1. The Slump is So Over. It’s been replaced with a strange market with stable or slightly increasing home prices, and a shortage of properties to buy. The inventory of homes to buy has declined in every price range for both condos (down 7%) and single family homes (down 12%) compared to last year. And on the average, properties have only been on the market for an average of 36 days over the past 12 months. Median home prices have been creeping up for single family to $622,000) and condos now at $335,000 as of Oct 1, 2010. Yes, I know that the economy is lagging, but it’s no longer a Buyer’s Market- not on Oahu.
Well-priced homes in all neighborhoods are often getting multiple offers if the homes are in good condition. Realtors in the prime neighborhoods are using language that has not been seen since the boom years, like “All offers to be submitted to seller on Monday after the First Open House.” Purchase contracts are being written with the promise to “increase the purchase price by $5000 above the highest bona fide competing offer”, which is one way of making sure that your offer is the best one, without overpaying. Also my least-favorite, “make offer subject to inspection”. This means getting rid of the troublesome tenant is your problem.
2. Luxury Homes are a bargain. There is a tasty selection to choose from with great buys for gorgeous homes in the $1.9 million and up price range. You get more for your money in the higher price ranges, because these more expensive homes are whoppers, averaging 4279 sq ft of living space (based on MLS data of Oahu homes in 2010 that sold for over $1.9 million).They actually sell for significantly less per square foot.
Trouble is, you need to quality for jumbo mortgages which are not as easy to find. And you need to find a motivated seller. Many luxury homes on the market are owned by sellers who don’t have to sell, with deep pockets and unrealistic expectations. Couple this with luxury home buyers who are coming from areas of the country where home prices have seriously eroded. They are often unprepared for our high prices, and are looking for big price cuts that just don’t exist here. Stalemates are common and successful negotiations are hard-won, so experience and skill is needed to put it together.
3. Mortgages are still in an upheaval, but are available. Once again, Uncle Sam has stepped in it - the financial reform legislation that promised to clean up mortgage lending and make it more transparent has had some negative effects. Don’t worry, Uncle wants to protect you- by taking away your choices, and making your decisions for you. Unintelligible forms and illogical rules prevail, like those that prevent buyers from getting credits for repairs from the seller. Thanks a lot!
So forget everything you thought you knew - except the part about good credit being required! Prepare to fill out a mountain of paperwork. Also plan on around 60 days to close your purchase - due to the new regulations as well as the landslide of refinances going on as homeowners try to grab the shockingly low rates. But if your situation is more complicated (self-employed, investors, non-residents for example), you might need 75 to 90 days. If your credit score is less than 640, don’t even bother to try until you improve it. Sub-prime loans are not available, the wounds are still too fresh.
4. On a lighter note: Turquoise is the 2010 Color of the Year!
Really! I don’t make these things up. Why Turquoise, you ask?
“Combining the serene qualities of blue and the invigorating aspects of green, Turquoise inspires thoughts of soothing, tropical waters and a comforting escape from the everyday troubles of the world, while at the same time restoring our sense of wellbeing”. This is according to Pantone, considered the world-wide authority on all things color.
But wait, there’s more from Pantone about Turquoise: “… believed to be a protective talisman, a color of deep compassion and healing, and a color of faith and truth, inspired by water and sky…” and “…Turquoise represents an escape, taking them to a tropical paradise that is pleasant and inviting – even if it is only a fantasy.”
Here in Hawaii we take that fantasy seriously, and see it out our windows every day as reality.
In case you wondered, 2009 was Mimosa, a brilliant yellow like the flowers of the allergy-inducing tree, and 2008 was a deep intense Blue Iris. Guess I will dust off my turquoise Indian jewelry and wait for the 2011 color to be announced so that I can repaint everything…
For more information about Pantone LLC and PANTONE® Products, visit www.pantone.com
5. Watch Out for Scams – they are back. Beware of the guys who blow into town for a weekend and offer to teach you how to “Purchase Properties for No Money Down at a Fraction of the Market Value!”
They place full-page ads in the newspaper, hold seminars at hotels, and promise unbelievable rewards if you follow their secret system. Realtors run into them when we receive poorly-written offers from individuals who have not even seen the properties. They throw out numerous bids, making offers at half of the listed price (as they have been taught) and seem to think that if they submit enough of these offers, one will stick.
The trouble is, they have not educated themselves on the fundamentals of the local real estate market, so they have no understanding of what constitutes a real value. They are also under the impression that the Hawaii market follows the pattern elsewhere – which may work in Phoenix or Miami. Well, guess what, it doesn’t work here. And even desperate sellers would rather work things out with their lender, perhaps with the help of a Realtor, than accept a flawed purchase contract from an inexperienced and ignorant buyer.
Don’t fall for it. The seminar gurus make their money selling seats to these seminars – not buying and selling homes
6. Leasehold is dying – statistically speaking. Leasehold condos are the only sector of the market with a growing inventory- up almost 10% over a year ago. Leasehold condo sale prices have dropped over 20% since one year ago, unlike the fee simple market which has stable or increasing prices.
Why? Time marches on. Leasehold condos were once an affordable alternative to fee simple – and who would worry about a lease ending in 55 or more years? Well, guess what, many of those condos were built 40 or 45 years ago and now they have only 10 -20 years left before the lessor gets to take them back. Kahala Beach Apartments is a tragic example, with an expiring lease and sky-high fees sapping the value out of these gorgeous beachfront properties so they are trading at maybe 1/10 of their value a few years back.
There are a few notable exceptions to the “Avoid Leasehold” rule. These properties have unusually favorable lease terms, with a long period of time – over 30 years – of stable monthly payments, or “lease rent”. Some monthly lease rent never goes up, and others have a “step up” of pre-set modest future increases. These can be purchased and financed, enjoyed as homes or investments, and sold in the distant future with value left for the next buyer. That’s my litmus test for buying leasehold purchases. - Will there be a good enough and long enough lease term left for the next buyer?
7. Foreclosures are not a major drag on the overall Oahu real estate market, in spite of the headlines. But the Neighbor Islands have been hard hit. The Big Island had over twice as many homes foreclosed on in the 3rd quarter of 2010 compared to 2009. Maui was hit with a fourfold increase in foreclosures over the same quarter last year. (These stats were reported in Pacific Business News and were supplied by RealtyTrac).
The Neighbor Isles were more heavily invested in vacation properties and second homes than Oahu, and this sector of the market, like all luxury purchases – suffers most in hard times. The silver lining? There are now great buys on the Big Isle and Maui for all sorts of properties. Getting a mortgage for them is harder now than before especially for investors, so if you have the cash or can qualify for the financing, you'll enjoy some Cherry Picking.
The part of Oahu that is still suffering is Waianae, Kapolei, and Ewa Beach, where foreclosure filings were still up one-third above last year's numbers. And the lovely Garden Isle of Kauai has remained fairly stable, with foreclosures actually declining.
8. Shortage of Realtors Plagues Market! Who knew? Well, what other conclusion you can draw from the fact that there are now “just” 13,142 active real estate licensees in the state of Hawaii, which is 1,761 fewer than there were in 2007*? It’s interesting to note that the total number of MLS sales of single family and condo homes in all of 2009 was 9,561**. So if there were two agents involved in each sale, one for the buyer and one for the seller, it averages only about 1.5 sales per agent.
A few years back, there was a real estate agent behind most every glass at the bar. Plus you probably had an auntie and a couple of cousins who expected you would call them “for all your real estate needs”. Fast forward: as of 2010 many less-successful folks have left the industry, including part-timers. With sales volume down, everyone left in the business is suffering just like small business people in general. Real estate has become increasingly complex, and it costs more than ever before. Not counting the cost of license renewals every 2 years and mandatory continuing education classes (yes, we do actually study and keep up with changes in the field), it is expensive to participate in the MLS system, be a member or the local Board of REALTORS, and own a car you are not embarrassed to park in your clients’ driveway. I would estimate that it costs at least $10,000 per year to be a viable player in the real estate business, and way more to do it right. With many or most real estate licensees earned less than that in commissions, there is a lot of attrition.
I hope that you have found these factoids to be helpful in describing where the real estate market sits now, in the middle of the ocean somewhere near Honolulu, Hawaii. It represents my personal opinions only. If you have comments and wish a personal response, you may email me at firstname.lastname@example.org or visit my real estate web site at http://hawaiihomehelp.com/.
Copyright 2010 Stephanie Gieseler Honolulu, Hawaii. All rights reserved.
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