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Big Island Real Estate Sales Stats – August 2008

To help provide some clarity about the Big Island Sales Stats, August 2008 we’ve invited Katie Minkus to share her thoughts on the Big Island’s real estate market. Katie is the Broker-In-Charge of Lava Rock Realty (our partner brokerage on the Big Island) and definitely a ‘thought-leader’ in the real estate industry in Hawaii. She’s both directly and indirectly responsible for a lot of Hawaii Life’s success. Here are her comments:

It’s Time to Buy!
There are many, many statistics and an equal number of ways to interpret them, so I’m going to keep this short, and sweet. The Big Island is a BIG place. Did you know that all the other islands fit inside of it twice and there is still room left over? Typically using “island-wide” statistics is quite meaningless because the markets here are truly “local” and vary from street to street, project to project, and neighborhood to neighborhood. But in this case, I think you’ll see why it makes sense to look at just nine simple numbers.

By September 1st, year to date overall number of sales on the Big Island for 2008 were:

  • Residential 807
  • Land 803
  • Condo 273

By September 1st, 2007, one year ago, overall number of sales on the Big Island were:

  • Residential 1684
  • Land 1935
  • Condo 518


That’s a 52%, 56% and 47% drop in number of sales for our three biggest types of property in one year. That tells a story like no other and perhaps explains why if you’re trying to contact the Realtor who showed you property on the Big Island last year,or the year before, and can’t reach them, it’s all too likely they have left the business. Only full-time, seasoned professionals can handle these kinds of adjustments to the market.

At Lava Rock Realty, we continue to grow and capture market share because we understand that this is not a “bad market” – this is a GREAT market… for Buyers! We understand it takes a little extra hard work and diligence, commitment to our craft and perseverance through the rough spots to succeed with these challenging market conditions. But we are in it for the long haul and to serve our clients, customers and prospects.

“But what about prices” you ask? I’ll give you just three more numbers – 58%, 69% and 51% drop in prices for residential, land, and condos respectively from this time last year, to now.

Keeping in mind that even those owners who bought at the very height of the Japanese property run-up here in Hawaii in the 80’s were able to sell their properties for a profit during the last boom, and assuming history will repeat itself eventually, it’s clear to me: IT’S TIME TO BUY.

I’m tempted to “ring the bell” that signifies we’ve reached the “bottom” of the market, but I’ll leave that to the state economists. (By the way, in truth there is no bell and the only way to know you’ve hit the bottom is after it’s passed and the market has started to rise again.) Ask your Broker – are they personally buying property now? At Lava Rock Realty, we are and we’re proud of it because there are some AMAZING deals out there! Let us assist you in finding your own piece of paradise in this Buyer’s market, and make your dreams come true!

It Takes Courage to Live on a Rock!

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BC

September 13, 2008

Pretty severe statistics but not surprising given the multi-year run-up. Going forward it looks better for local buyers. Have the prices retreated to their previous 10 year old average sales price? Considering the severity of the financial situation where are we compared to previous average sales prices? Of course, increasing sales to foreign customers may help stabilize the market and the inflationary dollar may keep prices from falling to far.

Katie Minkus

September 14, 2008

Aloha, BC… the statistics are more severe on the Big Island because we’re a much larger place and the prices are very distorted from one side of the island to the other. When you break them down by neighborhood, it definitely becomes more enlightening. What previous average sales prices are you looking for? Going back 10 years will take some investigating because our MLS system here is not that old, so digging up the statistics will take some work. We’re seeing lots of Canadians and Australians here on the Big Island, not so many other foreigners, although we all have high hopes they’ll start investing… we’re fairly remote, though, compared to say the Carribean for Europeans and Bali for Asians… Inflation is already here, although no one wants to discuss it because it’s such a “dirty” word, inflation. But how else do you explain $6.50 for a loaf of bread and nearly $6/gallon for diesel fuel? Send me an email katie@lavarockrealty.com and I’ll get those specific statistics to you. It Takes Courage to Live on a Rock! http://www.lavarockrealty.com

BC

September 14, 2008

Thank you for your offer … I was in Hawaii this summer and I experienced those high prices.

Since I posted my message, the whole financial industry just ‘erupted’. This will prevent any ‘near-term’ recovery. I don’t think we can expect a return to the previous price levels or the previous world … basically the economy is rebalancing the ability to finance loans. If any one really wanted to sell, I fear that time is passing. The asking price may be frightening some buyers but that is open to the market to decide. The good news is that people still have some assets to buy real estate … but that we are going to see fewer sales.

Edie

September 15, 2008

Time to buy? Please!! You will see at least another 10% drop across the board over the next 6 months. As BC stated, fewer sales, which any Econ 101 class means lower prices. Trophy properties will skew the stats somewhat, but most buyers who follow this advice will lose money.

Matt

September 15, 2008

Edie – 10% drop in what? Do you mean that values will drop 10% in the next 6 months? And, if so, how should we measure that? By median sales price? Or average? 10% would be a dramatic change… I know better than to disagree (or to predict the future), but of course sellers should take heed of this information if we’re expecting such a dramatic decline.

Edie

September 15, 2008

Do you agree with Katie that now is the time to buy because she thinks the bottom has been reached?

Matt

September 15, 2008

I’m not an expert on the Big Island’s real estate market, but I can say that if I had money to invest now, I would buy here on Kauai. Real Estate is a personal purchase, and people hold their properties for various amounts of time, so its tough to make broad generalizations about markets that are so local in nature. The buyer in Haulalai will have a different experience than the buyer in Puna. -Matt

Edie

September 15, 2008

We are not talking about buyer experience, we are talking about calling the bottom of a market in the midst of the largest financial crisis in 80 years. Credibility is hard to gain, but easy to lose.

David

September 16, 2008

Hey, blog-like conversation on this blog!

Matt, I will be back on Kauai tomorrow evening for a long-weekend of vetting properties. Looking forward to everything except the flight out (got to get from DC to Kauai tomorrow …).

Edie, you cannot expect anyone that makes their living selling real estate to say anyting other than “it’s a great time to buy”. That has nothing to do with Hawaii or any other place, nor is it limited to real estate. If you want to make a living selling, you have to sell; otherwise do something else.

IMO, asking prices on Kauai are still way too high on average, although some folks (maybe 10% of MLS listings) are starting to price more realistically. One thing I am observing is that sellers are not sticking to their “wish” price as long as before. It is still frustrating to look at new listings, since they are almost always “wish” pricing, but once they sit unsold for 90 days, at least some sellers are sobering up and dropping their asking prices. Not yet enough to create any robust market, though.

Since there are relatively few actual sales, I assume most would-be buyers feel the same way I do. No hurry, just wait it out. In the meantime, it gives buyers a chance to make a more thoughtful decision about what they really want (location, property type, etc). It’s clearly a buyers market in terms of inventory selection, but not (yet) in terms of price.

The financial industry meltdown (watching AIG today; and WAMU is going BLAMU) is a double-edged sword. Will not help people who need to finance in order to buy, but traditionally people with cash run to real estate when the equity markets tank. Dow is down around 30% in a year. But, so is real estate! So, maybe old traditions no longer apply?

BC

September 17, 2008

I was just going to say basically the same thing as David: “…people with cash run to real estate when the equity markets tank”. That may be a small ‘silver lining’ for Hawaii real estate. But, it looks bad back here in the Northeast US.

Very little ‘real’ money has been lost thus far by potential real estate buyers, however, everyone, especially around New York is very, very nervous. Basically, it looks like there will be up to 100K high wage jobs that may evaporate over the next year in the NY region.

Currently, the Feds are ‘socializing’ the banking industry e.g. AIG, the FMs. This could have impacts on loan origination … more for traditional Banks? I hope the Bank of Hawaii is fit because I assume that is where most loans originate and will be held. If BoH has good accounting practices and the assessments are being adjusted in a timely manner, etc then we will see sales proceed. The long US real estate market doesn’t appear to have a bottom or bottom plateau until 2009 but local markets (Hawaii) may be timed differently. Certainly, sales will continue but pricing still seems to be softening in the US as a whole. I tend to believe the bottom will be reached when sales start to climb over an extended ~1/2 year period. It’s not the level of sales (we may not see previous levels for a long time) rather, it is the change in the numbers. Of course, this balance will happen sooner if prices decrease and/or people become wealthier.

Edie

September 17, 2008

David, I understand the selling mentality, but sounding like Lawrence Yun doesn’t make you credible.

Funny you mention the blog-like conversation. Apparently Matt isn’t to fond of it, based on the email he sent me. Regardless, this isn’t the bottom in bubble markets or 2nd home markets like Hawaii.

JS

September 17, 2008

ALOHA ALL,

HAWAII IS A VERY SCARY PLACE TO INVEST!! It has not even started to tank yet, tourism will drop even more, gas will go up, and food will be off the charts…. BOTTOM you do not know what bottom is.. I lived on the rocks for 25 years, Bottom will probably 25% TO 40%… The only ones coming now are the upper 10%, Credit is going to be so tight… I would start looking for another career dear.

Matt

September 17, 2008

Just for transparency’s sake, here’s the copy of the e-mail that I sent to Edie:

< < Edie, I don’t want to get into a circular argument with you on our blog. I cannot “call the bottom”. Katie offered a subjective opinion, in her opinion, there are good opportunities for buyers. I don’t understand your reference to credibility. What is your intent here? >>

Thank you all for your comments. Hopefully sellers will heed your advice and lower the prices.

Blog blah!

September 17, 2008

Scary place to invest right now!? anywhere?? Is anything a safe investment right now? Mars?? This is the Greatest place in the world to live!!! Some people who live on the rock for to long have become a bit jaded and they dont realize the rest of the world has been working week after week with a picture of Hanalei as the carrot driving them to make it through another week of big city hell slaving and saving money their whole live’s to retire somewhere half as beautiful as Kauai(or Hawaii).

I am taking my money made on the last run and will put my money in Kauai but thanks for the McCain scare tactics. Everybody’s bottom is different! Can you put a price on a Hanalei barrel? Sunset in kekaha? I love you Js! Invest in positive thoughts, your family, and turn off your CNN and go to the beach.

Peace.

BC

September 17, 2008

ok … it is getting scary. I don’t mean to be a negative effect on your RE blog … so I will sign off after this message. I still think HI is a wonderful place … it is beautiful. If I were able to ignore the economics I would move. The other shoes are dropping now. Morgan S and WaMu are capitulating. Talked with my brother and he said people are asking him for jobs (daily) so there IS going to be worsening unemployment. All evidence is pointing to a significant disruption … I was hoping for a temporary pullback. Ignoring equities, I thought money market funds would be immune … seems like that is a suspect. Therefore, cash positions are impacted. Yes, I know, why not real estate? … but I don’t have time to do that homework.

Best of luck to you.

Sincerely, BC

Matt

September 17, 2008

BC- No need to sign off… the blog is here for people to discuss the market, and Hawaii in general. Hence the name, Hawaii Life. It’s healthy, in this case especially for sellers, to have the dose of realism that all of your comments provide. (I could do without the personal insults to my credibility or my career choice, but I’m an adult… I can take it!) Thanks for your input. Aloha, Matt

BC

September 18, 2008

Back again … it’s depressing blogging on the financial pages … much rather pretend I’m hiking in Kokee.

Well if you’re an RE person then its quantity times price. In the ‘Hawaii – RE Stats’ graph it appears that total $ sales have dropped by almost 4x from the peak. Maybe this is the BOTTOM; except now there are significant macroeconomics ‘headwinds’ … it’s breezy enough in HI … but this breeze is a BAD wind. On the other hand, we know that it takes only a few really rich people to affect the total $ sales because the curve is so erratic(?). Generally, though I think the trend may continue downward, that is unless Bill Gates revisits Lanai for his 2nd honeymoon and decides to snap up the entire island for his retirement.

Yes, Kauai is beautiful, but Puna is fine assuming Pele behaves.

David

September 18, 2008

Typing this from sunny Princeville – yes Kauai is beautiful. I think we can discuss RE market on an RE market blog without taking personal shots at Realtors(R), and if I did that in my earlier post, my apologies to Matt and Katie. I appreciate that they are hosting a blog on HI RE, and are allowing frank conversation. Not many realtors(r) will do that, and I hope that it pays off for them.

Can’t say what the future holds, but the listing agents i’ve spoken with so far on this trip have emphasized to me that their clients will consider offers well below their asking prices. I’m not sure if it’s true, or if the agents want me to help them educate their sellers as to what they should be expecting, since when I follow with, “then, why is the asking price so high?”, I get a “don’t blame me, I’m just the agent” sort of shrug. Also, starting to see a number of short sales, especially in condos (but also homes). All of the ones I have come across (so far) were bought in 06 or 07 by a loan broker or realtor(R). I’m not sure whether attempting to purchase a short sale is worth one’s time, though. (definitely not if the lender is Countrywide).

Back to the beautiful outdoors and more house hunting.

Bobby

September 18, 2008

Just my 2 cents…I’m currently in the process of working on 2 short sales and on that note, it is indeed worth the wait to get a short sale if you can negotiate the right price (just make sure your agent knows what they’re doing or it will be an even longer, frustrating process-most should by now). Especially with the supposed renovation in Princeville, the VDA options and the potential value that should bring to the area. And regarding lowers offers, many people are waiting for the bottom when in actuality, they can simply offer what they feel the “bottom” will be and try and get the property now rather than wait. Most buyers don’t realize the tremendous leverage they have in this market and many sellers are in fact over pricing their properties where some of the agents don’t have control over their sellers and aren’t able to provide them the information they are being paid to provide for fear of losing the listing. That’s why a lot of open houses try and get guests to fill out opinion sheets, which have questions such as “Is this property over priced?” and “How do you think it should be priced?” Too many sellers stuck on cloud 2005…It is definitely starting to look like prices are matching numbers of 2 or even 3 years ago. I’m guessing that we’ll start to see many more cash buyers with the stock market instability and people’s retirement funds going down the drain. It will definitely be interesting to see what the future holds, especially with lending the way it is.
Aloha
Bobby
Hawaii Life

Bobby

September 18, 2008

Correction-prices are starting to match those of 4 and 5 years ago…

BC

September 19, 2008

Back to macroeconomics. OK, it is starting to brighten at least briefly … In order to cancel the bad debt the Treasury will borrow more money (sell more bonds) … how much does the Treasury need to sell each year? Maybe $1/4 Trillion … Is this small compared to our present borrowing? Who will buy the debt … the Oil countries? If the world is a $60T economy and the US is $12-15T then this could be manageable, however, we have other unfunded liabilities (SS+Med) due next decade … requiring more bonds to be sold. I think it comes down to the World’s appetite for US Bonds. This of course is critical to obtaining loans for RE. HI RE is at the top of the heap … it may be a way to hedge on the future inflation of the USD?? Unwinding of debt will continue for the next several years so it is hard to predict where RE prices will settle.

David

September 19, 2008

Bobby says: “And regarding lowers offers, many people are waiting for the bottom when in actuality, they can simply offer what they feel the “bottom” will be and try and get the property now rather than wait.”

I am very much in the camp of offering my “bottom” (bottom line, that is) right now. I have made four such offers so far; been turned down on three, waiting to hear back on the fourth (30% lower than asking, and they have only been listed for three months, so I assume I will be turned down with some crapolla about the rich Canadians coming in to pay more with their strong Canadian dollars; whatever).

One of the sellers that turned me down flat in the past has came back this very week with a counter that is “only” 12.5% higher than my offer (which was also 30% less than asking, and about 60% of the Kauai county tax appraisal for 2007). But, I have no reason to overpay in this market.

Bobby also says:

“Most buyers don’t realize the tremendous leverage they have in this market and many sellers are in fact over pricing their properties where some of the agents don’t have control over their sellers and aren’t able to provide them the information they are being paid to provide for fear of losing the listing.”

I certainly agree with the part of your sentence starting with “many sellers are in fact over pricing ….”, but I’m don’t see how that gives me “leverage”. Maybe you mean “advantage”? In any event, I avoid looking at them if they are overpriced by more than 30% (this knocks out about 2/3 of the MLS); then, for the “one” we love (we love many!), we make a right-priced offer, regardless of the asking price. If we are turned down, we move on. Maybe we helped that seller/agent, maybe they view us as noise, I don’t know or care.

By the way, the sellers who have turned us down have not sold in the meantime, and I now think the offers we made at the time (just a few months ago) were too high, so I am thankful they turned us down.

BC

September 19, 2008

Buyers and sellers compromise on a price. I don’t really pay attention to the asking price very much. The compromise concept applies to real estate and autos. As long as there are only a few offers you can start low and see if there is a nibble. If you can determine previous sale price history plus or minus ‘pricing’ for possible economic trends and then check the tax assessment (HI land assessment may need to be ‘adjusted’ if it was sold recently), and whatever else you may wish to throw in (frog eradication), etc. If RE is selling slowly then take your time because you are not likely to be beat to the sale. No rush … the HI motto. When I first traveled to HI I saw a family just sitting in a stream in their lawn chairs … no worries. We all just ‘borrow’ the land anyway. Even if we ‘will the land’ to our children I don’t know who will get it down the line … I don’t care as long as they respect the land. Personally, since I have my work on the mainland I enjoy HI when I can get to there. (I do feel guilty for wasting so much jet fuel but all the relatives are back east.)

My daughter claims that I will someday reside in HI … she plans on putting me in a ‘reef ball’ when I on pass on.

Hawaii Investor

September 19, 2008

Who are you trying to kid? Do you honestly think the market has hit bottom?? Scary to be your clients if you do. Have you been living in a cave?? Do you not have a clue to what is going on with our financial markets?? Matt, it sounds like you and your agents are no different than most. Out for yourself and the pay check you can get if you convice some one that it is a great Time To BUY!!! Good luck. I hope you all have good attorneys 🙂

Bobby

September 19, 2008

David,
I use the term leverage because of the large inventory and very few buyers. You’re leveraging yourself as a buyer where there are few so being in the position of “I have money and I’m ready to buy if you’re ready to sell” gives you more leverage in negotiation-“consider my offer or I’ll go down the line to my next choice.” Many of the sellers we currently have that are facing hard times for one reason or another, they are eager to show their properties and anxious to hear how the showings went. Some aren’t as willing to accept a lower offer because it is on a case by case situation. However, like buying a car…sometimes making an offer and walking out of the showroom and leaving can be your best point of negotiation. As long as you don’t get attached to one property in particular, you could end up with a seller willing to bend to move a property. Some sellers are very anxious and eager to get their properties sold so “some” are getting smarter and putting more thought and consideration into the offers they are receiving. Then there are others that don’t need to sell and could actually care less. They have the thought of, “if someone comes in and gives me what I want, great! Otherwise…” In those cases, it’s much less favorable as an agent if the seller isn’t willing to price to sell. Who wants to pay to market a property that is over priced? Anyhow, it all boils down to throw a few offers against the wall and see which one sticks.
And BC is right, the list price doesn’t really hold much weight since most buyers are very diligent and they have a pretty good idea of what the property is worth in today’s market. You do your research and offer what you feel is the right price. There are exceptions and those are the people that see something they absolutely love and will pay whatever to get it. That is personal value vs Market value, which should be part of the consideration unless it is strictly investment. You have to like it in order to live in it, even only for part of the year.
Otherwise, the surf was pretty good today so we’re all happy that the winter swells have arrived. Nothing like overhead waves and 82 degree water. Remember, it’s never too late to learn to surf…:)

Matt

September 19, 2008

Wow. So I invited a guest to offer her (subjective) opinion about the Big Island’s real estate market, and now: I have no credibility, I have no clue about financial markets, and the agents in my firm are opportunistic profiteers who only care about their pay check. And you’re (passive-agressively) threatening legal action. Amazing. Who would have thought an opinion could be so provocative? Maybe my next post should be called “Time to Sell!”… and we can see what sort of threats and insults THAT generates! ‘Hawaii Investor’, please… let’s not get personal. Disagree all you want, but please leave out the personal accusations. Aloha, Matt

BC

September 20, 2008

Matt, just ignore HI Investor … he’s probably just had a really bad financial day (he is not an alter ego of me) … you should see the stuff people pull on other blogs … especially the financial ones … the shorts vs the longs. You have a very beautiful site … congrats to your designers. The REs across Hawaii are doing a fine job of showing properties and providing information. I have always assumed that most of the ‘sellers’ in HI don’t really need to sell … gee, if I was in that position I would pull back or leave it on the market for the same price. Why sell low when you really don’t need the money? Besides, they have the ‘real’ asset … very little new property is being created, lava minus erosion, with erosion ultimately the winner. I was looking at land in Haena (out of my price range) but noticed it never changes in asking price so I said to myself these are the rich and no matter if its a depression it won’t change so I ignore a lot of Kauai and Maui because the rich don’t need to sell. Another problem is that ‘over building’ does happen (Koloa Plantation(?)), because of the influx of ‘mainlanders’, and it is changing the rural character … ruining the perception of the old, slow Hawaii … try driving around Kauai. Of course, most(?) buyers want the development … the suburbia in Hawaii plus the $ appreciation.

Kimo

September 20, 2008

Since Matt and Katie are the agents that have stated that the real estate market has hit bottom and it is a great time to buy!! I would like to know how many properties they have purchased lately. Easily verified from tax records.

Front page of the Honolulu advertiser this past week read: Hawaii slipping into a resession. http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/20080919/NEWS01/809190386/1001/LOCALNEWSFRONT

I also read that Hawaii tourism is down over 20% of Hawaii & Kauai. Those depend depend a lot on tourism and second home purchases. I keep hearing everywhere in the papers about so many homes on the market and not as many buyers. Basic supply and demand says prices will still go down, don’t they?

I agree with them above that your site is nice looking and has good properties and a great map search, but I think you should still be honest about the market.

David

September 20, 2008

Bobby – I think we agree completely. That’s what I’m in the process of doing. A few offers flung; none stuck, so far; but one of them will end up sticking, sooner or later.

Matt – It takes a thick skin to host a popular RE blog if you are a Realtor(R). A great example (both of a blog host with thick skin and a Realtor(r)) is “Jim the Realtor(R)” (Jim Klinge) in North County San Diego. http://www.bubbleinfo.com. Very popular RE blog and when you go through his posts you will see why.

matt

September 20, 2008

Kimo- Your statment is inaccurate. I have never said it’s ‘time to buy’, and I’m not being dishonest. I’m merely hosting a forum for discussion. -Matt

BC

September 20, 2008

From the ‘Hawaii – Real Estate Statistics’: Total $ sales fell from Mar 2006: $775M until now Aug 2008: $192M … down about 4x from the peak.

The peak in sales numbers was over 3 years ago in June 2005 but the median sales price continues to rise. Sale price is up 5x in the last ten years and is still rising.

If sale price peaks will sales rise? Maybe this is the bottom for total $ sales?? Or will sales price peak and sales continue to fall???

If sales rebound without delay after the peak in pricing occurs then we could be close to a bottom. Accounting for seasonal variation maybe the low is going to be in $150M minimum total sales.

On the other hand, if we return to 10 years ago rather than 3 years ago then the minimum $ sales were: 300 x 122k = $36M … We have already reached the minimum sales of ~300 of 10 years ago.

Will, or how far will ‘sale price’ fall?

Also, I don’t think $ figures have been adjusted for inflation so let’s say the minimum 10 year back price is really worth ~ 2 x 122K or about $240k today.

In trying to determine a floor for sales and the total $ sales … we could be at the sales minimum but we may have further price contraction. Then we arrive at total $ sales of 300 x $240k = $72M or about half of the present $ sales. This is where people get the 50% further ‘sale price’ drop. That assumes we basically return to 10 years ago. Could this happen?? We know bank finances are a mess but a lot of money has been transferred to the oil countries … will foreign purchases increase?

Conclusion: In one measure ‘total sales number’ we seem to be near a bottom, but ‘sale pricing’ could still soften.

Katie Minkus

September 23, 2008

Aloha, all… First of all, Kimo, like Matt, I never said the market has “hit bottom.” Go back to the top of this page and carefully read what I wrote again… I said, “I’m TEMPTED to ring the bell that signifies the bottom of the market, but I’ll leave that to the state economists…” I’m not claiming I know for certain right now is the bottom of the market! The point is that how can any of us know that we’ve hit bottom until it’s started to rise again?? And I will stand by my opinion that it’s a great time to buy – many of the LIST prices I’m seeing on the Big Island are equal to or lower than 2003 pricing, and are off 40-50% from the last peak in July, 2005. For buyers with a long-term perspective, assuming history will repeat itself eventually, there are some incredible opportunities out there to make their dreams come true.

But let’s get real here… very few people actually buy property in Hawaii for it’s “investment” value or potential! People buy property – including commercial property – in Hawaii because they are emotionally attached to the idea of owning a piece of “paradise.” Traditional investment models don’t work with Hawaii property – never really have, we don’t expect they ever really will. I’ve talked with Brokers who’ve been in this business 40+ years and they tell me it’s never really been possible to buy a property for 10-20% down and cash flow with tenants to cover mortgage, insurance, taxes and gain some income. And don’t even hope to see a CAP rate higher than 7… maybe you’ll see an 8 if you’re really, really lucky… I am not making any claim here with regard to “investments” – to do so would require a securities license and it’s been a long time since my Series 62/63 was active… So, although I’m very aware of what’s going on with the financial markets, I’m really not allowed by law to give advice about them and how they may affect the business of buying and selling property in Hawaii. It’s a mistake for “Hawaii Investor” to assume ignorance or ineptitude, when it’s actually the exact opposite, as I’m following the letter of the law.

A word about Tax records – I cannot speak for the other islands, but ask around the Big Island and you’ll hear that in general, the County Tax department is so understaffed that they seemingly go for the “low hanging fruit” and re-assess the highest priced communities first every year. It could explain why one of my properties in a non-gated medium-scale community on the Kohala coast has not been reassessed since about the mid-1990s (even thought I bought it in 2003, taxes are NOT automatically re-assessed upon conveyance in Hawaii County like they are in CA and many other states) and why my teardown, shack in an upscale beach community is still assessed at $25k even though we tore it down completely over 18 months ago and submitted demolition permits to the County to do so… The Big Island is HUGE, with some of the largest subdivisions in the county. Let me put this in perspective for you – I just looked at our mls and there are 577 bare land listings on the island for under $25k, 840 listings priced from $25-50k, another 477 priced from $50-75k and 206 priced from $75-100k, for a grand total of 1948 bare lot listings priced under $100k. This does not include lots with homes. I hope this helps elucidate why perhaps one should not count on the County of Hawaii to have the most current information, or to base opinions about “value” based on what the County has written into the tax records.

You guys really should check out Paul Brewbaker’s economic forecasts on the Bank of Hawaii website. https://www.boh.com/econ/512_539.asp. He has some graphs that put the current economy of Hawaii in a “historical” perspective, clearly showing that there have been other past events that have affected our local economy much worse than what we’re currently experiencing – everything in perspective, people. I understand that one who is in NYC watching friends and colleagues lose $250k salaried jobs right and left as their financial corporations collapse around them might be tempted to see everything as gloom and doom. But you simply cannot broadly apply your local situation to ours, 6,000+ miles away! I know it seems like NYC is the center of the financial world, just as DC seems like the center of the political world, but we live on small islands in the middle of the Pacific Ocean, more remote than any others, and the center of your world – sorry to burst your bubble – is simply NOT the center of ours. Let me put it another way – while our mainland friends may use Hawaii as their inspiration to slog through another work week, the sentiment is simply not returned. All real estate markets are LOCAL, and making assumptions about ours based on yours is just not realistic, or accurate.

BTW – anyone notice that the number of Real Estate transactions in the Bay Area of CA are UP this year over last? 😉

Glad to know my opinions are sparking quite a debate! Too bad I’m not paid for it! Oooopppss… there I go… “out for my paycheck” again…

Aloha nui loa,
Katie

David

September 24, 2008

Nice reply, Katie.

I have noticed some discrepancies on the Kauai country tax records, as well, such as houses that were completed back in 2005 (or earlier!), but are still not reflected in the records or assessment data. The “high priced community” vacant land seems to be over-assessed, value-wise, compared to the lower priced housing communities (draw whatever conclusions you wish), although the current market decline will have the side-effect of better matching the assessed values to actual market values.

We live in “interesting” economic times.

Kimo

September 25, 2008

Katie – You are basing your opinion on an economist that works for a bank? That’s almost as bad as listening to an agent that thinks it is a great time to buy in a market that is still adjusting down and the economy is in a major crisis. He predicted 2 years ago that there would NOT be a down turn in home prices in Hawaii, but a lower rate of appreciation. Great Advise! That is: Referring potential home buyers to look at a persons opinion that was wrong in the past and someone who works for a bank that peddles loans.

I know many real estate agents and their clients do buy second homes here in Hawaii as investments. You sound like a typical Realtor looking to make the next sale instead of putting your clients’ interests first. Sound like a real ethical Realtor.

BC

September 28, 2008

Had to follow the bailout news … done. This should help stabilize the finances … although we will pay for it in the future. Wow, that was a close call. Mortgage rates should be near a low … sales near a low … pricing?? Well 2 out of 3 isn’t bad. Rather than calling a bottom I would make a suggestion that we call it a ‘bottom plateau’. When pricing stabilizes then we will see the uptick from the bottom plateau. 2009? or possibly 2010?

The ‘bail out’ is very good news for RE. I think we could start to see the end of the tunnel, but I don’t know whether the tunnel will lead up or just 10 years back. If the ‘bail out’ works then I think we are back to about 2003 if it doesn’t work well, then we’re ‘back to the future’ of 1998. To go back to the early 80s I think you have to assume 10% or higher national unemployment plus 10% or higher interest rates. I hope it doesn’t get that bad … I don’t want to relive the 70s.

David

September 29, 2008

I don’t know what consequences the bailout will have, except I assume they will be generally negative, since the government is involved. But, Hawaii RE prices remain a simple supply-demand story.

Regarding supply, I don’t see how a bailout as being presently proposed would substantially reduce the number of available properties on the market. There are some sellers who need to sell, and others who will only sell if they get “their price”. Only the ones that need to sell will be making the market for the foreseeable future. How low they can/will go price-wise depends on individual circumstances, and the role of increased REO/short sales cannot be ignored.

Regarding demand, it is possible a bailout will increase buyer confidence (it does not increase mine, but I am only one potential buyer), but it is just as possible that it will keep even more buyers on the sidelines waiting for the economic fallout that the bailout causes, along with the continued asset deflation that the bail does not (cannot) prevent. As I type this, the market is down another 300 points after half-day Monday trading, and around 30% since last October. That’s a lot of paper “wealth” that has dissapeared, not to mention deflated primary residence “wealth”. A bailout will not suddenly bring any of this back.

Most important, prices roses so quickly from 2001-07 in great part because banks were giving it away, so to speak. I don’t think the bail-out will bring back that sort of lending behavior, especially in the high-end second home market. With buyers needing at least 30% down; not having hyper-inflated Calif Helocs to tap into; and (gasp) having to actually qualify for a loan based on documented earnings, the number of “qualified” buyers will remain much lower than it was in the past, until prices deflate substantially. Also, devoting a substantial portion of one’s substantially-decreased personal wealth in a Hawaii real estate may be less appealing, although the opposite may be true if prices drop enough (I think that was Katie’s original point – yes even taking into account she is a salesperson).

Yes, there will still be some folks with enough cash that this will not matter. There will always be some buyers, I just don’t know if the bailout will suddenly cause there to be more, or cause buyers to suddenly be willing to pay more.

David

September 29, 2008

Sorry. Spoke too soon. Better response: “What bailout?”

BC

September 29, 2008

Yikes … agreed … “what bailout?” I shouldn’t have jinxed the vote. The DOW is really taking it on the chin … it isn’t pretty.

Boy are WE in trouble. I guess the answer is to hunker down and avoid reading any financial papers as this could lead to severe depression.

Still, Wall Street may get some form of a bailout deal … but it doesn’t appear there is any quick fix to get us out of this quagmire. The Canadian government said that our mortgage interest deduction helped get us into this position, and then, more or less, indicated we needed to eliminate the deduction in the future. I don’t know, but I also think it was more the easy mortgage money. There were multiple ‘bubbles’ that were ‘funded’ by easy credit. The boom and bust cycle …

I hope the bust is ONLY a severe recession and not an outright world depression. Let me, therefore, extend my bottom plateau prediction a couple more years until 2012 or so. We do need a few years to get things working again … this is not going to happen overnight as the result of any bailout … as David says.

8% national unemployment next year … maybe peaking at 10% with moderate interest rates … a 5% 10 year T-bill because we need to pay for all this government debt. The mortgage rates will be stable but slowly rise because of the possible long-term structural inflation. Just some guesses.

RE prices will continue to fall but who knows where that bottom will be … obviously lower prices will slowly lift sales. On the other hand, if interest rates spike then sales will stay down. We need moderate interest rates and lower prices. Credit should loosen after the initial credit crisis eases ~2 years. Just don’t expect any miracles during the next few years.

Bobby

September 29, 2008

In light of the recently depressing stock market activity, if I had a large sum of money that I had worked my entire life to obtain and had it set aside as my retirement, I would be a little uneasy watching it go down the drain, as many people’s retirement is currently doing just that. As David said, there is a lot of wealthy (and main street) “paper” disappearing and no bailout will bring that back, however restructured it may end up.

Putting the salesman that I am aside, if I had to make a decision where to park my money, I’d much rather take the losses Hawaii RE is currently providing on the chin than what the stock market is dishing out. At least I’ll have a great place to go and get away from it all and relax. The reality is that it is still Hawaii, there is still only so much of it and it will always be worth something, especially if there is constantly less available as each year goes by. How can you deny that the value will always be here? Many people dream about Hanalei Bay, Poipu and Waikiki (ok, maybe not Waikiki) and to your own piece is priceless to many.

Susanna

September 30, 2008

Very interesting discussion. I appreciate the passion and insights. What strikes me is that sometimes we lose track of where the sense of value comes from. We can debate values, markets, etc – but in the end, it’s a personal decision for a buyer as to what value they place on living on Kauai, and the type of home they want. It’s that decision making that helped drive our prices up a few years ago. Buyers were visiting and seeing an incredible “value” on Kauai and willing to pay much more than asking price.

I know it’s a popular myth that realtors drove the real estate prices up – but as the market was spiraling, many of us were amazed at the prices set by our clients. Buyers and Sellers determine price, we facilitate the process.

We also have to remember that real estate is a very different asset than stock. We can try to analyze Wall Street all day long, but it’s not necessarily relevant. For more on that, here’s a link to my blog post on “Bubble to Burst – Real Estate Assets or Securities?”
http://susannakunkel.wordpress.com/2008/09/25/bubble-to-burst-real-estate-assets-or-securities/

I’m so pleased to be able to a small part of the Hawaii Life team that is dedicated to consumer oriented real estate services – including open forms such as this blog. I love living on Kauai, and helping people with their real estate dreams. I’m glad to see so much passion – both positive and negative – at least it shows people really do care about what’s going on. But at the end of the day, we allow the ocean to take all that negativity out with the tide, relax and be grateful for our loved ones, and all the truly matters.

David

October 1, 2008

“but as the market was spiraling, many of us were amazed at the prices set by our clients”

Susanna, that phenomenon was true in a lot of places, not just Kauai. Places like Stockton, California (the “anti-Kauai”) more than tripled in price over just a few years. But, as you may have learned – that run up was completely unsupportable and now is crashing back to reality.

Will the bubble prices be sustainable on Kauai? Personally, I don’t see how that is possible, but these downturns take a long time to shake out in the “high end” markets (e.g., La Jolla or Newport Beach Calif), which have yet to substantially drop like the low end (e.g., Oceanside Calif). High end prices have definitely softened, but hardly crashed. We’ll see. The ocean may also end up taking a big chunk of equity/neg am loans out with the tide.

Susanna

October 1, 2008

David, when you ask if bubble prices will be sustainable on Kauai…there’s a difference in the phenomenon that is worth noting. No is suggesting that we sustain “bubble” prices, but there was another dynamic going on here at the same time as the national “housing bubble”. Others have also commented that Kauai is different from other markets.

During the national “bubble” period – Kauai was transforming from a remote agricultural sugar-cane island to a highly desired resort destination, thanks in part to exposure from Oprah, Wall Street Journal, etc. We will never go back to the sleepy sugar cane island of pre-2000. So, now when looking at values, it’s as a resort destination and that’s where strong values for quality properties on Kauai are holding differently than other “bubble” markets like Stockton.

Pamela

October 2, 2008

While it’s true there is little you can do about the current prime rate, price of gasoline at the pumps or the incessant news coverage touting recession doom and gloom, there are a few “lemons” about this economy that consumers can turn into that proverbial “lemonade.”

1. Lower interest rates. Mortgage rates are at an all time low, and if you ever wanted to purchase a home, now would be a great time! Add that savings to lower housing prices and you have a terrific financial win-win.

2. Higher home inventory. With so many homes currently on-market, buyers can literally have their pick. What’s interesting is how many savvy investors have recognized the tremendous potential to “move-up” to that bigger house they’ve had their eye on. While it’s accurate that you won’t get as much for your current home as you once did, that larger home has decreased dramatically in price as well. What a great time to consider the possibilities!

3. Travel for less. In a shifting economy, most consumers buckle down and start putting their money away for that potential “rainy day.” Often times, this means they cut out “extras” like travel and vacation time. That usually translates into considerable price breaks for hotels and other travel related businesses looking to capture the attention and business of consumers still looking to “get away from it all” during these stressful times. Take a look online, at your local travel company or in your weekly paper for great getaway deals!

4. Seek out the savings. Deep discounts aren’t limited to travel businesses. With less consumers out there actively spending, your purchase power has never been stronger. You’ll find your ability to negotiate on products such as collectables, larger ticket items or investments more successful than ever.

5. Good credit is worth its weight in gold. If you have good credit, the time is now to negotiate a better rate with your card companies. They are eager to keep customers happy in a declining market, so do your homework, then make the call.

6. Keep a keen eye on Taxes. If your home is worth less than you paid, there is a chance that you can get a temporary reduction in your property taxes. Call your local county assessor’s office and find out what the protocol is for your area for seeking a reduction. You might just be pleasantly surprised!

Perspective is everything when it comes to living happy lives in ANY market. Finding the many silver linings available despite the clouds that dampen others days should bring you both peace of mind and a healthy financial future! If you have any questions at all about buying in paradise, or any other topic, just email me at Pamela@PamelainHawaii.com and I’ll be happy to help you.

BC

October 3, 2008

I didn’t see the Sales and Price stats on the site. Probably, the new stats are not ready, but the stats were an interesting history lesson.

Although the sale stats are marginal, the price stats didn’t seem to show a nadir yet. It will be important news where this happens (or if this happens). I assume that if the sales prices fall then we will eventually experience some sales improvement. When this happens … could happen sometime next year(?) and after(?) the credit crunch, then we may be able to say the worst is over.

It seems we are in the early stage of a recession … I certainly don’t want to be negative, but you have to be realistic.

As the credit scare continues we will probably see some sales price softening … maybe nationally, another 10-20% (HI RE??). If we get through this next year (or the following year) then we should see the stabilization.

The sun will keep shining no matter … maybe the slow down and lack of development is good for the environment?? … self imposed conservation??? Could the state buy more land and enlarge state parks? Compact development, less sprawl development?

steele

October 7, 2008

the world is blowing up. its over for us all. realtors are stupid and out to eat our children. everybody run!!! you all are just so clever and obviously so brilliant. any body realize that the market was below 10000 pts a whopping 4 years ago. you guys actually listen to paulson and believe the world is over. boy the bailout is really helping. enough cracking on all you folks about to pee on yourselves, can anyone tell me where to get the specefic information that includes what has sold and for how much in 2008 so that i can come up with my own thoughts on how my big island investments are fairing. tired reading all the eratic thoughts of you bed wetters.
thanks,
a smart investor, rock on big island, i love you

Kim

October 23, 2008

I’m the proud new owner of a condo in Keauhou and I couldn’t be happier. Had a great agent, bought in August. Real estate is for the long term boys and girls,unless you are truly brave or really stupid. Talk to me in 10 years and then I will tell you if I got a good deal or not. Meanwhile I get to spent time in one of the greatest places on earth. It’s the time to buy if YOU are ready to buy, (and it’s not at the top of a bubble.) Hoping to find the bottom is a fools game, find a place that you really like and don’t hesitate. If you don’t get your price, wait, there will be another on the market soon enough. Do your research and be confident in your decision. Don’t get into a bidding war, especially now. Chances are if the seller rejects your first offer he will accept your second one, if not say thank-you very much and goodbye.(That tends to freak everyone out.) My wife and I started to look in December 2007 so it was 9 months for us. The market may drop or may go up. It should not make any difference to you, until you have paid your mortgage. Get a fair apprasial, get a good inspection, make sure you have a buyers agent. Don’t be pushed or get “condo fever” ( I have to have THIS place.) Trust me I have been there, and I’m glad I didn’t buy. Go and check the place out in person, ask lots of questions. Remember everyone in this deal wants your money. You can call the shots. I just know that my wife and I can sit on our lanai, watch the golfers make bad shots and see the ocean. Paradise is not cheap, nor should it be, but you can get there on your own terms. I did. Mahalo

Kimo

October 25, 2008

Hey Kim, I hope you are in for the long haul. Prices keep dropping and foreclosures are 334% in Hawaii. Agents like Katie that say its a great time to buy when prices are dropping and the fincial markets are a mess. Better be careful. There are a lot of attorneys that make a lot money from markets like this 🙂

Kimo

October 25, 2008

@Susanna – Kauai is not different from the mainland. It will continue to go down and may even be hit harder since it is a second home market as well. Do you agents in Kauai not have a clue and just lying to yourselves? Not sure which is worse, not having a clue or lying?

Kim

October 25, 2008

Kimo, sounds like you think everyone should curl up in a little ball and wait for this thing to be over. Yes this and every other market in the world is nuts right now, and anyone who tells you they have the answer is a liar. The wild fluctuations in the stock market should tell you not even the “Big Dogs” have any idea what is going to happen. But just like the stock market there are some really good deals out there, just compare the prices of houses and condos in 2005 and now.Or compare the price of Google stock when it went public and now. Will the prices go lower, maybe, but until the credit markets loosen up nobody is going to get a loan to buy a place. I had to pony up a 30% down payment, in September I heard the bank I used now requires a 40% down payment and will not lend anything under $400,000. So if your credit is anything less than stellar, good luck. Meanwhile houses are stacking up on the market, but people are buying if they think the price is right. As I said earlier buy when the price is right for you. Prices are always going to go up and down, but a sound, well thought out investment should pay off in the long term. A little story to prove my point. 10 years ago I rented a condo on Maui 2B/2B , absolute beachfront, I could jump from the lanai onto a beautiful white sand beach. The owner offered it to me for $100,000. I declined. Silly me. Show me anything on Maui for under that price today. Point being a good buy will stand the test of time.

David

October 26, 2008

This thread still continues. Good for the blog.

Kim says: “I had to pony up a 30% down payment, in September I heard the bank I used now requires a 40% down payment and will not lend anything under $400,000. So if your credit is anything less than stellar, good luck. Meanwhile houses are stacking up on the market …”

Sounds right on accurate to me. “housing stacking up” (increased supply), coupled with “bank now requires 40% down payment” and “if your credit is anything less than stellar, good luck” (decreased demand) = price drops. Good for buyers; bad for sellers, especially sellers that choose to follow the market down, rather than price aggressively now and get it done with.

Susanna

October 31, 2008

Wow..I had no idea this thread was continuing. I’ve been so busy working with buyers who are telling me about the values and opportunities they see here on Kauai.

Big Island Sales Commentary for November 2008 | Hawaii Real Estate Blog

December 6, 2008

[…] 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. […]

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