While trying to figure out what topic to write about this month that would best serve the public I figured that probably the most important things on our minds when thinking about the Real Estate Market in Hawaii are:

1.  “I know the market is not good.” 
2.  “I hear sales are good but prices are not.”

So where does that leave us? Confused? I thought so. So if you want to know what is really happening in today’s Hawaii Real Estate Market, here it is.

Probably one of your first thoughts when considering the state of our Real Estate Market is that you are wondering: “Who in their right mind is going to buy a home these days?” Well, you will be surprised.

Please remember that the figures for the month of September are only estimates based upon the actual numbers for the first half of September 2011. The final unit sales will be different, but not by much.

We see an -18% drop in Single Family Home sales while Condos unit sales have risen +11%. This makes sense.

47% of the Single Family Home Inventory For Sale is priced at or less than $699,999 which means 53% of the inventory For Sale is above this price. Clearly, high priced inventory is in abundance.

For Condos, 60% of the inventory For Sale is priced at or less than $399,999 which means 40% is priced in the higher price ranges.

But what is selling? What are people buying?

Instead of looking at what has Sold let us look at what is in Escrow because the Sold data is going to tell us where we have been, not where we are headed. In Escrow data is at the most 15 days old so it is fresher data but more importantly these are homes In Escrow that a large majority will record as sales at the end of their Escrow life, approximately in late October 2011.

To help answer this question I have developed two types of graphs:

1. The Pie Chart based upon Price Range.
2. My “Multi Graph” which I believe is a first of its kind showing clearly what is For Sale, what is in Escrow and what has Sold, all on one graph so we can see easily where market is headed and what it has been doing.

72% of the inventory In Escrow for Single Family Homes is priced at or less than $699,999 while for the Condos 74% of the inventory In Escrow is priced less than or at $399,999.

When you look at the remaining price ranges above $699,999 for Single Family Homes that leaves us only with 28% In Escrow and for Condos it is 26%. There is your high end, 28% for Single Family Homes and 26% for Condos are what is In Escrow for what is considered to be high end priced properties.

My point here is that what people are buying is that they are investing into the lower end price ranges predominantly. This only makes sense since most of us are aware that the market is falling and prices will continue to slide downwards, although in Hawaii it will be not anywhere near as much a decline as the U.S. Mainland.

Folks will buy what they can afford and they also know that at the lower price ranges they will be less affected by the continued decline in home prices.

Single Family Homes are taking the biggest hit because “What the heck, they are expensive in Hawaii!” Condos make much better sense since they are a smaller investment amount and are popular for many Young Families starting out. Let's face it, Hawaii is not for the “Less Than Well-To-Do.”

When looking at the Single Family Home Multi Graph we can see that For Sale inventory is falling at this stage while the number of homes In Escrow is declining. Sold homes are rising for now, but remember, what is In Escrow is what is going to end up being recorded sales later and what is In Escrow right now is declining, which means we are in for declining sales.

Inventory is declining while what is In Escrow is increasing which means we can look forward to increased unit sales number in October. What has sold is rising at the same time as a result of what has been In Escrow since the beginning of this year.

“So what do we know now?”

1. Sales are not so hot for Single Family Homes.
2. Sales are pretty good for Condos.
3. Buyers are mostly buying in the lower price ranges.

“Is the High End dead?”

The answer to this question is no, but it does need further explanation as in my opinion the high end is selling because those with the means right now can buy almost whatever they want in Hawaii at lower prices at ridiculously low interest rates, but… I also believe the High End is “Stuck In Neutral.”

To see what is happening in the market of High End properties I conducted a study of seven Neighborhoods on Oahu:

It would appear that unit sales for these expensive properties were at their best over the course of the last three years, particularly in year 2010.

Of course the Kahala area stands out as the Number 1 area in terms of unit sales and Gross Dollar amount of sales. This area is the most sought after area for Executive homes on the Island due its close proximity to Honolulu, Golf Courses, Ocean front areas and many of the Island’s best amenities.

So far this year April was the best month of unit sales for these properties with the Kahala area leading the way again. The month of June was a low point and the month of August improved over June somewhat. Overall unit sales have declined over the course of this year from April to August.  

Kailua, High End Neighborhoods seem to be languishing for anything priced at or over $1,500,000+ and all other areas around the Island unit sales are almost non-existent.

One would not expect unit sales to be high with these amounts of Gross Sales but clearly there has been a lot of activity in the High End areas where a large Dollar amount of purchases have occurred.

We can see a diminishing amount of unit sales over the course of this year but the point I want to make here to you that when these homes sell, they dramatically affect not only the Median Sold Prices but the Average Sold Prices as well.

Consequently when your read articles in the Honolulu Star Bulletin by so called “experts” employed by the paper, no consideration is given to the reality of what the high end property sales are doing to the Medians and the Averages. The “experts” merely site that prices are going upwards. Really?

As unit sales of the High End have slowed price reductions from the Original Listing Prices have increased. I stress the “Original Listing Prices” as please remember homes all across the Island of Oahu are going through price reductions and they are camouflaged by Re-Listings at lower Listing Prices.

Above are Gross Dollar Price Reductions from Original Listing Prices for each of the areas. Apparently, the Kahala area had a bad month in August in Sellers getting anything near their Listing Prices. Dowsett and Portlock had almost no sales and finally, Diamond Head and Lanikai had a normal amount of price reductions on their expensive properties.

In terms of what the Dollar amounts of Price Reductions was to total Original Listing Prices by percentage the graph below shows what the percentage was in Price Reductions from Original Listing Price.

I do have to explain that Dowsett is a little mis-skewed as to its high percentage since there were only six sales since April 2011 which is 8% of the total 72 Grand Total Unit Sales from April through August 2011. Nevertheless, it is what it is and Dowsett has the highest percentage of Price Reductions to Listing Prices.

The Kahala Area has one of the lowest percentages and Lanikai and Diamond Head the second highest. Hawaii Loa had the lowest percentage price reductions.

Homes Sold at Full Listing Price Or More are as follows:

Since the High End is slowing down this year and dramatically slowing down since last year I believe we will see further increases in price reductions for the High End which subsequently will effect the often quoted “Median Sold Prices” that are said to be rising around the Island.

In what direction will the Median Sold Prices be headed? Down is the answer and remember, when these High End Sales record they affect both the Median and Average Sold Prices in a heavy handed way.

In summation, the overall Market is improving. It has improved vastly on several fronts:

1) Distressed Property Sales

Distressed properties have all but dried up on Oahu. The National current average amount of Distressed Properties to total National Inventory is running approximately 22%. In Hawaii we are running slightly under 10%.
For Complete Details on National Distressed Properties:

Corelogic Negative Equity Report Second Quarter 2011 On My Website Under
 “Real Estate News”:
http://mikegallagher.topproducerwebsite.com/real-estate-news.asp

2) Sales are good.

This year has been a good year for unit sales.

We have recovered since the end of year 2008 when Wall Street crashed. Since then unit sales have steadily been recovering, although from year 2010 to today it has been almost a flat line recovery. You can also notice that between March 2011 and August 2011, the trajectory for unit sales has been somewhat headed downwards. Consumer confidence is at an all time worst and negative news in our government and threats of higher taxes and less public benefits is depressing spending and investment. This says nothing about Lenders who have tightened their credit criteria to the detriment of sales to extreme levels.

My recommendations are “Hang in There.” We are not out of the woods yet and there is more negative news on the Horizon with the looming “Shadow Inventory” that when it finally shows up on the market in yet to be offered new Foreclosures and Short Sales, it just might tip us into another round of spiraling downward home prices. For more on the Shadow Inventory see Corelogic June 2011 Shadow Inventory Report on my website at: http://www.hawaiirealestatestatistics.com/real-estate-news.asp

Investments I recommend should be short term. Do not think that you may be able to turn a quick buck or two because in all likelihood, this is not going to happen in today’s Real Estate Market.

For Sellers I recommend that unless you can wait it out for another 5 years + for possible flattening out of the market, then sell and sell now. Prices are going to be headed further South for next few years.

For Buyers I recommend, again, think about the long term, take advantage of today’s ultra-low interest rates, keep your credit scores high by paying your bills on time and keep your overall debt low.
It is a great time to buy for some. Each individual’s circumstances will be different. Do your research. Call me if you have questions. I will gladly help you.

I want to thank you all for your readership and support over the years and I wish you all much Aloha.

Mike Gallagher, Owner-Principal Broker
Mike Gallagher Real Estate, Inc.
808-384-9015 mikeg@hawaii.rr.com
Website: http://www.hawaiirealestatestatistics.com/home-page--guide.asp

Do not forget to see my articles casted Monthly on Oceanic Cable’s:
www.aroundhawaii.com as they will give valuable insight into What is Really Happening in the Market. There you will all of my articles archived ever since year 2006.

Much Aloha to All!
Mike