This month’s Big Island real estate post is brought to us by Gary Petrison of Island Trust Properties. Gary is a former colleague for a lot of us at Hawaii Life, and he’s definitely a ‘thought-leader’ in the real estate industry in Hawaii. Enjoy – Matt
Thanks to Matt Beall and the group at Hawaii Life for allowing me to guest blog this article. I once spent a little time in the real estate business on Kauai…..congratulations to Anthea on her upcoming BIC position (sorry I haven’t responded yet to your email….you got me all choked up!). It’s quite a team that’s coming together for you guys; best wishes to all!
The Raw Data: Year-to-Date (YTD)
The sales statistics from Hawaii Information Service for the Big Island in November 2008 show a continued downward trend, with the aggregate (all property types combined) year-to-date total sales volume (number of sales) falling 35% compared to 2007. The last time the volume was this low was in 1998.
The Puna District is leading the island in number of sales, with 370 residential and 702 vacant land sales through November 2008. (These numbers are down 28% and 41% respectively compared to 2007). North Hilo (0% change) and North Kohala (-11%) vacant land sales experienced the least percentage drop.
The YTD island-wide median sales prices are also down compared to 2007, with home prices declining to $348,500 (-13%), vacant land median price down 11% to $40,000, and condo prices dropping to $370,000 (-6.5%). These prices are about equal to the mid-2005 market.
However, while median prices have declined in most areas of the island, a few bright spots are evident such as Hilo condos (up 32% to $139,000), North Hilo vacant land (up 11% to $427,000), and North Kohala vacant land (up 24.5% to $747,500). (This data is not due to sale of any “trophy” properties.)
Even with the declines and large inventory available, there are buyers ready and willing to purchase property that’s priced appropriately for the market. Although some sellers have yet to come back to reality, more and more are heeding the market analysis and pricing advice of their Realtors. Properly priced listings are getting plenty of attention and sell quickly with few days on the market.
How Did We Get Here?
A number of factors have influenced the slowdown in the Big Island market. First, we experienced the rapid speculative overheating that affected almost every market in the US (but fortunately not to the extent or duration of many locations on the mainland). The relatively short burst of escalating prices and the inevitable cooling off that occurred here actually was good for the general stability of sales, because prices didn’t get totally out of control in most areas. Even at the height of the market, the vast majority of property on the Big Island was still extremely affordable and a good value compared to many places on the mainland and the neighbor islands. (It’s even more so now!)
Secondly, the Big Island market, like most of Hawaii, owed much of the recent boom to mainland buyers. Many buyers came here as tourists on vacation, and ended up buying their piece of paradise due to their visit. Tourism began to decline with the departure of some cruise ships and the failures of Aloha and ATA airlines. Subsequently air fares and hotel prices shot up, and fewer tourists came.
The changes in the mortgage industry have also had a significant effect on our market. Interest rates climbed (although they are back to mid-2005 levels now and poised to go even lower), and loan qualification requirements began to return to “normal”. Many sales here during the boom were to buyers who wouldn’t qualify for a loan in today’s market. (Note that current sales volume and lending practices are almost exactly what they were 10 years ago!) Is it a bad thing for borrowers to have to prove they can afford the loan and actually pay it back?
Finally, our market has been affected by the national financial downturn. Almost every segment of the economy is experiencing some effect, including real estate.
Indeed there are many reasons, but despite these external pressures, competitive listings are selling.
Crystal Ball Time
OK, I don’t have a crystal ball, and neither does anyone else. I used to laugh back in 2002 every time someone on Kauai would tell me that they were waiting until 2003 to buy because they “knew” that the every-10-years-like-clockwork hurricane was coming; it would seem that strategy didn’t work out so well. There are some folks that believe they know what the future holds, and some that know prices are going to drop. Me, I’m certain that there will be Big Island real estate bought and sold tomorrow, next week, and next year, regardless of the market. I’m doing what it takes to make sure that as many of those buyers and sellers can find me.
Everywhere you turn, you see and hear more bad news about the economy, bankruptcies, layoffs, foreclosures, etc. Doom and gloom. But is it really all that bad in the Big Island real estate market right this minute, or is fear taking hold with some about what “might” happen? I’m certainly not suggesting that anyone stick their head in the sand and ignore what realities we have before us, but every day I continue to look outside and am pleased to find that the sky is still where it should be. Those that think this return to normal is “scary” have been spoiled by the thrill of the recent rocket-ride. Better to enjoy whatever ride you’re on, and remember we’re lucky to live Hawaii.
It might seem that things get a little weird sometimes, but like the man said, when the going gets weird, the weird turn pro. There are a lot of wonderful opportunities out there right now, and I believe there more are on the way. Is it a good time to buy? Many buyers on the Big Island are finding great deals, while still others are finding their tropical dream (or both!)
There are a few things starting to happen now that I find encouraging and should be beneficial to the Big Island (and Hawaii) real estate market.
Tourism has picked up over the last couple of weeks; local travel agents here have told me that their business has increased, and there are some really great airline and hotel deals available. Our offices are busier than we expected to be prior to that Holiday bump we usually start to get in mid-December. In addition, Alaskan and others have added some direct flights to Kona and other islands.
The national spotlight continues to shine on Hawaii, with a local boy getting ready for the pilot seat, government commitments to alternative energy, new solar and alternative energy projects, and electric vehicle leadership opportunities. Blogs and websites like Hawaii Life and others continue to provide good information and get the word out about what’s happening here in the Islands.
If the 4.5% interest rate comes to pass, we should see more buyers, including those that re-fi and take equity to make other purchases.
Hawaii remains the stereotypical idea of paradise for many folks, and that’s not going to change. The east side of the Big Island is the most affordable place in the state, and this provides us with a larger buyer pool than other areas. (Where else can you buy a brand new home on a acre of land for under $220K?) Both Buyers and Sellers need to seek the services of professional agents who can provide them with accurate market data for them to make informed decisions about price.
Let’s see what the final month of 2008 brings; there are buyers here and many properties are going into escrow now.
A hui ho!