampa Bay. Now is the time to buy the Keys, she says: "It's a perfect opportunity for people to get in before it gets absolutely obscene."
What about the hurricanes? "That's what you have insurance for," says Ms. Albury.
Aren't ordinary mortals being priced out of the market? "Paradise ain't cheap," she says.
OK, you might expect Realtors to predict rising real-estate prices, whether they're in Key Largo or Khartoum. What about the dismal scientists? One economist who studies the Florida market closely is Henry Fishkind, who runs a consulting firm, Fishkind & Associates, in Orlando. Dr. Fishkind takes a much more cautious view of the Florida market as a whole. "The era of rapid appreciation has clearly peaked out already," he says. The Florida Association of Realtors reported that median prices in the third quarter were up 18% from a year ago. But Dr. Fishkind, a former economics professor at the University of Florida, says that pent-up demand for housing already has been satisfied and that interest rates are heading up.
He doesn't believe there will be any general drop in prices. But he does warn that values of midpriced condos may fall modestly in some areas because large amounts of new supply are hitting the market.
Dr. Fishkind's advice: Don't buy homes in Florida if you're counting on rapid price appreciation. Buy only if you need a place to live and plan to hang around for a while.
-- Mr. Hagerty is a staff reporter for The Wall Street Journal. His "House Talk" column appears most Fridays on RealEstateJournal.com. E-mail him your questions about the residential real-estate market. Please include your first name and city and state. If your question is answered and posted, we will show your first name and city. Due to volume of mail received, we regret that we cannot answer every question.
