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The Future of Hawaii Real Estate

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In the midst of all the confusion in today’s real estate market the one common denominator that can truly guide us right now is that I do not think anyone really knows what is going on.

You can find a wide assortment of conflicting headline news reports right now on the web. There is everything in print telling us that the recovery is as near as 2009 to as far away as 10+ years from now.

Various headlines will only increase our confusion in determining what to do about our real estate investments:

“Home Values Set to Shed $2 Trillion This Year”

“2009 Rate Outlook”

Thirty-year fixed mortgage rates should begin 2009 at around 5½ percent, says Keith Gumbinger of HSH Associates. From there, they will "wax and wane" in the 5½-to-6 percent range, before closing out the year somewhere between 6 and 6¼ percent. "That's still very attractive," he says. "There is no reason to think that rates are going to go up so substantially so as to erode the marketplace." (However, should the economic outlook improve more quickly than expected, mortgage rates could trend higher, Gumbinger says. In addition, new government programs unveiled next year could alter the projection.)

“The Underwater Effect”

A recent Zillow report found that 1 in 7 American homeowners has negative equity—owing more on a home than it is worth. (For those who bought a home in the past five years, it's nearly 1 in 3.)

“Tighter Credit”

As banks face higher loan delinquencies, they've responded by jacking up their lending standards for even well-qualified borrowers. The Federal Reserve's most recent Senior Loan Officer Survey found that 70 percent of domestic banks had boosted their lending standards for prime mortgages. More stringent terms will prevent certain borrowers from obtaining mortgages, thereby limiting demand for housing.

We all know that interest rates are dropping. Will this translate to buyers springing from their fence sitting to enter the fray of real estate sales? Probably not but it does give some reason for buying now when interest rates are this low. I personally do not recall interest rates being this low for 30 year mortgages. My belief is that the interest rates are going to remain low as the economy continues to decline into recession coupled with increasingly higher unemployment. If the interest rates do go up I can’t possibly imagine them going up by very much.

I can tell you that the “Under Water” effect is having the most impact on real estate sales and the future right now. In my daily review of all Expired and Withdrawn Listings across the Island in both Single Family Homes and Condos what I am finding is that the majority of these homes coming off of the market now are either very near or under what they owe on their mortgages as compared to current market value. In fact the favorite “keyword” search on my website is “Short Sale.” I can only assume that there are buyers looking and they are mostly looking for opportunities in Short Sales. However, there are buyers out there who are also looking for bargains and they do not necessarily have to be short sales.

Most realtors who have been in the business for a while will tell you that their clients who purchased properties since 2005 and perhaps a little earlier are now looking to sell their investments before the market drops much further. I for one have been contacted by no less than 5 of my past clients whom fall within this category in the past month to prepare an analysis and schedule their properties for sale no later than Mid February ’09.

This being the case and I know I am not alone in this with other experienced realtors, I can say with all certainty that the market now has a heart beat! At last some good news for both buyers and sellers. I am saying the market has a heart beat because there will be fresh inventory for sale in the beginning of the new year at the correct market prices and some room for negotiation. This is a certainty.

To emphasize this point I also have numerous buyer clients who are actively looking with me to find the right investment. There are buyers out there folks! There are buyers out there even in the $1million+ range.

Of course the toughest part of my job right now is to sell these properties for my clients in this down market. In all honesty this is not an easy task and great care has to be given in deciding what the sales price should be and how to market the property so that it sells within a short period of time and for the highest possible price considering the sellers circumstances and the market place.

It is still true in my opinion that either in an up market or a down market that if the home does not go into escrow with an accepted offer within the first two weeks for sale then the property is not priced correctly and or does not show well. Usually it is the price. The buyers will always tell you if your price is correct.

I do not want to blow my own horn but I prefer to think that I am pretty good at selling a property regardless of the circumstances. In most cases I can sell a home within two weeks of listing date. For me it’s easy to do because I do not take unrealistic listings that I know will not sell within two weeks. My client referrals can attest to this fact. I like happy clients and I like getting them what they want, when they want it. I like going to work with a strategy that is a Win-Win for everyone.

Part of the winning combination strategy in selling a property is the price, how the property shows (how it looks to a prospective buyer physically) but another important part is being able to identify who the buyer may be such as a family just moving to Hawaii, Military or simply someone local trading up or down from their current property.

Marketing a property is mostly about photos. It is absolutely imperative that high quality photos are taken of the property and placed into the MLS along with a list of all the reasons why a buyer should include this home in their choices of what properties to visit by a prospective buyer. Some of these other reasons will be the school district, nearby amenities, crime statistics, rainfall, rental income, traffic, etc. The list goes on and on.

Prudential Locations L.L.C. last week touched upon this selling strategy technique in knowing who your buyer will most likely be in their weekly Home Section Front Page articles they pay to do weekly in the Honolulu Advertiser.

Actually, this is a no brainer. Knowing whom your most likely buyer will be and targeting your marketing plan to them is not that hard of a thing to do.

The aforementioned techniques incorporated into a marketing plan along with lots of Open Houses and Broker showings will sell the property within two weeks if it is priced right and shows well.

Most buyer agents will look for the motivational keys as to why a seller is selling their home. One common way to do this is to look at the public records of the Tax Keys for the individual sellers. Here you will find when the seller purchased the property and usually you will also find key motivators such as how much their mortgage is and what they paid for the property.

As the saying goes “You can’t get blood out of a rock” or is it “You can’t get water out of a rock?” I prefer to think the former in representing a buyer as their agent, for if there is no or little negotiation room between the selling price and what the seller owes on their mortgage, the buyer is just not going to get much negotiation on sales price no matter what. So what does the buyer’s agent do? They try to find properties their clients will want to see that fall into the category the buyers are looking for and these properties in many cases will be where the seller purchased their property prior to 2005. So right away a new home is most likely out of the question unless of course the seller purchased their property with cash or a large down payment and subsequently no mortgage or at least a much lower mortgage payoff is a result.

Of course this all comes around to the final question: “Should I buy now or wait?”

I have terminated the relationships I have had other Brokerages whom I worked with in some cases because they wanted me to write in my columns what they wanted you to hear, not necessarily what was really happening in the market place. This was why I started writing these columns years ago because I wanted to report what the truth (as I see it) was in regards to market conditions. I figure I am doing everyone a greater service by reporting market conditions without sponsorship or having to pay for the privilege. In my opinion most real estate reporting is biased. Either you read real estate articles in the News Paper that are paid for by real estate companies or you hear a report paid for by a brokerage on the radio. They pay, you hear what they want you to hear.

That being said I return to the final important question of “Should I buy now or wait?” In all honesty I have mixed beliefs on this question. On one hand I have to admit there has to be merit in waiting to buy until the market has hit bottom. This strategy of course will yield you the most equity as the market rises.

On the other hand I think timing the market is only good in general practice and should not be used in every neighborhood on the Island. I have to say that most neighborhoods on the Island are down but not all. Some neighborhoods are up. If this is the case then when do you buy?

The answer is you buy when you find the right property for your individual needs and can negotiate on price from a position of strength. Knowing the individual neighborhood statistics is the way to do just this.

Do not trust the headlines you read or hear about on the local news concerning the Oahu Real Estate Market as in my opinion there are just too many differences of opinion. Do your own research and seek market information on the neighborhoods or buildings you are interested in purchasing to make the best decision.

Earlier this year this Headline ran on Jan. 3rd. 2008 and I was quoted.

The following authorities were quoted:

1) The University of Hawai’I Economic Research Organization in September ’07 predicted O’ahu’s single family home median price will fall 0.63%

2) Bank of Hawaii experts predicted a 0.97% rise, which was revised from a 3% decline forecast issued in May’07.

3) Jim Wright, president and C.E.O. of Century 21 All Islands was quoted as expecting the median price in ’08 would eke out a 1% to 2% gain.

4) Overall all most local experts predicted that the medians would “remain flat over the next couple of years and not drop significantly unless there’s a shock to the state economy.”

5) “Harvey Shapiro projects a price change of no more than 5% up or down for condos this year.” (In regards to median sold price)

6) “The University of Hawai’I Economic Research Organization predicts a 0.73% decline” for condo median sold price.

7) Of course my favorite is “Mike Gallagher, broker in charge at RE/MAX Honolulu said he expects O’ahu’s median single family home sale price this year to decline 10% to $580,000, mostly from a reduction to what he views as inflated prices on many high-end homes, to bring down the broader median measure” (at which half of all homes sell for more and half for less).

8) “Mike Gallagher, broker in charge at RE/MAX Honolulu predicts a +15% rise to $330,000” to the median sold condo price.

The Answer is:


It remains to be seen if we will see an overall -10% drop in Median Sold Prices but there is not much difference between $594,500 and my prediction of 2008 year end of $580,000.

Please note that in the above article printed Jan. 3rd. ’07 the predictions called for not only rises in Median Sold Price but “Flat Line” or “1% to 2% declines.”

Here lies the key to looking into the future and predicting prices:

What is going into Escrow? Answer Low End. Result?
Lower Median Sold Prices.

Now let’s look at some Neighborhoods:


Yes, you are reading this correctly, 56% of the entire inventory For Sale in Hawaii Kai Single Family Homes is priced $1,000,000+

How about some Condos?

As you can see the overall %’s of Median Sold Prices dropping were relatively small for ’08 but you have to remember to concentrate upon the Pie Charts which you can see monthly on my site at http://www.hawaiirealestatestatistics.com/ because the Medians are heavily weighted in high end inventory for sale remaining on the market for Oahu. Whenever a few of these high end properties sell they greatly miscue the Median Data Sold Prices. It is much better to deal in Average Sold Prices and I try to bring this to you in all of my real estate reports. It is also interesting to note that the Real Estate Boards in Kauai and the Big Island make readily available the Averages and not just the Medians.

When you deal with Averages you will see a much clearer picture of what is really happening in any particular area.

You should now be aware that the overall market conditions for Oahu are not a general guideline for each neighborhood. Careful market research must be obtained for each neighborhood.

When I present my listing presentation to a seller/client I use my data to help show a complete picture of what is exactly happening in their neighborhood. When this is done both the seller and I both feel good about the price we set and are confident we will get what we want. Why? Because numbers do not lie.

When I represent a buyer I present the same data for the same reasons.

This seems like a pretty fair position to be in for all concerned, buyer and seller.

Market research takes time and patience. If you need help I can help you. You will not always like what you may hear from me, but I will guarantee you that you will get a fair, honest evaluation from me.

I don’t profess to be an expert, but I sure was a lot closer than anyone else this year in my predictions as quoted in that Jan. 3rd. Honolulu Advertiser Article!

In February ’09 I will provide you all with the final year end report for ’08 finally closing the last chapter on this very interesting year.

Of course you will also hear more about my predictions for ’09!

You may not have a Crystal Ball but with Data it’s the next best thing!

End of Year Report '08

Due to submission deadlines for these articles the final End of the Year Report and Stats will not be available on these reports here at aroundhawaii.com as mentioned until Feb.'09.

The End of Year Report '08 will be posted on my website the first week of Jan.'09 at http://www.hawaiirealestatestatistics.com/

New! and Exclusive to Oceanic Cable Aroundhawaii.com in '09:

Kauai Real Estate Statistics

Big Island Real Estate Statistics

The first reporting for Kauai Real Estate Statistics and the Big Island Real Estate Statistics will take place in February '09 and April '09 respectively with the first editions featured here at Oceanic Cable http://www.aroundhawaii.com/ Monthly updates will be subsequently be available at http://www.hawaiirealestatestatistics.com/

I wish you all much Aloha and I thank you for your readership.

Mike Gallagher
Broker in Charge
RE/MAX Honolulu
Mikeg@hawaii.rr.com
808-384-9015


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