It’s been an especially difficult month trying to think of what I wanted to convey to my readers since I have so many things on my mind. Where is my next sale going to come from? When will my next Commission Check come? What are the sales going to be like in the first quarter of 2009? How should I plan effectively for the coming year? Where am I going to buy my Christmas tree this year?
As I suspect many of you reading my column have similar thoughts. Many of us who are interested in Real Estate and know how it impacts our lives have looked upon this year with trepidation. By the time the Elections came around this year we had much greater concerns for our financial futures than we ever thought possible since the days of Jimmy Carter.
The press had depicted in January 2008 that there would be some moderate change in Sales Prices for Hawaii Real Estate.
By the Fall of this year the Real Estate news was much more ominous.
There are things we can control in our lives and things that we will have very little control over or no control over at all. It makes no sense to try and control situations when we have no power to do so. There are areas in our life we do have control over and it’s those areas that we should all pay attention to in the coming year.
Many of us are more likely to want to control the financial aspects of our lives more than any other area of our life. I have taken every light bulb in my house and replaced it with energy savers. For the first time in my life I have learned how to hang my laundry. I’ve disconnected my hot tub, disconnected two out of three refrigerator/freezers, put a timer on my hot water heater and almost never run the air conditioners. This has brought my monthly billing down from over $300/month to about $190/month. After all where else in the United States can you pay over .35 cents / kilowatt hour?
The point I am trying to make is you do have power over your finances and you should believe in yourself enough to find the right answers for your circumstances. Whether you may be worried about keeping your job or the lack of one, rising taxes, the Political and Economic environment of Hawaii, we all have power to affect these individual conditions in our lives. Real Estate is no different.
If for one reason or another you find making a mortgage payment difficult and you are in a short cash, loss of equity position, all is not lost. Loss Mitigators are available to consult with you and act in your behalf with the lenders to reduce your mortgage payments, provide Short Sale counseling and help protect your financial well being.
I had lunch with a Loss Mitigator today where I learned much more about the Short Sale process and I came away knowing a lot more from the meeting. This particular loss mitigator impressed me so much with not only her knowledge and professionalism but even more so with what was in her heart and that was the client’s well being. Her name is Sheri Kagimoto and she is the Managing Director of Mortgage Assistance & Mitigation Group here locally in Hawaii. If you have difficulty in paying your mortgage I would contact her at 808-383-1035. Of course as a Realtor I must say “please do your own research and choose to call anyone you deem necessary.”
If you are having difficulty paying your mortgage, do not seek advice from a real estate agent. A new Hawaii Law titled ACT 137 expressly forbids real estate agents from offering advice under what is termed “Distressed Property” and Short Sale properties fall within this category. Your only choice under these circumstances is to seek out a Loss Mitigator.
I write these monthly columns to provide you with a different aspect of what is truly happening in the Hawaii Real Estate Market and I like to think that I bring to light important considerations that are often overlooked in evaluating real estate investments.
Considering that you may now understand that you have control over your financial situation it will be much easier to understand that you possess the means to properly evaluate your real estate investments by viewing the results of this year in recap.
The market changes daily. In some cases it is now changing in areas that we would not have guessed.
As we can see from the above graph inventory has risen +6% from this time last year for Single Family Homes. This is not a good situation however we can also see a flattening trend coupled with the possible beginning of a downward trend. We can also see that the peak in inventory was in August. This is normal. It is also normal that the inventory declines this time of year. What is not normal is the +6% gain in overall inventory over the past 12 months which clearly indicates the shear volume of sellers putting their homes for sale on the market.
What control to do you have over this situation? If you are a seller you might be better off selling your property in low inventory months to reduce the amount of your competition. Of course the downside is at this same particular time of low inventory the demand for homes is at it’s lowest of the calendar year. What to do? I have found from experience that the best time to sell in hopes of getting your price or as close to it as you are going to get is to sell it between March and July.
In this graph above we find that the Condo Inventory has risen greater than the Single Family Homes by an additional +3%. This is mostly the result of condo pricing falling which began in Sept.’08. Condos as a majority have become overpriced on Oahu and the adjustment to this is now in the works. Condo prices will continue to fall throughout 2009.
Because the condo prices will continue to fall I believe that the SFH’s will like wise fall more rapidly in the Fall of ’09. Why?
PLEASE NOTE SOME OF THESE GRAPHS MAY BE DIFFICULT TO READ DUE TO WEBSITE CONSTRAINTS. IF THIS IS THE CASE YOU CAN REVIEW THIS REPORT ON MY WEBSITE: http://www.hawaiirealestatestatistics.com/
Please take a look at the following graphs:
In the graph above the current sales volume for Single Family Homes as of Oct.’08 appears to be approximately 3,000 units. The approximate sales volume of Condos for the same period is 4,000 units.
The lowest volume in the previous cycle, approximately June ’07 for Single Family Homes was 1,800 while for Condos during the same period was approximately 1,900. During this cycle the sales volume converged mid ’07.
Considering the circumstances in today’s real estate market I would think that the sales volume will not drop as low as mid 1997 but will be close. It all depends upon the economy, jobs and interest rates. All we know right now is that all of these aforementioned conditions are headed down. How far down? I really can’t answer this question with any certainty. My best guess is that we will not see bottom of this market until late 2010 or early 2011.
Historical data is not available any earlier than 1987. The bottom of the last cycle was approximately mid 1997. First half of 1997 for Single Family Homes indicates 827 sales. The same period for Condos shows 937 sales.
In looking at the above graph we see that the height of the last market cycle was approximately in mid 1990 and the low was in mid 1997. Seven years in which the Single Family Home Volume dropped approximately 52% and the Condos dropped 73% in sales volume.
Currently the % spread between the Sold Price of a Single Family Home and a Condo is 48% difference. At the bottom of the market in mid 1997 the spread was 51% difference. We are not likely to see much difference in these numbers whenever we finally reach bottom in the current market cycle. Of significant note however is the -73% drop in Condo Sales Volume during the last market cycle. Condos lead the way in the market decline. Why? I am not sure but I would think it has something to do with the fact that many condo sales probably come from non residents and are a product of market speculation. When confidence erodes and declines it has been the condo market that has taken the beating.
It is also important to remember that in each market recovery the Median Sold Prices of both Single Family Homes and Condos are higher than the last peak of the previous market. This is precisely why real estate is such a great long term investment.
From the highest point of inventory for Single Family Homes to its lowest point during the last market cycle, the drop was approximately 13%. For Condos the drop was approximately 28%.
If this tells us anything so far I think you should now begin to realize that we have a long way to go before we reach bottom and begin a climb back up again in this current downturn.
As I stated, you do have control over your real estate financial investments.
What we have learned so far is when the best times of the year are to buy and sell. We have also learned that we are only in the very beginning of this current market downturn.
So now I figure you are ready to ask the really big question and that is “How much is my property value going to drop?”
From the high point of Sold Prices for Single Family Homes in the above graph to the lowest point there was a drop of 36%. Condos dropped 40% in Sold Prices. I cannot imagine what the final outcome will be for the bottom of this current cycle, but one has to guess that it can’t be much different from this last cycle. This may be just wishful thinking.
These graphs look like an increase but trust me this is on the way down.
Let’s examine some likely future situations for Hawaii Residents. We can probably correctly assume that unemployment will become much worse than it already is. The State of Hawaii unemployment figures I believe have never been a true representation of unemployment and I believe they are much higher.
Hawaii simply is not the first choice of many to open a new business nor is this State considered a favorable State to conduct any business due to excessive regulation and taxes. I believe this will further add to the understated employment figures.
Many Hawaii residents have simply dropped off of the ‘radar’ when it comes to the unemployment figures as I believe they have decided to go into business for themselves and have derived undocumented and untaxed income.
Three years ago there were over 18,000 real estate agents. Today there are roughly 8,000 and the numbers will decrease even further in January ’09 as more agents leave the business due to not being able to attract business nor pay the ordinary expenses of being in business. Where will all these agents go to make a living?
The State Tax Revenue will further decrease and City and State budgets and services will further decrease from current levels. Consequently further unemployment will occur to due cut backs.
My opinion is that the Rail Project narrowly passed and is, if anything else, a Mayor backed Union Jobs program that will be funded on the backs of current State Tax payers with further increases in taxes to come due to operational costs, rising property taxes and a collapsing sewer system around the Island.
Has anyone looked at their recent Board of Water Supply bills lately? Expect more increases to come to this bill.
In an attempt not to get caught up in the negative aspects of the situation let’s leave all this behind us and look at what each of us can do to improve our current financial situation.
Some real estate investors are purchasing wisely today while taking advantage of low interest rates. They are purchasing in two price categories, high and low.
In the case of Single Family Homes we can see the buyer’s choice is the price range of $500,000 to $599,999 which will commonly get you for the most part, a home in Ewa, Mililani Area, Makakilo and some parts of Kapolei. Please note how heavily weighted the For Sale Inventory is in the $1,000,000+ range is. Never the less, 14% of that inventory sold this year and this has a dramatic impact on raising the Median Sold Price.
As we can see from the above pie chart the majority of sales are taking place in the $200,000 to $399,999 price range. Very little is selling in the upper end of the range after $500,000.
The best bet if you are an investor buyer is to buy at the low end of the spectrum and look for a positive cash flow situation on the rent. This is clearly possible in Hawaii right now as rents have not come down appreciably.
If you are investing in a Single Family Home you may want to consider one that has a ‘Mother in Law’s Quarters’ or simply a rental that has at least a wet bar, kitchen counter space etc and private entry. The rental income from this unit will go a long way towards paying your mortgage.
One last thing to remember about all the data that you have viewed so far is that each neighborhood of Hawaii, just like each Condo complex is going to be different. The data presented here in this report denotes general conditions of Oahu Real Estate and may not be true of all neighborhoods and developments.
As you can see from the above map of Oahu each neighborhood is performing in this market differently. As you have seen from the Pie Charts it is the areas of Mililani Town, Makakilo and Ewa Area that are doing very well because of the popular prices available to buyers.
This does not mean higher priced inventory is not selling. Areas such as Kailua and Hawaii Kai are doing well in sales of Single Family Homes selling between $1,000,000 and $1,500,000 and between $300,000 and $500,000 for Condos.
I must emphasize that the overall buying strategy of buyers is best at the low end of the price ranges available in both Condos and Single Family Homes.
From a Seller’s stand point looking to divest themselves of their current real estate investments the most important advice I have to offer is to sell your property sooner vs. later. The longer you wait the most likely out come will be loss of equity, if you have any equity left at all. Again, this is general advice and may not be pertinent to every neighborhood.
It is equally important that your property be ready for sale and priced correctly. It is my best advice to tell you that you should listen to an experienced realtor when they recommend what price to sell at. Interview more than one realtor regardless whether or not they were recommended to you from a trusted associate or friend. Do not choose the realtor who will simply agree with your own analysis of what your price should be as they most likely will only to pick up buyers at your Open House and your property, if not priced correctly will sit there. You will have only yourself to blame.
Choose a realtor that can prove why you should sell at a certain price range. Look for a realtor that can provide you with data so that you can make an informed decision.
Further considerations of choosing a realtor should include how they will market the property. Look for a careful and detailed written plan.
Anyone can stick a For Sale sign in the ground and pray that the home sells. Unfortunately, some realtors believe just this. Some realtors will not even post photos of your property in the MLS.
I hope you have had as much fun in reviewing this data as I had in researching it and learning from it. I truly enjoy real estate sales, meeting new clients and making life long friends.
I wish you all much Aloha and the Best there is for the Holidays.
Broker in Charge
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