Residential real estate market slow to rebound

LIHU‘E — Last year, the island’s economy experienced a shallow, L-shaped recovery, and real estate was no exception.

While the number of sales showed a marked improvement in 2010 compared to 2009, from 262 to 362, the median price remained largely flat, from $470,000 in 2009 to $475,000 in 2010.

Sales volume tells the true activity of the market, showing a rise of only 0.98 percent from $242 million in 2009 to $244 million in 2010. The numbers suggest that sales are occurring at the low and high end of the market.

RealtyTrac reports say banks completed a record number of foreclosures on Hawai‘i properties last year, up 38 percent compared to 2009 and triple the levels of 2008. Kaua‘i had 819 foreclosure filings last year, representing 2.75 percent of all homes.

The Associated Press reported last week that a five-month moratorium on non-judicial home foreclosures is pending before the state House of Representatives. Supporters cite the state’s high foreclosure rate.

The bill would allow homeowners time to stay in their homes while seeking loan modifications and other mediation measures with banks.

Non-supporters of the bill argue it would only extend the time it takes for such properties to clear the market and for prices and inventories to normalize.

Julie Black, the principal broker and owner of Kaua‘i Dreams Realty, tracks distressed property transactions throughout Kaua‘i, including short sales, real estate owned sales and foreclosures. She estimates that 40 percent of the real estate sales in 2010 were distressed.

“Twenty to 25 percent of sales were just for REOs,” she said. “Short sales probably made up another 15 percent of the market. For the most part, it kept the market realistic. Short sales and distressed properties do affect pricing.”

A representative of Old Republic Title and Escrow of Hawai‘i, who asked not to be identified, said approximately 25 to 30 percent of the company’s transactions last year were short sales.

“Before, it was hard to close,” they said. “Now it’s getting quicker. Sometimes people don’t want to wait three or four months before they can even go into escrow. My company has been getting more than average short sales, more than other companies.”

Black said the low-end priced market helped increase the number of closings compared to 2009. “I think things will be steady for 2011; but for 2012, we’ll be climbing up. I think of all of those distressed sales, most will get worked out this year. There will be less supply in the future.”

As of this week, there were 1,387 listings on the market or 30 months of inventory, based upon December’s sales levels (46), representing a buyer’s market. Less than three or four months of inventory is generally considered a seller’s market. The excessive supply levels may also affect pricing.

Black said there were more multiple offers on low-priced properties last year, indicating that there are more buyers entering the market. This may due in part to rising interest rates.

Bankrate.com lists Kaua‘i’s interest rate range on a 30-year fixed mortgage as 4.88 to 5.49 percent. In October and early November, interest rates dipped to 4.25 percent.   

“Interest rates always affect things,” Black said. “But I think people just have a little more confidence to buy real estate lately.”

• Vanessa Van Voorhis can be reached at 245-3681 (ext. 251) or by e-mailing vvanvoorhis@kauaipub

co.com.

In an interview with The Garden Island, new Kaua‘i Board ofRealtors President Michael Olsen answered questions about what theisland’s real estate market experienced over the last couple yearsand the direction he sees it headed.

Q: What are your thoughts on this year’s performance in Kaua‘icompared to 2007, 2008 and 2009 in terms of the number of sales,the median sales price and the sales volume?

A: The numbers didn’t just speak to us, they have been shoutingit out over the past few years. Closing out the 2010 year, we seethe first upswing in the number of sales by percentages since 2007,up 38 percent over 2009’s figures.

However, by the time we reached yearend 2006, the market hadalready hit its first real dive in number of sales, and 2007 wasverification that this was the direction things were going in andnot just a simple market “correction.”

Yearend 2007, the number of sales had gone down 15 percent fromthe previous year, but 2006 was already down nearly 30 percent from2005.

Even though the volume and median sales price had continued torise considerably every year since 2002, the total number of saleshad already begun its decline, by a modest 3 percent in 2005.

Following the financial crash, the year 2008 finished with adismal downswing of another 30 percent. However, for 2009’send-of-year number of sales, the decrease was a modest 7percent.

So with 2010 posting a yearend increase in the number of sales,at 38 percent over 2009, this is a definite gain, which representsin real terms 100 additional new residential sales in 2010 over theprevious year.

Other than the global financial crash and collapse of thefinancial institutions, a logical reason for the decrease in numberof sales could possibly be attributed to the increase — you mightsay stratospheric — in the median sales price, which jumped from$227,000 in 2001 up to $675,000 in 2006.

You could say that a market can only go up so much or down somuch before it has to take a swing in the other direction.

Interestingly, 2009 was the first year the median sales pricehad taken any substantial loss since the peak in 2006. There hadonly been a slight decline of no more than 5 percent for 2007 and2008 each.

2009 posted a “shocking” median sales price of $461,000, down 24percent from the previous year and compared to 2006’s high of$675,000, which is a real dive.

When you consider 2010 posted a yearend median sales price of$475,000, up 2.9 percent, along with the 38 percent increase in thenumber of sales over 2009, 362 versus 262, and the tiny, nearly 1percent gain in sales volume, the signs, on the surface anyway, arehopeful.

This is the first year since 2004 that all three of thecategories we speak of have increased over the previous year.However, that brings in the specter of sales volume — total dollarvalue of the sales.

The total sales volume figure has come down steadily each yearsince the peak in 2005 at $564 million to the bottom point of $241million in 2009. The biggest jump down was from $395 million in2007 to $251 million in 2008, a decrease of over 36 percent.

The figures here do paint a simple picture: The total salesvolume between the high of 2005 and today has decreased by over 55percent.

This represents a huge impact on the overall economy of Kaua‘iwhen you consider how many individuals and households have beenaffected by such a gap in the dollars in circulation throughout theisland fabric.

A dramatic decrease in the number of sales coupled with thedecrease in total sales volume equals less flow of money into theeconomy from fewer sources.

The construction industry is inextricably tied to the trends inthe real estate market, and they have suffered great losses. Thereare many other businesses that are affected: property landscaping,maintenance and housekeeping, to name just a couple where thepopulation has cut back considerably from their budgets.

On the plus side, more people are able to purchase homes onKaua‘i as first time buyers or those recovering from thedevastating effects of the economy being able to buy back in.

It’s also a great market for investors, including those lookingto purchase rental homes for income, a retirement property or justsimply getting a “good deal” on a place that they fall in lovewith, which would have seemed impossible a few short years ago.

Q. To what do you attribute the 42 percent increase in Kaua‘i’ssales?

A. Low interest rates, government incentives for buyers, REOproperties on the market and consumers’ readiness to invest capitalthat has been laying dormant for the last 2 years — real estatebeing one of their top choices of where to put their readycash.

This shows a mounting level of confidence — albeit slowlyevolving — in the overall recovery of our national economy.

Q: To what do you contribute the somewhat flat median salesprice level in Kaua‘i?   

A: The median sales price only took its big dive between 2008and 2009, when it plummeted from $607,000 to $461,000, which can beattributed to the financial meltdown, which resulted in mortgagemoney being virtually swept off the playing field, record losses indiversified investments and the resultant depletion in savings,loss of jobs, depreciation of the dollar and lack of confidence inthe investment market — real estate included.

There has been a “hoarding” of cash so to speak. Some evidenceof this is the number of cash purchases we are seeing in the realestate market today. Since there is a slight increase in the mediansales price on Kaua‘i this past year, that gave it a bump. However,I think the median sales price will be the slowest to go up sincethe supply and demand cycle still favors lower prices.

Q: How has and will rising interest rates impact real estatevalues and sales on Kaua‘i?

A: The short term for sales: Hopefully, it will in induce morepeople to purchase property as they see the possibility of interestrates climbing steadily upward — get the “cheap” money while theycan — especially for those who are already in the position topurchase now but have been sitting on the fence.

The broader picture: It could then slow sales since manyprospective buyers have not recovered enough yet financially to bein the position to purchase real estate, and they could benefitfrom lower interest rates being maintained over the next couple ofyears.

Once there is more recovery to the general economy and joblessrates fall, consumers’ confidence will grow and people will payhigher interest rates — and prices — for the products they want,homes included.

Q: What’s your prediction for the coming year in Kaua‘i?

A: Higher number of sales, lower median sales prices, steadygrowth of sales volume.

I believe that over all the prices have hit their low point.There will surely be more REOs, and sellers who can be competitivewith a super low price; but, in general, this is the “bottom” orclose enough to it to say that.

As number of buyers increases naturally, the number of saleswill also increase. I believe that prices, while they won’t fallappreciably, will continue to be lower as this is the natural cycleof competitiveness. There is still more supply than demand.

We will likely see a substantial increase in the number ofresidences for sale as there is a sizable pent-up volume ofpotential listings out there, sometimes referred to as “ghostlistings.”

Many owners would market their homes now if they felt it wasworth it. As soon as they hear there are sales happening, they willstart putting their properties on the market.

Not until the number of buyers increases measurably and thenumber of available properties to purchase decreases will we seethe phenomenon that results in a truly competitive market and allthe three categories go up: higher number of sales, median salesprices and sales volume.

2011 sellers will have to offer the better product at the lesserprice to get the sale.

• Vanessa Van Voorhis can be reached at 245-3681 (ext. 251) orby e-mailing vvanvoorhis@kauaipub

co.com.