Was Chicken Little Right?
The real estate market is about to fall from the sky! Is this the impression you have gotten from the news media? Most predictions are that the bottom is about to drop. The bubble will burst. Chicken Little was right. Should you sell now and put all your cash in a coffee can under the mattress?
Real Estate news tends to be more hype than science. Bad news sells papers, and it is always possible to spin the statistics to make flashy headlines. When prices were frantically rising from 2000 through 2005, the booming market was made into really bad news. Forget that many first time homeowners could now afford to send their kids to college from their growing home equity. The doom-and-gloom crowd wanted you to know that families could no longer afford to buy homes. Property owners were greedy, and buyers were getting into fistfights over whose offer came in first and highest for a little $500,000 shack.
Now that the market has stabilized, and there are a few more homes available on the market, we are told to brace for a huge drop in values. The shadow of the Foreclosure Man will be darkening your door any day now and you'll never be able to unload the place. Future interest rates are going sky-high and no one will be able to make a house payment. We'll all be living on the beach with the homeless!
This isn't true, and it isn't news. Real estate has been subject to cycles for as long as statistics have been compiled. The long-term view shows that real estate has been a rock-solid investment. How about some hard facts? Here are a few to chew on:
Average Sale Prices (click to enlarge)
1. Long Term Sales Prices Grew Dramatically
Median Sale Prices since 1985 have increased by an average of 6.5% a year over that time, and rose almost 300% over that 22 year period. There are few other investments that can match that, and none provide the concrete benefit of owning an investment that you can live in.
2. The Hawaii Market is Stabilizing
Prices in 2007 island-wide continued to creep up - house prices are up 2.4% and condos up 5.7% so far this year. Not as spectacular as the past 6 years but definitely not a bursting bubble!
3. Market Time is Actually Decreasing!
Not what the Chicken Littles expected: Market time for single family homes has declined from a high of 70 days on the market to 41 days as of July 1, 2007. Condos have likewise declined from 59 to 37 days on the market. Days on Market refers to the number of days from listing to an accepted offer.
4. Inventory of Homes Is Still Low.
Chicken L. was again wrong. The inventory is still lower than it was during the entire 1990 - 2000 decade. It has risen slightly from the extremely low levels of early 2005, but is well below the annual demand for homes.
Single Family Home Resale Activity (click to enlarge)
5. Some Home Neighborhood Prices are Softening
The areas that are showing lower single family home prices for the first half of 2007 include Urban Honolulu, Hawaii Kai, Windward Coast, North Shore, Ewa Beach, and Pearl City, with the remaining areas showing stable or increasing prices. It will take another 6 months or more to see if these very short-term trends hold true as time passes.
6. Luxury Home Sales are Solid
There is a substantial demand for luxury properties and this demand is not showing signs of declining anytime soon. Out of the 17 neighborhoods that are tracked by our Multiple Listing statistics, at least 10 neighborhoods have shown sales over $1,000,000 each and every month and 3 different neighborhoods had sales over $3.8 million. Market time for homes over 1 million is actually 2 months shorter than it was late year at this time.
Condominium Resale Activity (click to enlarge)
7. Condos Are Strong
Condominiums prices have continued to go up for several reasons. They are significantly less expensive than single family homes. Also they are more likely tobe chosen by investors, retirement buyers, and as second homes.
Chicken Little is Still Worried.There seem to be a lot of homes on the market.This is a fallacy. There are approximately 1800 single family homes currently on the market, and 2300 condominiums. Last year's MLS resale homes (condos and single family homes) totaled about 12,000. Still, the overall dollar volume of sales has declined from the peak level of 2005 due to shrinking numbers of sales.
Practice Safe Real Estate.
Protect yourself by utilizing the expertise of an experienced real estate professional. Educate yourself by understanding the cyclical nature of the real estate cycle. Saving money by going it alone is foolish. Don't select your professional by whomever offers the cheapest service or the most incentives - this could result in an incurably bad purchase or sale. Savvy consumers know that there are opportunities for advantageous buying and selling in all markets.
Feel free to email me directly at stephanieg@remax.net if you have specific questions, or there is a topic that you would like to see featured on this monthly column. I welcome your feedback, please use the designated section within this column.
A note about statistics: Market data shows the general price trends of homes that are being purchased, but it does not necessarily tell you how a particular home value has changed. For example, if consumers are selecting smaller homes in an area, this will show up in the statistics as lower median prices.
