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Valley Isle’s real estate maintaining its value

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By HARRY EAGAR, Staff Writer

WAILUKU – It might be hard to persuade anyone that there is a national housing meltdown when the

Multiple Listing Service offers deals on Maui like this:

“Two bedroom, 1 bath older home on a small lot that is zoned industrial – access to property is by

footpath only. Being sold as-is – fixer upper. $200,000.”

The aggregate statistics for the third-quarter of 2008 released by the Realtors Association of Maui on

Thursday also do not portray a cratering housing market.

True, the number of transactions for the first nine months of the year is down by about one quarter, but

prices received for houses and condominiums that do sell are holding up.

For single-family houses, the median price this year is $594,500. That is down $44,000 from last year,

but is only a 7 percent decline, compared to hard-hit areas of the Mainland where prices are down 15

percent, 20 percent and in some neighborhoods much more.

Average prices for single-family properties are down by the same percentage, but since Maui’s average

was so high last year, $945,000, the fall as measured in dollars is $70,000, down to $876,615.

Condos averaged $783,000 last year and are up 21 percent to $947,000 this year, but thousands of Maui

condos are not in the million-dollar class.

The biggest concentration of middle-class condos is in Kihei, where the average is up 9 percent this year

to $493,000.

The median for condo units, the point where half sold for more, half for less, is up 7 percent, to $570,000

countywide, although only 5 percent to $415,000 in Kihei.

The most expensive condos are in Wailea-Makena, averaging $2,184,013 this year, which is up an

impressive 37 percent, but that may reflect the late recording of sales contracts that were inked for new

construction years ago.

Still, there is little sign that the South Maui luxury condo market is swooning. The number closing this

year is 160, only 16 fewer than in the first three quarters of 2007.

As a resort, Wailea is an outlier, commanding room rates almost a third higher than any other luxury

resort in the state. It may be an outlier in luxury condominiums as well.

The average condo sales price in Kaanapali this year is off 18 percent to $1,164,364, and the average in

Kapalua is down 30 percent to $1,070,794.

In Kaanapali, the number of closings has fallen from 45 to 33, and at Kapalua from 27 to 17.

Lanai is also a market unto itself, where there were only two transactions, but for nearly $2 million on

average.

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POSTED: October 10, 2008

Although prices received are waffling around what sellers received last year (which was down from 2006),

the smaller number of transactions means the aggregate value of the turnovers is well down.

The total of condo transactions this year (672 closings compared with 916 at this point last year) is down

by $80 million to $637 million.

The number of single-family closings is down from 893 a year ago to 706, and the aggregate transactions

are off $226 million to $619 million.

Notice that the number of single-family closings topped the number of condo closings. That is a dramatic

change from any year before 2006. when the number of condo sales was often nearly double the number

of single-family sales.

The number of days on market is also down sharply from last year. In 2007, it ranged between 74 and

131 for single-family and between 73 and 115 days for condos.

This year, the wait has been between 57 and 95 days for house sellers, 48 and 95 days for condo sellers.

Terry Tolman, the chief staff executive of the association, said that the drop in days on market shows that

“properties priced right will sell in a reasonable time frame.”

He also noted that the number of active listings “has grown considerably in the last 12 months,” though

the rise has leveled off recently.

Active condo listings this month are up to 1,600, compared with 1,283 in October 2007. Active singlefamily

listings are 1,114, up from 1,016 a year before.

Tolman said median prices in September were down across the board, which might be because buyers are

now not able to qualify for as much or because sellers are willing to accept lower offers.

* Harry Eagar can be reached at heagar@mauinews.com.

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Bank of Hawaii chief economist Paul Brewbaker

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‘Turn off the TV’ to battle pessimism

Bank of Hawaii economist thinks recovery coming soon

By HARRY EAGAR, Staff Writer

WAILEA – Bank of Hawaii chief economist Paul Brewbaker thinks everybody – including the people he works for – have overdone it with economic pessimism.

Not that there aren’t real problems, he told a breakfast meeting of invited Bankoh customers Thursday at the Grand Wailea Resort Hotel & Spa. He stepped off the plane from Honolulu to be greeted with a Maui News headline that the visitor count was down 22 percent in July. However, he said, he stayed up late to get the release of the national gross domestic product number for the second quarter, and it’s up 3.3 percent.

“I don’t know what kind of a recession has a 3.3 percent growth rate,” he said.

Over the last eight quarters, national GDP has fluctuated between 0 and 4 percent – barely dipping below 0 in the last quarter of 2007. So the question becomes, when does the recovery start? Soon, Brewbaker believes, although he’s having a hard time getting anybody to agree with him.

“I work for people who think there is a recession going on,” he said.

“Turn off the TV,” he recommends and wait for the actual numbers. “This thing (the idea that a recession is under way) is in people’s heads. The reality doesn’t matter at this point. . . .

“We’re bombarded with all this information, much of which is spurious and most of which is redundant. Just turn off the TV and you’ll be fine.” Turning the numbers into graphs, Brewbaker says he sees something that looks similar to what happened in Hawaii after the attacks of Sept. 11, 2001. Visitor arrivals went down then, but over a period of about two years they came back.

As for the credit shock, the graph there looks similar to what happened when several bubbling Asian economies burst in the late ’90s. Again, after about two years, the spike had disappeared. He dates the shock in the credit markets to last August, so we’re already about halfway through the work through.

The visitor shock came at the end of April, when Aloha and then ATA airlines folded. Brewbaker says he had already been predicting a slowdown from 2007 (a record year for tourism), but he hadn’t expected the Aloha failure.

Taking these and several other hints, he says he expects a return to better times by the end of 2009.

Between now and then, “it will be challenging.” A question mark is air lift. Maui and the Big Island felt the failure of Aloha and ATA more than Oahu. The difficulty of finding aircraft and financing and the high cost of petroleum will restrain new entrants, but he predicts that about half the lost seats will be recovered next year. Eventually, vacationers will “figure out they’re getting a bargain” and start traveling again. Resorts will have to decide whether to try to advance that impression by cutting prices or hold firm and endure a longer period of low traffic.

“It’s still Maui. Eventually people are going to want to come back here.”

A more recondite calculation suggests that the residential real estate slump is nearing its bottom and might soon turn up – in California. For decades, price trends in Maui real estate have closely tracked Orange County, with a lag of about two quarters.

Brewbaker says people with money have been able to arbitrage the difference. Or, as he puts it, they say to themselves, “I can sell my house in Corona del Mar and buy the same house in Wailea and God gives me $200,000?”

That was the story for the past decade or so. Now that Orange County (and California) prices are declining, the arbitrage works the other way: Sell your house in Maui’s relatively unscathed market and go bottom fishing in Anaheim.

“Here’s the problem,” he said. Since Orange County prices are going down, then six months from now, Maui prices should follow. However, a regression analysis suggests to him that California real estate is just about to reverse

direction. He cited the widely studied Case-Shiller index of housing sales. The latest numbers were down 18

percent. People fixed on that, he says, without noticing that the second regression of the trend suggested an uptick is near.

He believes that lenders are now charging a risk premium (around 200 basis points, or 0.2 percent of the loan) that is not justified by the numbers. That damps down investment. In the question period, he was asked about the future price of oil. “I have no clue,” he said. According to various assumptions, “$145 was as probable as $75, and we’ve seen both in the last 12 months.”

He recommended basing business strategy on the assumption of $145, and if it does go lower – as it is this week – enjoying the break.

* Harry Eagar can be reached at heagar@mauinews.com.

Maui Real Estate Sales Statistics

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 July 2008

July’s Sales Volume
Residential home sales rose to 96 units, second highest in 12 months. 
Condo sales rose slightly to 63 units sold
Land sales came in at 7 lots sold.
July’s Sales Median
Residential Home prices held steady at $615,000,
Condos held at $575,000
Land rose to 1,025,000 (only 7 lots sold in July)
Days on Market
Residential Homes = 163 DOM
Condos = 167 DOM
Land = 218 DOM
“Year to Date Sales”
Numbers are gaining relevance now that they include the first 7 months of 2008. In the current lackluster market, a low or high number YTD may not hold true by Yearend. Short time-frame (monthly) views do not necessarily reflect the longer time-frame trends.
Total sales for immediately past 12 months:
Residential=985
Condo=1,045
Land=147
IN A NUT SHELL…… the good and the bad
Since the market peaked in Summer 05, the monthly numbers have bounced up, down and sideways,with a continuing, general cooling trend.
Active inventory has grown considerably in the last twelve months.
While Unit Sales are lagging, Median Prices are holding up, and Days on Market figures show that properties priced right will sell in a reasonable timeframe. “Priced Right” is the determining factor.
FOR BUYERS: Continued low interest rates provide plenty of options for Buyers.
Buyers should get Pre-Approved so they can shop in confidence (no last minute disappointments due to non-funding loans). More “short-sales” and foreclosures are happening on the marketplace.
Buyers waiting for the “bottom” may also miss unique properties or  opportunities as market forces, qualification requirements and rates may fluctuate. (Bird in the hand is worth two in the bush.)
FOR SELLERS: To be successful, Sellers need to be realistic and can beat competing properties with better property condition, careful pricing, good marketing, and flexible terms. Some Pro-Active Sellers are getting their properties inspected and surveyed in advance to encourage knowledgeable offers from realistic Buyers. Doing this can prevent unanticipated escrow fallout.
Unrealistic Sellers will follow the market down and miss current opportunities that later become woefully apparent.
Sellers who don’t really need to sell (just “fishing?”) should stay off the market, and clear the marketplace for those who REALLY want/need to sell.
Zooming in on the figures of a specific geographic area or property type may lead to different conclusions than the overall view. (Choose carefully 😉 )
Disclaimer:
As always, I will remind everyone that Maui’s market place is much smaller than Oahu’s, and that a few high or low sales have a greater effect on the statistical numbers without necessarily indicating a big market swing one way or another.

Fed Holds Key Rate Steady Amid Concerns About Growth

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Published: August 5, 2008
With jobs leaking from the economy month after month, Federal Reserve policy makers decided on Tuesday to keep the key interest rate they control at its current level of 2 percent.

The New York Times

 

Emphasizing the dangers to the economy, the Fed said in its statement that a substantial easing of interest rates in recent months, “combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.” However, the Fed warned that “tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters.”

By a vote of 10 to 1, policy makers declared that inflation remained “of significant concern” — a description that seemed to put slightly less emphasis on the inflationary risks of keeping rates low than the policy makers had at their meeting in June. The lone nay vote came from Richard W. Fisher, president of the Federal Reserve Bank of Dallas, who sought an immediate increase in the federal funds rate, a short-term rate that influences the cost of mortgages, car loans and a host of other consumer credit.

Mr. Fisher has maintained for weeks that the danger of an inflationary spiral warrant a rate increase even at the risk of further slowing a damaged economy.

But in a nod to Mr. Fisher’s concerns, the policy makers’ statement gave considerable recognition to his point of view that “the upside risks to inflation are also of significant concern.”

“Inflation has been high,” the statement also said, “spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.”

Investors responded to the Fed statement by adding a spurt to already higher shares. Stocks, which had been trading up about 230 points on lower oil prices, quickly jumped another 40 to 50 points.

Most Fed policy makers, including Ben S. Bernanke, the chairman, have argued that the greatest immediate danger to the economy is not inflation, but the damage from still-falling home prices, the tight credit market, shrinking employment and weak wage growth.

These multiple problems work against inflation. Still, the policy makers, at their meeting on June 25, acknowledged that the surge in food and oil prices may seep into the cost of a multitude of everyday items.

While that seepage is not yet evident in the Consumer Price Index, Fed policy makers, in the statement they issued after the June 25 meeting, suggested that inflation in the weeks ahead could be as troubling as any economic weakness. It was the first time this year they had given the two equal billing.

The June statement said: “In the light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.”

The emphasis on inflation reflected in part the views of Mr. Fisher, and one or two others on the Fed’s policy making open market committee. They argue in effect that as prices for food and fuel outrun incomes, American workers will somehow find the bargaining power to get raises and their employers, in turn, will raise prices to offset the additional wage costs, setting off an inflationary wage-price spiral. That last happened during the first great oil crisis, in the 1970s, when workers had far more bargaining power than they do today.

Whatever the future holds, seven weeks after the policy makers’ last meeting, in late June, the surge in food and oil prices has not spread to the multitude of other items in the price index.

Indeed, oil prices have declined in the last two weeks. The economy, on the other hand, appears to have weakened, suggesting to most Wall Street forecasters that an increase in the federal funds rate — to reduce inflation pressures by slowing the economy — will not be forthcoming from the Fed until early next year.

“You can make the argument that the inflation risks are a little less than in June and the growth outlook a little worse,” an economist at Lehman Brothers, Michelle Meyer, said, adding: “We are starting to see signs that consumers are pulling back even faster than we expected. We thought the tax rebates would really boost consumption in the third quarter and we are not seeing that.”

The European Central Bank and the Bank of England, scheduled to meet later this week, are also expected to keep interest rates steady, or perhaps even cut them.

When the European bank’s governors last met, in June, they raised their key rate a quarter of a point, to 4.25 percent, but since then the European economy has slowed. The Bank of England, in contrast, did not change its benchmark rate of 5 percent in June, but with housing in trouble, a rate cut now is possible, some analysts say.

The Media Are Missing the Housing Bottom

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By Larry Kudlow Anchor 

cnbc.com | 24 Jul 2008 | 02:20 PM ET | 24 Jul 2008 | 02:20 PM ET

Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery. 

| 24 Jul 2008 | 02:20 PM ET  Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery. For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter. 

And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months. 

Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters. 

It’s a pity the mainstream media keeps searching for more and more pessimism. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom. Stocks sold off 165 points largely on media reports of terrible home sales and prices. But I am hoping the market comes to its senses and realizes the data are a whole lot better. 

And on top of all that, just as housing may be on the mend, Congress is about to ratify a huge FHA-based bailout that could total $42 billion. Congressional solons are putting up $300 billion to refinance and insure distressed loans through the Federal Housing Administration. But this dubious government agency, with a whole history of bad portfolio management, may wind up taking in the very worst loans on the books. 

Of course, taxpayers are on the hook. More government semi-socialism. 

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