It’s difficult to quantify. But the new and different stresses imposed by the last year have upended our lives, changing our priorities and forcing us to reevaluate the most fundamental aspects of our day-to-day. For many, this has meant a renewed focus on home and family, particularly as a result of the near-universal pivot to remote working arrangements. Home as office has become the new normal for the foreseeable future, and the ability to work from anywhere is being embraced by more working people than ever before whether they like it or not.
As a result of the collective reconsideration of our living situations, over the course of the last year, the number of homes for sale across the nation has taken a nose-dive. Per Realtor.com, the national inventory of available homes declined by 39.6% in 2020, while homes spent 66 days on the market on average, which is 13 fewer days than in 2019. Today, inventory is approximately 42% lower than it was at this time last year. And even in Key West, where new construction is nonexistent and prices are higher than average, homes that have sat on the market for hundreds of days are being snapped up.
The lack of available real estate across the Keys is primarily because of the simultaneous occurrence of two pandemic-related factors.
First, many homeowners who otherwise planned to sell in 2020 delayed their plans for a number of reasons, including a reluctance to host in-person showings and financial uncertainty because of the pandemic.
At the same time, mortgage rates have hit record lows, incentivizing would-be buyers to strike while the interest rates are hot. Add in the millions of Americans who suddenly found themselves trying to create a home office out of a linen closet, and all of a sudden, demand is outstripping supply faster than it has in decades.
The supply and demand disparity in Key West is greatly exacerbated by the fact that Key West is a tiny town. Space is severely limited, while interest in owning an island home is growing exponentially, particularly in light of the pandemicera restrictions. Adding to the already existing scarcity is the little-known fact that the Florida State government has designated the Florida Keys as an Area of Critical State Concern. In response, Monroe County implemented a moratorium on all new homebuilding applications beginning in 2023. This means the number of available houses will plateau and demand pressure on pricing will only increase over the next few years.
Over the last year, interest in investing in real estate in small towns and places like the Florida Keys has grown tremendously. Many people are fleeing the high-tax, high-stress northern states, attracted to the tropical island dream. And after a year spent in lockdown in a postage-stamp-sized studio apartment, the advantages of Key West living are pretty obvious: the prevalence of indoor/outdoor living arrangements, the ability to enjoy the great outdoors almost 365 days a year, the ease of engineering a remote work setup, coupled with the ability to fly anywhere in the country (especially with the number of nonstop flights to domestic destinations our tiny Key West International Airport has added over the last five years), the relaxing and tranquil island lifestyle.
According to the most recent data from Altos Research, a firm that tracks the nationwide real estate market, the median list price for a home in Key West is $1.1 million — about three times the national median of $340,000. Over the past four months the average number of days a home has spent on the market has plummeted, from 161 to 70. And according to data generated by agent Bob Wood of Keller Williams Key West Compass Realty, the market in Key West has officially become a seller’s market as of this month, with inventory dropping and final selling prices more closely approximating initial listing prices. In January alone, 90 new homes hit the market in Key West, but the active inventory was only 264 homes — down 20.5% from January 2020.
John Parce, a Realtor since 2001 with Keller Williams Key West Compass Realty, says the increasing sales and accelerating prices of Key West real estate are because of six interrelated factors: “The historic architecture, clean air and clean water, freedom from metropolitan anxieties, the ability to work remotely but get anywhere in the United States because of our outstanding airport, the ease of utilizing local transportation and the outstanding arts and culture of the island. Many people are saying, if I’m going to have to be someplace, why not be somewhere where I can take advantage of all those attributes and live a lifestyle where the only stresses I receive are those that I place on myself?”
Sales plunged in early 2020
While pandemic-induced isolation kept us inside during the first half of 2020, real estate sales in the Florida Keys plunged, which is not surprising when you consider that the Keys basically were closed to outsiders from late March to early June. But Raymond Vazquez, a Key West native who has sold real estate in Key West for 16 years and who is now a broker with Truman & Co. Real Estate Services, never expected what would happen after the island opened back up.
“The real estate market has been booming, which is the complete opposite of what we thought was going to happen during the pandemic,” he said. “We’re seeing properties at all different prices and of all different types go under contract faster than we can get them on the market. And we’re at an all-time low of inventory. I’ve never seen it like this, even before the last recession. And because inventory is low, it’s creating a much higher demand than we’ve ever experienced in my time selling real estate.”
And the numbers are reflective of that demand. “December 2020 was the best December ever when you look at the number of sales,” Mr. Parce said. “Then January was the biggest January ever, with 20 sales, and February was the biggest February ever, with 21 sales, which makes 41 sales total in the first two months of this year — about one-seventh of the available inventory. Last year, we had 142 sales all year, or roughly 12 sales a month. So we’re seeing a higher percentage of sales in a very short amount of time. On top of that, the average sale price for both January and February was $1.65 million, which we haven’t seen since October 2019 and which is way higher than any month in 2020. So there’s a very high interest in property down here, even though the number of houses available is relatively low.”
But why is inventory so low in the first place?
Mr. Vazquez suggests that many homeowners who had initially planned to sell during the first half of 2020 chose to hold off until the pandemic stabilized. And even though it’s the season when most homeowners list their homes because town is flooded with potential buyers coming down from colder climates, agents are not seeing the listing numbers they’ve seen in years past. On average, Truman & Co. usually has between 50 and 60 homes listed at any given time. On the day he spoke, Mr. Vazquez said his group was down to 12 available homes.
“During season, typically everyone would decide to list their homes in order to maximize their chance of selling while the island was packed,” he said. “But I think that this year people don’t want to sell, not so much because they’re waiting for the value of their homes to increase, but because they don’t want to go back up to colder weather and be stuck inside in lockdown until the pandemic subsides.”
Perhaps that perspective is why Mr. Vazquez is not surprised that most of his recent sales have been to big city buyers from the Northeast and Midwest looking to avoid another long winter of shoveling snow.
“Our buyers have primarily been people from up North who are now realizing they can work remotely and instead of waiting it out to retire to move to the warm sunshine, they are moving down now,” he said. “Our clients have mostly been from the Northeast — big cities like New York and Boston. I think the cold moves people down here, especially this time of year, but we’re also seeing a lot of buyers from big cities. It seems like everyone is trying to move out to the suburbs.”
Combined with historically low interest rates, the desire for more space and less winter makes Key West a particularly attractive destination.
“Key West is small town with a big city feel,” Mr. Vazquez said. “And interest rates are at an all-time low, so we’re seeing a lot of bigger non-cash transactions happen because everyone is trying to hop on bandwagon before interest rates increase, which they have already started to. Before the mortgage bubble, people couldn’t afford to buy real estate here because they couldn’t qualify for loan. Now, we’re seeing that more and more people are qualifying and investing in Key West real estate while they can.”
You don’t have to be a millionaire
In short, there is no shortage of reasons to leave the big city behind and set up shop in Key West. But is it feasible for the average buyer? The short answer is, it depends where you’re looking to buy and how you stack up against your fellow house hunters.
According to Mr. Vazquez, you don’t have to be a millionaire to buy a house in the Florida Keys (I should note that he deliberately chose not to say “Key West”). “As soon as you go north of White Street, it’s a whole different market,” he said. “We’ve seen that more Key West locals are buying outside of Old Town because the interest rates are so low. And a lot of people from up north are purchasing more affordable homes up the Keys because of the access to canal-front living.”
And buyers always can monitor the listings for foreclosures and short sales, but even those haven’t been immune to the inflation experienced in the traditional market. “Lately, we’re seeing bidding wars during foreclosures and short sales that we haven’t seen since the recession,” Mr. Vazquez said. “Even professional appraisers are saying for the first time that values are going up from the listing prices after they complete their appraisals.”
That said, cash is still king and a buyer who makes an all-cash offer still has a leg up from a bidding standpoint. “Of the 41 sales so far this year, 51% were cash,” Mr. Parce said. “Over the last five years, cash offers have comprised about 48% of sales, so it’s been a high average for a long time, but even with higher sale prices people are still writing a check and walking away with a deed. So in Key West in general, and particularly Old Town, you have to be in a pretty good financial situation. And you still have to have all the major attributes to qualify for a big loan — a high credit score, cash in the bank for a big deposit.”
Broker ChelleBe Blades of Realty Executives Florida Keys has had similar experiences with her buyers.
“Since Jan. 1, there is such strong demand that many very well-qualified financing-buyers are getting outbid by cash buyers paying at or above full price,” she said. “The big money is getting thrown down, and for good reason. The Keys are where people want to be. And even as our prices tick up, we are still a strong value for the money invested. Our mid-pandemic lifestyle exceeds most of the country’s.
“My advice to buyers is to have all your finance ducks in a row. A strong finance offer, when made with sincerity and perhaps accompanied by a personal letter or story, will often receive a positive response from a seller. Many can be turned off by some cash buyers’ aggressive attitudes. My advice to sellers is to start packing! And to both — don’t let an overheated bidding war create an unstable contract that ends up not closing.”
Prospective buyers scouring the market for the perfect home and dismayed by the lack of inventory shouldn’t despair, says Island Group Realty. More homes are expected to hit the market later this year, specifically listings by homeowners who didn’t sell last year because of pandemic-related concerns and financial uncertainty. But now that vaccines are increasingly widely distributed and administered and there is finally a light at the end of the COVID tunnel, previously hesitant sellers will feel more emboldened to show their homes and move with a greater sense of security.
And if you’re dead set on having a home in Key West but you’re not sure you want to join the scrum of hungry homebuyers, some local brokers, like Mr. Vazquez, are optimistic that things eventually will calm down. “I think we’re definitely going to see things slow down as the vaccine rolls out,” he said. “Instead of the rush we’re experiencing now, it’s going to gradually get back to more traditional market conditions as people get more and more comfortable in the cities and aren’t looking to escape as much.”
Ms. Blades has the same hope.
“The downside of this Key West homebuying trend is the growing buyer fatigue that buyers (and their agents) are experiencing,” she said. “A few buyers have told me, ‘If we can’t find something very soon, we will rent and rest and wait for things to cool down.’ The question for everyone is, will it cool? As the season turns to spring and summer, I personally hope to feel a stabilization. But are there still good buying opportunities? Yes, absolutely! I am an active investor as well as a broker, and we have several purchases lined up for clients and for myself that totally make sense from a financial perspective.”
That said, although no one can predict what home values or mortgage rates will be at the end of this year, experts seem to believe that mortgage rates will rise and home values will appreciate. That means that waiting to buy until later this year will result in bigger mortgage and payments and an overall decrease in the equity value of your home relative to your investment.
If, on the other hand, you’re on the fence about whether to sell your piece of paradise, there are a number of factors favoring listing your home as soon as possible. First, there is the uncharacteristically high demand from buyers looking for real estate in the Florida Keys. In fact, ShowingTime, which tracks the average number of showings of residential listings, recently announced that property showings nationwide are up approximately 50% compared to this time last year.
In addition, there just aren’t enough houses for sale, especially in Key West. Realtor.com recently reported that the number of homes for sale this February decreased by a shocking 48.6% compared to February of last year. And homes are selling as quickly as they’re hitting the market, which has also resulted in an increase in bidding wars, with the average home for sale getting 3.7 offers, up from 2.3 offers just a year ago.
So even though it seems like the housing deficit is beginning to resemble the Great COVID-Inspired Toilet Paper Shortage of 2020, there is some indication that things may even out before 2021 is over. ¦