Key West Insurance Nightmare
Board: Free For All Economics
One of my bartenders passed along a sheet of paper computation on Facebook. The photo shows you why anyone buying a house down here is still out their minds.
She and her husband bought a house in 2007 for at a "bargain" price of $350,000.
Are you ready for the Insurances she had to buy for 2012 and 2013?
Home - $1,414
Flood - $1,911
Wind - $4,945
Home - $ 1,640
Flood - $ 2,125
Wind - $10,521
Underneath these figures my friend writes:
"We pay $1,190 a month just for insurances"
"Note to self: NEVER BUY A HOUSE AGAIN!"
My note: this young lady, mid 30s, and her husband are two of the hardest working people I know on the island of Key West. My rent of an old farmhouse on 2 acres of beautiful land with a huge garage filled with every power tool you can think of runs us $1,350 a month.
So, my friend is almost paying insurance which would rent them a house they would not have to pay to maintain, pay a mortgage, taxes or insurance.
Now think about this:
Had she and her husband rented, they would have thousands of dollars per month they could have invested since 2007. Let's say $36,000 a year for 6 years. Invest those in Dogs of the Dow, and also open Roth IRAs (which neither have - as "Housing" down here was promoted as "your fail-safe retirement plan".)
Can you imagine where these young folks would be financially right now had they not listened to the local NAR? Instead, they listened to the hype and bought their "deal of a home" (originally at $500,000 in 2005 and bought in 2007 for $350,000 and recently appraised at $200,000.)
They are underwater on their mortgage.
They are spending money fixing the floors, the walls, modernizing etc. They've dumped about $100,000 into the renovating and maintaining of this place since 2007.
Like so many young couples I know, they bought a surefire line of b.s. from the NAR and thought of buying a home as "an investment". No one every talked to them about insurance premiums rising as rapidly as they are now with Global Warming bringing us more severe weather.
The house she owns is built like a bomb shelter, constructed out of Dade County Pine, which turns into almost iron as it ages. It was built in the mid-1800s and has survived every major hurricane to hit our island, while newer crap built last Century was blown to pieces.
Her wind insurance premiums are being used by her insurer to pay out homeowners in Tornado Alley. And here's the kicker: she and her husband cannot stop paying wind insurance. That's part of the requirement for getting a mortgage in the Florida Keys.
Lastly, I haven't even asked her what she is paying for property taxes in downtown Key West. But I know their RE taxes are the highest in Monroe County.
Now take this friend of mine and multiply her by thousands of other blue collar working serfs. Their homes are balls and chains. They are underwater. And shadow inventory down here is being held off market by the new owners (hedge funds, investment firms, Too Big To Prosecute Banks, etc.) who are turning around and renting their developments as Section 8 housing to people I see driving late model cars, trucks, SUVs and motorcycles into the lots of these Section 8 developments.
Section 8 housing is subsidized rentals, the government makes the rent payments on time too. And let me tell you this: when you figure in the government's subsidy added to the small rent payments of people in these units, the new owners are making money at better than 8% annual return. Why try to sell, when no one can afford to buy with insurance rates and taxes being what they are? Most of the multi-unit developments which were intended to be sold unit by unit were bought outright for cash.
Can JP Morgan afford to pay cash for an entire development in the Keys for pennies on the dollar? You bet your a$$ when the Fed and Treasury allow JP Morgan to borrow money for next to money and turn around and "invest" that money at 8% or better returns.
We are a renter society down here now.
And the people suffering the worst are like my friend here, who did not mail in their keys and tell the bank to take a hike.
As my friend just said in a Facebook post read by hundreds of people her age: "Note to self: NEVER BUY A HOUSE AGAIN!"
Who is going to buy all the houses being coughed up by the dying off Baby Boomers and the last remnants of the Greatest Generation? Who is going to be able to afford insurances which outpace the rate of raises in income and the minimum wage? Who, other than the government and its sponsored GSEs, can make housing "affordable" to those who want to buy, or those who want to rent more cheaply than market rates?This House of Cards will fall again.