Hawaii Real Estate

Wednesday, September 16, 2009

Word on the Street

I apologize for missing a few blog entries.  My tech gurus tell me I am supposed to stay consistent with the blogging but sometimes we get busy!  And this summer was busy (thank God!).  Summer is normally a busy time for residential real estate as Buyers start to consider a move prior to the school session re-starting so they can make the adjustment without disrupting the kids.  This summer, however, was also helped along by four additional motivations for Buyers:

1) Return of consumer confidence.  For many, the rebound in the stock market seemed to signal a forward-looking rebound in the economy and so…people felt better about their lives, jobs and stability. 

2)  Lower prices.  Real estate prices, depending on neighborhood, have fallen considerably and many bargains exist! 

3)  Lower interest rates.  Interest rates have been bouncing around between 4.5-5.5% all summer and that is phenomenal.  (Don’t forget to read my blog entry “DE or IN…flation that is” which discusses the advantages of being in a fixed rate mortgage in inflationary times!) 

4)  $8,000 first-time homebuyers tax credit. Free stimulus money from Uncle Sam for first time homebuyers gives you a December 1st closing deadline so that adds compression to the summer sales cycle.

So what’s the effect in the trenches?  The summer rush probably moved some inventory and slowed the downward pricing pressures but stay tuned for Q1 of 2010…we may need more government stimulation if #3 and #4 on the list above end without broad based organic recovery behind it.  (Ill save that for the next blog)

Tuesday, September 01, 2009

August 2009 and Y-T-D Hawaii Real Estate Statistics

SINGLE FAMILY HOME SALES

 

August   2009      August   2008    % Change Year over Year      2009 Y-T-D      2008 Y-T-D     % Change Y-T-D

Sales: 247                       255                         -3.1%                                1,619                     1,919                     -15.6%
Median Price: $566,000       $635,000                     -10.9%                                $579,000                 $629,000                   -9.4%

CONDOMINIUMS

August   2009      August   2008    % Change Year over Year      2009 Y-T-D      2008 Y-T-D     % Change Y-T-D

Sales:351                       345                         +1.7%                                  2,058                     2,868                     -28.2%
Median Price: $290,000       $328,000                     -11.6%                              $305,000                 $330,000                   -7.6%

Tuesday, June 16, 2009

HAMPERING THE RECOVERY

Wall Street seems to think the worst of the recession is over… 48 straight days of increasing oil prices and increasing interest rates likely means that consumers will limit their discretionary spending at a time when we need an increase in spending to revive the economy.  The sick thing is that oil demand is not excessive, it’s just speculators again…and the Fed lending rate to the institutions is still at zero so it’s the bond investors driving yields (rates) up also.  In my opinion Wall Street is way ahead of the curve in anticipating the worse is over and starting the unwinding on its own… 

Just ranting today…!

Thursday, June 04, 2009

LEASEHOLD LOANS GO BYE BYE

As of June 1, 2009 Fannie Mae and Freddie Mac will no longer accept leasehold loans.  What does this mean for the market?  Well. for the US as a whole it’s probably not that big a deal but for Hawaii is a BIG deal.  Hawaii is a unique market where there are several large Trust organizations that own huge tracks of land. 

So here’s the history in a nutshell…  Many of these large Trusts actually date back to the original “Great Mahele” in which Hawaiian royalty divided up the lands amongst their relatives or favored advisors.  Well, historically these Trusts have often been tasked with creating income for the organization’s charitable causes without actually selling the underlying asset (land).  So the answer was to lease the land to developers to construct buildings etc.  Many of these leasehold buildings were developed in the 60’s and 70’s during the construction boom of Honolulu and most were on 75 year leases.  That means many of them are about halfway through their lease terms.  So there still exists hundreds, if not thousands, of indivdually owned leasehold units that no longer qualify to refinance or sell their units to buyers that want to get conventional financing.  That shrinks the buyer pool considerably!

A buyer can still get portfolio loans or FHA approved loans provided the lease expiration is at least 10 years longer than the loan term and meets a half a dozen other restrictions… probably a tough one!

So in the end… if you live in a leasehold condo and your Lessor offers the fee for purchase… BUY IT!
 

Tuesday, March 31, 2009

Glass Half Full

I heard a quote recently that was attributed to Sam Zell…perhaps the greatest real estate investor in modern times.  He is credited with saying, “Dear God please give me one more recession, I promise I won’t waste it this time.” 

I think that adequately sums opportunities that abound in a market like this when combined with the correct outlook and attitude.  I don’t think we can argue that the US financial system, despite recent setbacks, is still the best system built yet, and the ingenuity and acumen of American business remains intact.

Couple that with an increasing population base (unlike Japan), a more global economy with more travel access, a finite supply of land in Hawaii and a potentially inflationary market in the near future and one might start to recognize that while we cannot call a bottom to this market…it may not be such a bad time to get in!

Friday, March 06, 2009

$8,000 FOR FIRST TIME HOMEBUYERS

Read more about President Obama’s “First-Time Homebuyer Tax Credit.”  Take advantage of this opportunity before it sunsets on December 1, 2009!

Click Here.

Here’s the basic qualifications:
1)  You must NOT have owned another primary residence in the past 3 years
2)  You must make under $75,000 if single, or $150,000 if married
3)  Must buy (closed transaction) between Jan 1, 2009 and December 1, 2009

Cool features:
1)  You dont have to repay this credit…not like the previous credit from 2008 which acted like an interest-free loan (except in the case described in item #1 below).
2)  The $8,000 credit is a dollar-for-dollar credit on your taxes.  So if you owe $6,000 and get the credit you will get a refund check for $2,000

Not-so-cool feature:
1)  If you sell your home within the first three years the entire amount of the credit will be recaptured.

**DISCLAIMER:  Benn Pacific Group and its agents, employees and affiliates are not CPA’s.  Consult your tax professional to examine if this credit would apply to you.**

Wednesday, February 11, 2009

THE PRICE IS RIGHT?

Okay Sellers…so here’s the cold hard truth.  Most times, Realtors cannot control the market.  (I say most times because there are occasions - like project sales, where we may set the initial market).  More often, however, we serve the market.  We help our clients expose their properties to the broadest market of possible Buyers that might have specific interest in their properties.  Our expertise comes in the form of consulting our clients on things like staging, pricing, timing, process, negotiation, documentation, disclosures, access, marketing and the occasional psychiatry (selling can be a stressful process and we endeavor to mitigate that).  And while ALL these are important services, the one that is “mission critical” in selling your property is PRICING. 

I cannot stress enough the importance of accurate and aggressive pricing in this market.  Appraisers can tell you what your property is worth relative to what your neighbors have sold for in the past, but in a rapidly moving market (up or down) your Realtor will advise you on where you should price relative to the Buyer’s expectation level (this is the point at which a Buyer will get off the fence and pull the trigger).  Pricing will always be directly correlated to timing.  Time is money, so if you want to sell fast you need to get AHEAD of the market and price it to get more “eyeballs” on it immediately.  Have you heard of “chasing the market?”  This means the market is falling and you are trying to re-price, but you are doing so slower than the market’s decline.  For example, let’s say the Buyer expects to pay $1, you are priced at $1.10.  After some time you decide to reduce the price to $1, the problem is the Buyer now only wants to pay $.90.  This goes on and on until the equilibrium price is met. (Maybe, for sake of our example, at $.85).  So, in this scenario, the Seller lost 15% off the market value to try and achieve a surplus 10% on his original pricing, instead of listing it accurately at $1.  And this says nothing of the possible carrying costs of having dragged the process out over a longer period of time.  What about leaving room for negotiation on the pricing you say?  Well, even if we negotiated hard and ended up yielding some ground, we might have ended at $.95…a far better deal that $.85 of course!

So how does this translate to how we approach our clients?  The bottom line is we are always going to tell you the truth (as we see it) and sometimes you are not going to like it…and sometimes you are not even going to hire us.  In a recent example I went to meet a Seller who was referred to me.  He insisted his home was worth over $2 Million.  I showed him comparables and explained that it was worth closer to $1.4 Million.  This was obviously not what he wanted to hear but we hit it off and ended up having long friendly debates about the economy, business, real estate and the merits of his home specifically.  In the end my explanation was simple.  If I am a buyer with $2 Million in my pocket do I buy this house?  And the answer was no.  So by listing at that price, he was going to have Buyers walking into his home who had an expectation of a much different property.  The end result he hired another Realtor, one who told him they could get him his $2 Million.  The home is still for sale and the price is steadily coming down and down and will likely end up selling for less than I had originally advised.

Tuesday, January 13, 2009

MIKE TYSON ECONOMICS

When asked his response to a competitor who stated he had a plan to defeat Mike Tyson in the ring, Iron Mike said “Everyone has a plan until they get hit in the mouth.”  Thus it is so with your investment portfolio perhaps?  You’ve been hit…but are you out? 

For several years, before I had kids, I would travel regularly to Las Vegas with friends and we would often play craps.  Invariably I would lose most of my money and go to my room to lick my wounds… meanwhile one of my friends, who was also losing, would decline to retire and say, “Im gonna stick it out a little longer.”  In the morning when I would check on his status, I was almost always met by the response that things had turned around and he was back to even or profitable.  While I am not suggesting gambling as a solution to your financial woes, the point is that you shouldn’t sell and run… you might actually consider investing more at these low levels to ride the wave back up, provided you have a long-term time horizon.

Shelby Cullom Davis, a renowned investor put it best:  “You make most of your money in a bear market.  You just don’t realize it at the time.”  Whether you prefer equities or real estate, you have two markets that are beaten down but you have to have confidence when others do not. 

Friday, January 02, 2009

OAHU REAL ESTATE 2008 recap

Well the final figures are in for 2008, and they are showing s 26.9% decline in overall sales volume (both single family and condo).  Price declines have been much less than in other markets across the country, with a 3% decline in the median price of single family homes and zero change in condo pricing.  This condo anomaly can best be explained by the closings of several new condominium projects.  These projects tended to be of a higher price point but, also, these sales are recorded when the buildings are completed and transactions close…but the actual “sale” took place two to three years prior, when the developers began its pre-construction sales contracts with buyers. 

WHAT DO THE NUMBERS MEAN?
Well, in general, the real estate market (like all markets)  are subject to the forces of supply and demand.  We are currently facing lessened demand which results in an over-supply of inventory.  Those Sellers who do not recognize the changes in the market will be beat to the punch by those Sellers who do and price accordingly.  In addition there continues to be a segment of the market that is forced to sell (short sales, foreclosures) and those units will be priced aggressively to move, adding further pricing pressures to the market. 

CRYSTAL BALL FOR 2009?
To quote a famous line: “The only thing I am certain of is uncertainty.”  To predict the future is generally a fool’s task but since my wife often refers to me as a fool …I will take a shot.

Here’s what we look for:

1. Weak macro-economics.  Global credit crisis.  Unless you have been living under a rock, you are aware that we are in a recession.
2. Studying the trends of previous down cycles we see that Hawaii generally trails the US Mainland real estate markets (most specifically California) which would indicate we have more to fall before we see a bottom.
3. We also look at inventory levels and see that “days-on-market” for existing inventory has been stretched to approximately 60 days in 2008 from the “fast-pace” of 30 days in 2005 (remember:  days-on-market only apply to those units that actually sell…there is a large number of units currently on the market for over 60 days).  We suspect there is about 4 months of excess inventory currently for sale.
4. Certain segments of potential Buyers have also been removed from the market, as lending restrictions have pushed them out. 
5. Certain Sellers must sell due to defaults or pending defaults on their loans.  These Sellers, under pressure from their creditors, will exacerbate the price pressures.
6. We have seen a major decline in off-shore Buyers.  The typical West Coast baby boomer who was looking for a second-home in Hawaii is waiting until his own home in California recovers before stretching for another property. 
7. Tourism is down.  Our economy, in general, is as close to a one-trick pony as you get…when tourism is down there is a slow ripple effect through the labor markets, direct tourism-related industries and indirect industries in like kind.

So, factoring these indicators we believe sales volume could drop another 30 percent and prices may come down 10-15% in various areas.  Ultimately, demand is different in different neighborhoods and across different segments so it leaves a relatively wide range of possible price declines but in general the direction of the market will be down.

WHAT COULD SAVE US?
Well…here’s the bright spots that might combat some of these negative forces:

1. Weak dollar.  A weak dollar against foreign currencies makes buying in Hawaii a veritable bargain… particularly Japan, Korea, China and Canada who have shown a liking to Hawaii real estate in the past.  But be aware, many of those countries are also facing economic difficulties.
2. Scarcity of product.  I know, I know… I just got through saying there was excess inventory.  BUT Oahu is an island and, as such, the developable land areas are limited.  Over a long time period the population will continue to grow and urban sprawl replaced by vertical development.  Take it from my Grandmother, “They’re not making any more land!”
3. Low interest rates.  This is by far the brightest spot in the “bright spot” area.  With mortgage rates in the mid 4%’s the Buyers who have a long-term focus and are ready to buy will be doing so with very inexpensive dollars.  AND…IF the long-term effects of the Federal bailout package is inflation (remember they are increasing the monetary supply through the bailout) then those Buyers will also be using 50-60 cent dollars.  (See my other blog titled “De or In…Flation that is” for deeper confusion on this possibility).
4. Government aid.  Depending on how the government reacts to further economic data on housing should impact the markets.  It looks like they will continue to support the lenders in trying to minimize loan defaults and also buy up bad loans on the bond side.

HOW TO PLAY IT?
Some will benefit from this market and some will not. 

Winners:  Organic Buyers.  This term is my term for the local Buyer…could be the first-time homebuyer, Buyer who is moving up to a better home, or the downsizing retiree.  These are Buyers who are here for the long haul. 

Whatever the scenario for these Buyers, the market moving down allows them to Buyer more home for less money.  For the first-time homebuyer it’s a perfect setup…  low interest rates, low price.  For the upwardly mobile Buyer, he will sell for a bit less but buy more house for less anyway so the difference is still a net positive (since the Buy-side is a bigger transaction).  For the downsizing Buyer he will likely still get a great price for his home, relative to what he paid for it and he will get a great buy in a mower maintenance or smaller home and pocket some dollars to invest or spend.

Other Winners:  Some investors.  Some investors who have equity built up in their existing portfolios can leverage that equity by borrowing at these low rates and buying more investment properties at these low prices, OR they can sell and do a 1031 Tax-deferred exchange and move their investments from less desirable properties into more desirable properties.

Losers:  Developers and unrealistic or highly leverage Sellers.  Developers holding onto lots of inventory (especially inventory that’s leveraged…which they all are) are already faced with some tough decisions.  Slash prices and affect the previous sales they have closed or have under contract, or offer incentives (fee upgrades, etc)? 

Highly leverage Sellers are in a tough spot too.  They have to decide, depending on their situation, whether to sell at a loss, or support the payments until the market turns.  These guys often are unrealistic with the market conditions and learn all too painfully that time is your enemy in a declining market. 

WHEN WILL IT TURN AROUND AGAIN?
Well since you can see I’m dumb enough to try and forecast 2009… why not try to predict even further out?  If you are holding out for the market to turn, consider the “Buyer of 1995”.  He was convinced that after 5 years of price declines from the peak of 1990, the market had to have reached a bottom!  That Buyer (now an owner) saw the real bottom in 2000 and then had to wait until 2004 to break even.  So the last cycle was from a peak in 1990 to a trough in 2000, then from the trough of 2000 to a peak in 2005.  We are now in year 3 of a sideways or downward market (yet most didn’t realize it until recently)… we feel the bottom might take until the earlier 20-teens to arrive (say 2013 or 2014).  I know, I know… for a real estate Broker it’s like hitting myself with a blunt instrument! 

MY TWO CENTS
People often ask me what I am doing with my money.  Well…I am a long-term investor in real estate and, while I have done some investing in the mainland US, I am guided by one major principle… #2 in the list of “bright spots” above.  I always listen to my Grandma!

Friday, December 26, 2008

DE or IN?  …Flation that is.

There is general understanding that we are in a period of deflation.  I understand what that is…it’s when gas goes from $4/gallon to $2/gallon, or mortgages go from 6% to 4.5%.  It’s the “Japan economy” everyone has been predicting.  Where we essentially “flat-line” for awhile (although Japan’s been doing it for a long time now!); the experts say we will see contraction in spending, declines in earnings, weak job reports, cheaper goods and services, etc.  Okay, okay…I get it.  I have a degree in Finance from the Harvard of the Pacific (UH)! 

So what is the government’s reaction to this?  Bailout.  What’s the Bailout mean?  Print money, buy bad debt, print money, invest in banks, print money, invest in car manufacturers and print more money.  So you say we won’t see this affect inflation because corporate America is in liquidation mode so it’s a sum zero game just like Japan?  Maybe.  But increasing the monetary supply is supposed to lead to inflation right?  Maybe.
This is a tough one for my crystal ball.  Here’s what one Forbes article says:

“One last investment that should work out well over time: Buy property, if you live in a place with a forest of for-sale signs. The housing crisis is terrible, but it won’t last forever. If you can get a mortgage, and if I’m right about inflation, you will eventually be paying it back with 50- or 60-cent dollars. Pay 20% down on a house that rises 40% in five years and you’ll triple your investment, assuming you can cover the interest and maintenance with rental income. If prices rise above the rate of inflation, a reasonable possibility given how depressed they are now, your return will be still higher, possibly significantly so.

Take that money out of your mattress. If you don’t, you’ll miss one of the great buying opportunities of your life.”

David Dreman is chairman of Dreman Value Management of Jersey City, N.J. His latest book is Contrarian Investment Strategies: The Next Generation. Visit his homepage at http://www.forbes.com/dreman.

All I can say is…I hope he’s right!