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Oahu Distressed Property Report & Forecast 2011

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February 1st, 2010
Do Not Believe Everything You Read in the Honolulu Star-Advertiser

Distressed Properties on Oahu

Although the current Months of Supply (M.O.S. Shown on next map) is only 4.48 months for Single Family Homes (S.F.H.) and 3.90 months for condos, we have experienced in the last quarter of 2010 a significant increase in the amount of homes in distress on Oahu.

The price range of Distressed Properties on Oahu has risen as well and there are no ‘safe’ neighborhoods as we see Distressed Property coming to market in all price ranges, all across the island. 

Oahu Distressed Properties

The areas with the most amount of inventory in Distressed Properties:

Makakilo Condos at 18 Months of Supply
Waipahu Single Family Homes at 17 Months of Supply

Although these areas deserve concern we need to keep our attention upon possible flare ups in Mililani Town Condos, Kapolei Condos & Single Family Homes, Makakilo Single Family Homes and Hawaii Kai Condos.

The amount of Distressed Properties particularly in Mililani Town Condos is disturbing and I believe we will see a larger increase in these properties this year.

Oahu Metro Condo Distressed Property Inventory Jan 2011
Oahu Metro Condo Distressed Property Sold Jan 2011
Makakilo Condo Distressed Property Inventory Jan 2011
Makakilo Condo Distressed Property Sold Jan 2011
Waipahu SFH Distressed Property Inventory Jan 2011
Waipahu SFH Distressed Property Sold January 2011

I expect inventory to build up in these areas. Metro is the major concern with 66 condos in distress. This number is only 8% of total inventory for sale in Metro Condos but, trust me, it is going to rise dramatically this year. Ewa use to be a concern but the inventory is now manageable due to a tremendous amount of investors snapping up properties at low cost which should provide a family a great home or an investor a positive cash flow when renting the home.

Let us take a look at how the entire Island of Oahu looks:

Oahu SFH Jan 2011 Distressed Property Inventory
Oahu Condo Jan 2011 Distressed Property Inventory
Oahu SFH Jan 2011 Distressed Property Unit Sales
Oahu Condo Jan 2011 Distressed Property Unit Sales
Oahu % of Inventory Distressed Properties to Total Available Inventory
Leeward SFH % of For Sale Inventory Distressed Property to Total Available Inventory
Ewa % For Sale Distressed Properties to Total Available Inventory
Waipahu Area % of Inventory Distressed Property to Total Available Waipahu Area Inventory
Makakilo Condo Distressed Properties as a percentage to Total Inventory For Sale January 2010
Waipahu Area SFH Distressed Property For Sale As a Percentage to Total Inventory For Sale January 2011

Single Family Homes For Sale

Oahu SFH Distressed Properties For Sale January 2011
Oahu SFH March 2010 Distressed Property For Sale
Oahu SFH June 2010 Distressed Property For Sale

As you can see from the above, the Leeward area is increasing in the number of Distressed Properties for sale while the Ewa area has been shrinking.

Single Family Sold

Oahu SFH Distressed Properties Sold Jan 2011
Oahu SFH March 2010 Distressed Property Sold
Oahu SFH March 2010 Distressed Property Sold
Oahu SFH June 2010 Distressed Property Sold

Condos For Sale

Oahu Condo Distressed Property Dec 2009 For Sale
Oahu Condo March 2010 Distressed Property For Sale
Oahu Condo June 2010 Distressed Property For Sale
Like I said, Leeward and the Waipahu areas are concerning. Although Kaneohe Distressed Condos are worth keeping an eye upon, as of the end of January 2011 these condos only represented 22% of the entire for sale inventory.

Condos Sold

Oahu Condo Distressed Properties Sold January 2011
Ewa Distressed Condos are still the most popular choice for all buyers, but unfortunately there is very little inventory available for sale and these same buyers are going to have to start looking elsewhere as the distressed condos in Ewa are drying up.

I suspect we will see more of these buyers who are running out of options in Ewa to start looking in Mililani Town and to a lesser extent, Makakilo. 

Oahu Condo Distressed Property Dec 2009 Sales
Oahu Condo March 2010 Distressed Property Sold
Oahu Condo June 2010 Distressed Property Sold

I do not think there has been much improvement over the years since 2007 when the real estate market turned and the world saw their first totally world-wide economic meltdown.

Back in year 2008 the inventory levels in Ewa were just bulging at the seams in Distressed Properties, but for the past two years smart investors have been picking up these properties and either moving into them or renting them out. As far as I can tell, Rental rates have not changed much on Oahu and perhaps those that bought and had rented the units are now enjoying a positive cash flow.

At any rate, inventory is almost non-existent in ewa but the economic ills of the state are far reaching and resulting in more Distressed Properties coming onto the market in not only lower price ranges, but now into higher price ranges. This is just the opposite of the current national trend where they are experiencing lower amounts of Distressed Properties but I believe in Hawaii it is our time for more Distressed Properties to arrive.

The existence of Distressed Properties on Oahu is also spreading to almost every neighborhood. I believe most folks know at least one if not two associates or friends who have had or are losing their homes.

As of February 23, 2011 the inventory of Distressed Properties for single family homes on Oahu is only 15% of the entire inventory. Distressed Condos are 14% of the entire condo inventory for sale.

The combined single family home and condo market of Distressed Properties nationally represent 47% of the entire U.S. Market as of January 2011 as reported by Even in areas of the Mainland that did not experience much of a housing crash like in Louisiana, Texas and Oklahoma, Distressed Properties accounted for approximately 30% of the inventory.

As of January 2011 California, Distressed Properties accounted for over 60% of total sales, Florida 63% and hardest hit, Nevada and Arizona an astounding 72% of all home sales.

At these rates of Distressed Property sales we may see a time in the next few months where the majority of sales will be coming from Distressed properties in the Mainland.

Although I do not think this will occur in Hawaii, I do see a coming worsening of the market overall and I predict a sharp rise in Distressed Properties for Hawaii.

“Oh, that just cannot happen here. This is Hawaii. We are not the Mainland.”
Every time I hear this statement I am reminded of just how few people really know what is going on not only on a national level but what is really happening in our own ‘Back Yard.’

Let Us Look At a Few Facts: (The “Real” Unemployment Rates)

 Year  Hawaii  U.S.
 2010  16.9%  16.7%
 2009  15.5%  16.2%
 2008  8.8%  10.5%
 2007  6.4%  8.3%
 2006  6.2%  8.2%
 2005  6.4%  8.9%
 2004  7.5%  9.6%
 2003  8.9%  10.1%

Source: U.S. Bureau of Labor Statistics U-6

Highest Taxed Burdened States Per Capita In the United States: 

Highest Tax Burdened States

Highest States in the United States Fuel Taxes 

Gasoline Taxes as of Jan 2011
Diesel Taxes as of Jan 2011

Highest Electricity Rates In The Nation:
Ranking - State - Price per Kilowatt Hour

Highest Electricity Rates In The Nation

Tobacco Tax Per Pack of Cigarettes Ranking by State:

Tobacco Tax Per Pack of Cigarettes Ranking by State

Hawaii State Sales Tax: (Did I mean G.E. Tax? NO!)

Hawaii State Sales Tax

In fact, our “four percent” GE tax is equivalent to approximately an 11% sales tax – if we actually had a sales tax that worked like the typical mainland sales tax, the rate would have to be about 11% in order to generate the same tax revenue that our “four percent” GE tax produces now.

(This is based on a study done for the 2005-2007 Tax Review Commission of the State of Hawaii.) If you compare apples to apples – instead of apples to oranges – then we effectively already have an 11% sales tax at just 4% (and that’s before considering the extra tax on Oahu). A “one percentage point” increase could put us at the equivalent of about a fourteen to fifteen percent sales tax rate, measured on an apples-to-apples basis.  

Property Taxes As a Percentage of Home Value

The Tax Foundation found that people in Louisiana paid the least in property taxes.  The full list of the top ten best states for property taxes along with the percentage of home value paid in property taxes is:

States with the Lowest Property Tax Rates
      States with the Highest Property Tax Rates
 1. Louisiana - 0.18%   1. New Jersey -1.89% 
 2. Hawaii - 0.26%   2. New Hampshire – 1.86% 
 3. Alabama - 0.33%   3.Texas – 1.81% 
 4. Delaware - 0.43%   4. Wisconsin – 1.76% 
 5. West Virginia - 0.49%  5. Nebraska – 1.70% 
 6. South Carolina - 0.50%   6. Illinois – 1.73% 
 7. Arkansas - 0.52%   7. Connecticut – 1.63% 
 8. Mississippi - 0.52%   8. Michigan – 1.62% 
 9. New Mexico - 0.55%   9. Vermont – 1.59% 
 10.Wyoming - 0.58%   10.North Dakota – 1.42% 

States Losing the Most Residents:

We're Moving

The 10 states that have said goodbye to the most residents are: 

 1.New York  
 8.North Dakota 
 9.South Dakota 

Source: Forbes, Jenna Goudreau (12/08/2010)

The 10 Highest State Income Tax Rates For 2011


Forbes, The 10 Highest State Income Tax Rates For 2011: 
1. Hawaii:  11% ($200,000 single/$400,000 married) 
2.Oregon:  11% ($250,000 single/$500,000 married) 
3. California:  10.3% ($1,000,000 single & married) 
4. Iowa:  8.98% ($64,755 single & married) 
5. New Jersey:  8.97% ($500,000 single & married) 
6. New York:  8.97% ($500,000 single & married) 
7. Vermont:  8.97% ($379,150 single & married) 
8. Maine:  8.5% ($19,750 single, $39,550 married) 
9. Washington, D.C.:  8.5% ($40,000 single & married) 
10.Minnesota:  7.85% ($74,780 single, $132,220 married) 

Home Ownership Percentages by State:

Home Ownership Rate by State

Hawaii ranks one of the lowest States when it comes to home ownership with only an estimated 59.5% of all Hawaii residents owning a home. I would estimate that since this report was issued the home ownership rate in Hawaii has dropped. Who in Hawaii is going to pay higher property taxes on an already low home ownership rate?

So….Let me see if I understand this correctly?

We are the top most heavily taxed state in the United States. Well, maybe second, after New Jersey.

Overall Rankings Where Hawaii is #1:

#1 Hawaii:       Highest Taxed Burdened States Per Capita In the United States
#1 Hawaii:       Highest Sales Tax in The Nation
#1 Hawaii:       Highest State Income Tax in The Nation

So right about now you are probably wondering what this has to do with Distressed Property sales.

The above information concerning our present tax situation and cost of living in Hawaii should not concern you…but should ALARM YOU!

This is especially true when we have elected a Governor who clearly has no vision nor a plan for this state, other than to try and tax us somehow, some more.

This Governor just turned in a Preliminary Budget that is MORE than last year! How is that possible in the midst of our nation’s and individual state’s financial crisis? How is that possible when most states are cutting the size of government and reducing taxes? I do not know about you but I like my state legislature to be from Planet Earth.

To top this off, inflation is rising. Businesses to do not want to hire with the barrel of Obama Care loaded gun shoved down their collective throats. The Fed’s are literally handing over the entire mortgage market over to an already tight, not lending, private lending market while they remove themselves from federally insured mortgages from Fannie Mae and Freddie Mac that first time home buyers need. The number of first-time home-buyers fell to 29 percent of the market — the lowest percentage of the market in nearly two years.

All of this…taxes, plans for more taxes, rising inflation, a very tight credit market with rising interest rates here to stay, high unemployment etc, how can you possibly believe the economy is getting better and your home values are going to be just fine?

I have a news flash for you. Do you really believe all this talk about the Governor not raising the G.E. Tax? Well, it’s just all smoke and mirrors, ladies and gentlemen. They are in fact not going to raise the G.E. Tax... this year. But what they are going to do is raise your property taxes much, much higher! After all, we have one of the lowest property tax rates in the nation compared to home value. Do you really think they are going to over look the fact that not many residents are leaving the state to move somewhere else or that less than 59% of all Hawaii residents own a home? This also means that 41% of residents will not have any property taxes.

Smart Business Hawaii Sam Slom 

By Sam Slom-President, Smart Business Hawaii and SBH Entrepreneurial Education Foundation

No General Excise Tax increase this Session? "The Governor said so. Don't bet on it. It is a Trojan Horse and will resurface later in the session after the pension tax, soda tax, and other manini taxes are dispensed with."

Unemployment in Hawaii, the “Real Unemployment” is approximately 16.9% and not getting any better. Home values are dropping but they are going to drop more when we see home loans with 8% interest attached to them. Well, that’s if you can get a loan by the time the Feds are done ruining the Real Estate and Mortgage Banking Industries and virtually handing over a monopoly of home loan lending to the Big 5 Banks.

If you are an owner of a home and are holding onto your investment in hopes of selling at a higher price in the coming years I have advice to offer. I would sell now to get a higher price while buyers can still get a loan as the ‘normal’ Real Estate Market we once knew is not going to be seen again for at least the next five to seven years.

MBA Mortgage Financial Forecast

“We expect that mortgage originations will decrease to $995 billion in 2011, the lowest level of originations since 1997. This is a decline about $1.5 trillion in 2010 and a little under $2.0 trillion in 2009. Purchase originations should increase to $616 billion in 2011 up from $473 billion in 2010. Refinance originations, primarily impacted by the level of mortgage rates, are expected to drop sharply in 2011 to $378 billion from $1.1 trillion in 2010 and fall further in 2012 to $232 billion. We expect that the refinance share of originations should fall from 70 percent in 2010 to 38 percent in 2011, and then 24 percent in 2012 as rates climb to 6 percent."

I wish you all much Aloha.

Please give me a call or send me an email with any questions and concerns you may have that I can help you with.

Much Aloha,

Mike Gallagher, Broker in Charge, Abe Lee Realty
Ethics Complaints Review Committee Member, Honolulu Board or Realtors
808-384-9015 Cell

Mike G.

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