The Recession, Island Style
May 19th, 2009
There are lots of questions flying around concerning how this world-wide economic situation is affecting Hawai'i. How I would love to tell you that it isn't!
The real estate thing is very different here than on the mainland. We don't have the huge numbers of repos and short-sales here, but prices are definitely on the down slide. It helps me to look at the bigger picture, though, instead of what is happening right now compared to one or two years ago. Let's go back to the early '90s, for example. That's when I moved here and bought a really nice house on an acre of manicured grounds for a whopping $119,000. Some three years later, my wife and I sold that house and took a loss considering what we had spent on it for remodeling. That didn't really matter, though, because we bought another house in Kapoho in that same down market and paid the same price for it as we got for our old house.
My rationale for "it didn't matter" is this: Let's say the market had actually gone up instead of down and let's say we had sold that first house at a huge profit. In that same up market, we would have had to pay that much more for the replacement house, so the actual dollar amounts didn't matter. What mattered was that we in effect traded the house we left behind straight across for the one we wanted.
If I have an apple and you have an orange and we decide to trade, it doesn't matter whether those two fruits are each worth ten cents or ten dollars as long as we are trading value for value.
Moving right along, the market started slowly coming up in the late '90s. It was a steady increase, kind of a positive thing, in line with "normal" inflation. But then in 2005, things went nuts. Seemed like half of the mainland West Coast decided they had to either move here or at least invest in some property. Oprah announced that the Big Island was the last affordable tropical real estate. Way to go, Oprah,
They came in droves, mortgage brokers fell all over themselves writing shaky mortgages for properties that these "investors" paid way too much for, and the house of cards was under serious construction.
Well, we all know the rest. If we don't, we're living under a rock because that's all the media has been ranting about for the last year or so. Those houses that the ill-informed investors bought with their shaky 100% mortages are now on the market for half of what these people paid for them and our tax dollars are bailing out the mortgage banks.
But here's where this story is going: Instead of just looking at the current down-slide from the crazy, unreal and ethereal boom time, let's skip that part as though it never happened and compare where the market is now to right before it went nuts. Guess what? It's not too far down from there. That house I bought in '93 for $119K? It would probably sell right now for $150K. During those two short years of gonzoness, $300K.
We bought a house in Hilo for $235K in 2004. We have it for sale right now for $348K and will probably get close to that, as we have it priced competitively with other houses of similar value in the same area. So it's not exactly doomsday here, but it is a buyer's market. That same house would have brought $450K in a heartbeat back in '06. So much for our investor prowess, right?
Mortgage interest is at an all time low, house prices are low, and if you find a fixer and can do the work, those are the best deals of all since buyers now have a choice and most don't want to buy fixers. And there are mortgages available, too. We received an offer today on our house for sale and the buyers have an approved FHA mortgage ready with 3 1/2% down payment. I thought those days were history, but I guess not.
What's been bothering us in the last six months especially is the number of sharks around here trying to take advantage of people in financial distress. We get these spam emails every day with lots of imaginative ways for these unscrupulous and deceptive people to end up owning our house for way less than it is really worth. I've even traced some of them to companies who train them how to sit at a computer all day and find likely prospects. Sad, what we've come down to. Integrity is an uncommon trait these days.
Aloha has also given way to greed in many other areas of trying to make ends meet here. Grocery prices are going up so fast that just about every time we go shopping, everything is noticeably higher than last time. It's like everybody wants to get theirs now.
The fact that we are getting systematically ripped off is made clear when we make out bi-monthly trips to Costco in Kailua-Kona. Just about everything there is half - or less - than it is in any of the rest of the grocery stores. Bread: How about $6 - 7 for a loaf of any kind of bread that's worth buying? At Costco, the same identical bread is $2.50 - 3. And that is typical for the differences.
The only reason for these kinds of prices is because the stores know they can get away with it, and sadly, most of the folks here don't ever go to Costco so they think these prices are normal and necessary for these stores to stay in business. Well I think not. Safeway certainly enjoys every benefit that Costco has regarding purchasing power, shipping groceries to Hawai'i, and every other aspect of running a business. But the good folks at these stores are more and more operating under the guidelines of charging what you could get it for at Costco, plus the gas it will cost you to go there.
We're hoping that this is not a trend that will continue to spiral out of control. This is a lousy time for companies like Safeway - and our own locally-owned grocery stores - to be holding us at ransom on food prices . . . just because they can.
As I point our over and over in Affordable Paradise, you can still do pretty well if you will take the trouble to shop around. Follow the sales. Make an occasional trip to Costco for anything that will keep that long. Include a stop at your favorite white sand beach while you're over there, to make the day's trip worthwhile. Buy a small, efficient freezer so you can buy when the price is right. Shop farmer's markets for any produce. Produce prices are insane in the grocery stores, and the stuff is all shipped in from mainland mega-farms where they use every known chemical to grow their tasteless products.
Hey, I was at one of our local markets tonight and saw zucchini for $2.59/lb. That comes to about $2 for a zucchini, the easiest thing in the world to grow. How about $4/lb. for pinkish white tomatoes that taste like cardboard? I can't figure out why anyone would buy those when you can buy organic, vine-ripened, tasty local tomatoes for half that price.
Back to our recession. Tourism is down, vacation rentals and hotels are running half empty, some businesses have shut down, but all the economist-guru types are saying that anyone who can stick with it will see the resurgence of our economy toward the end of the year. Let's hope they're right!
Unemployment is no worse here than in most places right now, and of course in its never-ending obsession to get bigger and bigger, the County is always looking for new hires. We just lost our only Chevy dealer here, so there go another 40 jobs or so. But these kinds of things are specifically mainland fallout and not specific results of Island life.
There are always other considerations that we don't hear about. Like yeah, tourism is down. Why? Who is going to pay $1000 for a round-trip ticket to Hawai'i from the West Coast? Why are the airlines doing this to us? Why can you fly round-trip any day of the week from CA to NY for $300? That's a longer flight so it costs the airlines more for that precious fuel, the cost of which they blame for these fare prices. We were planning on making a trip to San Francisco to see our kids later this year, but unless some magic happens and we manage to score some flights we can afford, we'll stay here. So we'll become a part of that statistic about fewer flights to and from Hawai'i. We'd fly if the fares were anywhere near reasonable, so whose fault is the tourism drop to Hawai'i?
OK, enough ranting. It's a beautiful, warm, balmy evening and I need to get outside to enjoy what's left of it.
Aloha Nui!
You are also welcome to check in to the Affordable Paradise Blog and talk story about your concerns. You can read some of the many postings there and learn from the conversations of others, too. You can also go on konaweb.com and punaweb.org and either participate in the discussions or just eavesdrop for a while!
We wish you all the best, and never forget to
Please Live Aloha!
Mahalo for "listening."
Skip Thomsen & Ohana
Updated 5/19/09