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The Next (Cautious) Hawai’i Real Estate Upturn

April 15, 2012 - Ray Tsuchiyama

Oahu Home Sale Prices Surge


First, congratulations to my spouse C. for passing the Hawai’i Real Estate licensing examination. After several weeks of seemingly living apart in the same house while C. was studying real estate laws and regulations, we are together again.*

Recently, at a Honolulu economic forum Dr. Carl Bonham, Executive Director of the University of Hawai'i Economic Research Organization (aptly named HERO), presented an assessment of the national economy, as well as Hawai’i. In discussing the global macro-picture Dr. Bonham was generally upbeat on the U.S. economy, except for jobs (U.S. unemployment is stuck at around slightly above 8% with stagnant new jobs/hiring reports; however, Spain and other European Union countries have >16% unemployment figures, or double U.S. stats -- Greece has a staggering 23% unemployment rate).

Gasoline prices are up, and this is not good for the U.S. balance-of-payments (paying for imported oil), and many industries (plastics, textiles) are dependent on petroleum for product manufacturing, so this adds to a slower recovery. High gasoline prices shall impact Mainland vacation travel by car, and so may put a damper on summer spending.

Adding to energy issues is the uncertainty of the European “Euro” crisis: the German powerhouse economy may become sluggish due to increased payments to bail out Greece, and other EU “Euro” countries (with more unemployment and growing social unrest) are linked to Germany and its powerful Central Bank.

Hawai'i is synchronized with the slow recovery of the U.S. economy, benefiting with more U.S. vacation travel, that results in higher hotel visitor count numbers (try booking a room at a Wailea hotel now or for this spring/summer). What has been startling in visitor statistics has not been growth in the Mainland/Japan column, but in the “Other” category, including Canada, Australia, South Korea, and New Zealand – with double-digit growth for some countries. Canadian visitors – with the high Canadian dollar vis-à-vis the U.S. dollar -- to Maui has been particularly evident in the Kihei/Wailea area, with spending in restaurants, supermarkets, gasoline, and air tickets. (There should be more budget for these markets for Hawai’i tourism marketing/PR.)

As a “quick” jobs/funding project, Honolulu mass transit (rail) construction throughout the rail “corridor” can immediately accelerate the Hawai'i economic recovery, but mass transit could be de-railed by a change at Honolulu Hale this fall – so this is not a “done deal”.

For more positive short-term news regarding the Hawai’i housing market there are several more key factors: U.S. interest rates are historically low; new housing inventory of new houses does not exist as a supply to sell, as new home construction has been stagnant or even non-existent since the terrible year of 2008 – plus significantly, the “real” Hawai’i family median income can finally afford the “median” house for “the first time since 1999”. This last point is a crucial “match” for families finally getting into cars and going out to “open house” showings, looking seriously at houses to purchase, as banks did not grant loans for house prices beyond the maximum monthly mortgage payments for many families.

For many Maui realtors who have been toiling for the last two decades, 1999 was the key “boom” year that led into the roaring 2000s. In the first above listed Honolulu Star-Advertiser Web link, the take-away is that “resurgence in the median sale price of previously owned single-family homes on Oahu continued in March, extending a string of year-over-year gains to five consecutive months.” Also, the “median price surged 13.9 percent last month to $625,000 from $548,500 in the same month last year, according to a Honolulu Board of Realtors report released today. . . The gain was the biggest for any month since the string began in November”. Finally – “However, the rise looked particularly strong because the March 2011 median price was particularly weak, representing a low for any month since January 2009”. (Note: the words “particularly weak” are a crucial indicator of a year-on-year “real” numbers change for housing costs.)

Maui, though, has a current real estate “mixed” picture (see second Web link). Yet, the Maui market has similar conditions like Oahu, specifically the lack of inventory (although scaled to a smaller market of 150,000 residents and other part-time residents). One trend is clear: the housing foreclosures that distorted the Maui market for the last three years are fewer this spring, and as full-time Maui jobs return, especially in construction, hospitality, and tourism, there will be invariably a release of pent-up demand.

Timing and psychology are always important in real estate -- even in booms and busts. If enough Mauians (and non-residents investing in the Maui market) feel that the market is turning, a real estate upturn – though cautious – will happen sooner than later.

*During this period Pizza Hut and the Whole Foods salad bar enjoyed a short-term economic boost.


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