The Key West Mystique

Key West Island News

 

Key West Island News connects Key West residents and friends of the island, fosters our One Human Family culture and advances understanding of shared goals for our island community

buy a home in key west

Can regular folks buy a home in Key West? No.

By Linda Grist Cunningham, editor and proprietor

Linda Grist Cunningham is editor and proprietor of Key West Island News and KeyWestWatch Media LLC. She and her husband, a park ranger at Fort Zach, live in Key West with their Cat 5s.

02/23/2024

Ranger Ed and I bought our home in Key West in 2008 when the world was hurtling into the Great Recession. We spent the next few years holding our breath as our Key West home value slipped below our mortgage, wondering every day if we’d made a really dumb financial move.

A decade and a half later and we know this for sure: We couldn’t buy a home in Key West today. Not even the one we live in. That is, perhaps, great news if we sell the house before sea-level rise floats it away. We’ve built up a powerful equity balance over the years, what with the stratospheric increase in the prices of single-family homes.

But it’s a catastrophic trend line for our island. Regular folks — the cops, teachers, doctors, professionals, public employees et al. — cannot buy a home in Key West. They simply don’t have the income to make the numbers work — even if a mortgage payment alone might be cheaper than paying rent.

Instead they fall back onto the fragile long-term rental market where, in an instant, the landlord-owners may decide they’d rather go the more lucrative vacation rental route.

This kind of housing insecurity is all but invisible except to mortgage bankers, insurance and real estate agents and potential home buyers. There are about a dozen condos for sale in the Key West market that tickle around a $600,000 price tag, which is pretty much the maximum for the average two-earner Key West household making a combined $120,000 annually.

buy home in key west

Buy a home in Key West? | Not likely for regular people

Let’s run some rough numbers with a hypothetical duo who want to buy a condo in Smurf Village or Solana Village:

  • Annual pre-tax household income: $120,000.
  • Purchase price: $550,000.
  • Down payment 20 percent: $110,000.
  • Thirty-year fixed interest rate: 7.9 percent.
  • Monthly other debt, such as car and credit card payments: $1,000.
  • Annual property tax: $3,500. (I’ve eliminated a monthly homeowner association fee because the numbers and what’s included are too variable for a hypothetical.)

Monthly mortgage payment before property, flood and wind insurance: $3,492. Assuming when all the numbers are run they can qualify for the loan, that’s likely cheaper than rent and they can build some equity. Score the win. Happy new homeowners and a chance to repair some of Key West’s hollowed-out middle class.

Then comes the big hurdle: wind, property and flood insurance. Many HOA fees don’t include these, so the new homeowner is on the hook — and that’s where home ownership soars beyond regular folks.

The combination of those three can add $20,000 annually to the cost of our condo. Now our monthly payment is about $5,160, and mortgage lenders begin to frown. Because at more than $5,000 a month, our couple isn’t likely to qualify for a mortgage big enough to cover the purchase price, even with that whopping 20 percent down payment.

You can quibble with my calculations, but the fact is regular folks, even those with decent incomes, cannot afford to buy a home in Key West. Purchase prices are out of reach. Entry-level inventory is woefully lacking. Interest rates remain stubbornly high compared to just a few years ago when we had those nifty three percent rates. And even though I understand why property, wind and flood insurance in the Florida Keys continues to increase, those costs have put home ownership out of the reach of regular people — and we are well on our way to when even wealthier folks are wondering if it’s worth it.

The good real estate agents and mortgage bankers are jumping through hoops to take care of their potential buyers. They’re accessing first-time homeowner programs, grants and special rates. It’s still not enough and no railing against the legislators in Tallahassee and Washington, D.C., will make much never-mind, as we say down South.

Do we throw up our hands and let our island’s middle class drain away? I actually think we can do something on the county and city levels to help.

If the mortgage approval for an entry-level homeowner hinges on property, wind and flood insurance costs, let’s set up a public fund to pay the difference annually for, say, up to three years. Interest-free. Live in the home for three years, the insurance “loan” is forgiven. Sell the home before three years, you’ve got to pay the fund back with proceeds from the sale.

And how do we pay for the fund? Personally, I’d support a property tax increase on my own home. But since most folks would hate that, how about we add administrative fees to vacation rentals? Or re-direct Tourist Development Council bed-tax funds? I’m sure clever budgeting strategists can figure this out. The future of our island’s middle class depends on it.

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