Yet More Real Estate Saga
April, 2005
The Third Edition of Affordable Paradise will be shipping in a few weeks and it already needs updating! Real Estate prices in some areas have gone way up since the data for the book was collected. A good example is Leilani Estates (East Hawai'i, Puna District), where six months ago you could buy a decent lot for $30,000. Today, you're lucky to find one at $60,000, and most are higher than that.

Where will it stop? Who knows? Most of the Realtors we speak with feel there is no end in sight. Others say the reason for the recent spike is that interest rates are climbing now and hoards of people want to get in while they still can. This pushes the demand up, and since the supply hasn't been keeping up with the demand anyway, higher prices are the obvious result.
This appears to be the case in the nicer parts of Hilo, too. There is precious little inventory available, and what there is goes fast.

What appears to fly in the face of this reporting is that there are also quite a few properties all over the Island that have been on the market for a long while and are not selling. If the market is all that hot, why is this? Well, it's mostly about greed. There are sellers out there who are "fishing." They have no real need or interest in selling their property, but they list it for sale at an astronomical price hoping that some over-enthusiastic and under-informed person with a pile of cash will come along and buy it. There really are buyers like that, too, so evidently it pays off for those who have the patience to wait and a sufficient lack of integrity. We see it frequently: Folks come over here from the mainland with a huge pile of money they made from the sale of their mainland homes. Compared to those prices, Hawai'i still appears reasonable, so they don't even check comparables here. Perhaps the overpriced property is the first one they looked at and it seemed reasonable to them - compared to what they are used to.

It's sad, really, because these isolated purchases just help drive the frenzy and raise all the rest of the prices. What's really sad is that the folks who have lived on these Islands all their lives are now priced out of their own home.

It wouldn't be so bad if those who will be living there were actually doing the purchasing. We track the market on a regular basis and we see way too many properties, especially vacant land, reappear on the market shortly after they were sold. We've seen them reappear for double what they sold for and they quickly sell again.

OK, remember, please, that this is all about "affordable paradise." So if you're in the market for a home or the land on which to build one, do your homework and you can still find your dream. I'm assuming that since you are reading this, you aren't one of the wealthy who can come over here and buy anything you choose, regardless of price. If you are serious about living in Hawaii and you're on a budget, shop around, check out areas beyond those that are the most popular, and do some of your own research. Relying on a Realtor alone to find your piece of paradise is not realistic. Most of the Realtors have lists of people who are all looking for the same thing. Get on the Internet and spend some time searching so you'll get a feel for the comparable prices in your areas of interest. When you are actually here, get on again and check "new listings" every day. And when you do find something you like, act on it NOW. You really do not have time to "think about it." That's why you need to be informed about the market. You don't have time to check comparables after you find something you like. You need to know, right then, if it's a good deal.

Having a substantial down payment is also a must. Most sellers are sufficiently savvy now to reject offers in which 90% financing will be required. Too many of these deals fall apart after the property is tied up in escrow for many weeks, and there are too many other buyers out there with real money. Given the choice, most sellers will actively seek a buyer who is well qualified. This means a down payment of at least 25% and a credit score of 7 or above.
Keep in mind that what seems to be a great deal today was "way overpriced" only a few short months ago. This thinking is how many people justify paying way too much for a property. They think, hey, it doesn't matter what I pay for it now, because in a short while it will be worth way more anyway. That works as long as the market continues its upward spiral, but it is not a sound method of determining the value of a property. Prices will stabilize at some time; possibly even take a down turn.
Try not to get caught in the frenzy!

And that's the update for today. Let's hope prices begin to stabilize very soon.
A hui hou!
Skip Thomsen
Updated 3/6/05