A few months ago, one of my clients elected to hire another Hawaii Realtor because we disagreed about the value of the property I was being hired to sell. That was several months ago, and now, perhaps ironically, the listing price has been lowered to where it should have been several months ago. Only the market will tell if that recent price reduction is enough.
It’s a relatively common event for a seller to switch Realtors, only to finally take the advice the first Realtor had been giving all along (usually a price reduction). In this market, though, the danger lies in not taking the advice in the first place.
Here are the facts: as the months go by, fewer and fewer properties sell in Hawaii. On Kauai, for example, there are currently 416 houses on the market (a figure that goes up almost every day). In November, only 15 houses sold (down from 22 in October). The simple math indicates that we have over two years of inventory.
Condominiums are worse. There are 549 listings on the market, and this month, only 7 sold. That’s over 6.5 years of inventory.
I wrote in my last post that there are lot of sellers who simply can’t afford to sell their homes. By that, I mean that they owe more than their homes are currently worth. There are, still, a growing number of short sales (where the bank allows the seller/borrower to sell for an amount that doesn’t pay the bank back in full). But this is extraordinarily rare, and my understanding is that only 8% of ‘Short-Sale’ transactions actually close escrow.
So, for those of us who CAN afford to sell (I just sold my property in November)… the simple laws of Supply and Demand dictate that we must lower our prices.
If you’re considering selling property in Hawaii, here are a few points about how to price it:
#1 Listen to your Realtor. You’re hiring an expert for a reason.
#2 Don’t give much meaning to the listing prices of ‘comparable’ properties. If they’re still on the market, they’re priced too high.
#3 Pay Attention to recent sales prices of comparable homes, and price your home less than or equal to those sales.
For those of you who are tracking the stats, here are the real estate sales Statistics for November 2008 on Kauai (note: the Median Price and Sales Volume in the Hanalei District are inflated by a couple of sales in Hanalei: one for over $10m and another for over $2m).
Sincerely,
Matt Beall, Principal Broker
David
December 2, 2008
Matt,
Well said.
Questions: What percentage of the 416 houses and 549 condos (plus or minus) listed on the Kauai market are upside down; not based on their fantasy listing prices, but based on their realistic selling prices? 10%, 20%, 40%, 60%???
When you say that people “cannot afford to sell”, and that closed short sales are rare (and getting rarer), I am wondering what will break the log jam? Eventual bank repos? Goverment-backed principal write-downs? Can these “sellers” afford the float in the meantime? Have many (most?) of them stopped paying, and are just waiting around to see if the bank (or county if unpaid taxes) are going to do anything about it?
Have you ever seen anything like this in your professional RE career?
Bobby
December 2, 2008
David-In response to your question about what will break the log jam, I think that the new regulation prohibiting Realtors from representing sellers and communicating with banks in distressed situations (ACT 137-http://www.hawaiireporter.com/story.aspx?98d8f8f7-0a5e-4b6f-ac93-06923e4217d6) might help the situation. I think it will sort of force the hand with the banks and most of these properties will simply go to foreclosure faster, rather than becoming short sales. Once they aren’t bought at auction and the bank ends up with them, they are much more easily bought, at a much more realistic price-for the most part. It’s a shame but I think it could make things easier for everyone. Once the REOs start closing, it should bring the comps down and more sellers can see it in black and white instead of denying what their realtor is telling them.
Christmas in Hawaii means a long-sleeve t-shirt (at night, once in a while) and epic waves!!!
Jeff
December 2, 2008
Matt –
You are correct that sellers should not pay attention to the actual active listings. In a market like this, most list prices are fantasy land. Sellers need to be looking at the most recent sales and price them below to ensure a sale. If they do not, they are going to end up chasing the market down like your ex-client. I could almost bet they will end up selling for less than had they listed it correctly.
A house that is priced at $500,000 in a market that is depreciating 20% a year will go down in value about $8000 a month. Really sucks to be a seller if you price it too high and chase the prices down.
Part of the problem is that a lot of agents are so desperate for a listing; they will take them at any price. Now that is not helping their client one bit. They need to get a back bone and actually tell the truth.
Matt
December 3, 2008
David- It’s hard to say with any accuracy what percentage of active listings will likely end up having to sell short. I think we’re going to have to get used to the log jam. Even if, as Bobby says, bank foreclosures and REOs become much more common, that’s still a log jam. Foreclosure is NOT an expeditious process. And, in the meantime, short sales are worse. For example, I’m the listing agent for one of the short sale transactions we’re currently working, and we’ve been negotiating with the bank since AUGUST. So, the task at hand for buyers is to continue to sort through the inventory for listings that aren’t priced by the fantasy/denial method. (And no, I’ve never seen anything like this, and anyone who says they have is living in that fantasy/denial world).
Jeff- I couldn’t agree more. It’s almost as if some agents have resorted to using over-priced listings as their only source of generating any activity (a prospect may still call, and that’s an oppurtunity to get a client). I’m not sure if it’s ‘backbone’… I think it’s more of a collective denial. Now, more than ever, buyers and sellers should be thoroughly interviewing their agents before they sign any sort of agreement.
David
December 4, 2008
Matt,
You guys should start a “real listings” section of your site that only includes the properties of sellers that actually want/need to sell, and are capable of doing so (and are priced right). That would save everyone a whole lot of time. Of course, it would take some of that “backbone” that Jeff mentions when you tell your own clients that they do not qualify for the “real listings” section if they are over-priced.
Just a thought. I know it will never happen.
One thing seems certain, it’s going to be this way for quite a while – at least another couple of years the ways things are dragging along, unless the REO process gets moving to create a market (which is what happened in many parts of CA). My brother lives in the so-called Inland Empire east of LA. There are lots of sales of there these days, but nearly all of them are REOs and short sales at prices that are 30-50% lower than 2005-07.
Jeff
December 4, 2008
Matt-
FYI, Back in the early 90’s, I started my real estate career in Orange county and it is exactly the same there now as it was then. Just spoke to my first broker last week and he said the market is the same as in the early 90’s.
Matt
December 5, 2008
David- We have that section, it’s just reserved for “clients”. 😉
Jeff- The early 90’s were not the most significant economic crises in world history since the Great Depression. I’m not saying that people haven’t lived and worked through market cycles. I know that you and others have lived and worked through them, and I respect that.
David
December 5, 2008
Matt – Therein lies the rub. You guys are free to admit the other realtor’s listing are unrealistic, but your own of course are priced right. You’ll need a bigger smiley face.
Matt
December 5, 2008
David- Not at all! I’m the first to say that our own listings aren’t priced as well as they should be. I wasn’t referring to our listing clients. I was referring to our clients who hire us as Buyer’s Agents. My point is that the service you’re looking for: sorting through the inventory for listings (on and off the market) for the accurately-priced offerings is EXACTLY what buyer’s agents do. There are a LOT of listings on Kauai that I’ve thought you’d be interested in, but until I represent the seller, I know not to call you. That’s all. I was just being cheeky. Sorry for the confusion.
BC
December 6, 2008
Back here in western NY we haven’t seen much lower prices yet but we are being forewarned that the government budgets will be severely impacted. I don’t know what the % deficit in other states are but we could see a 10% cut in our state budget … this will impact RE indirectly. The NY legislature is in denial since we haven’t seen real estate displacements (yet) compared to CA and FL. Our sale price to cost of building never reached the extremes for the other ‘growth’ states. (My home never appreciated much over the last 10 years.) If we go back 10 years those prices could be the RE ‘backstop’?? In any event if unemployment is limited to <10% and layoffs stabilize by 2010 then we could have a market in the next decade. Of course each region will have their own ‘backstop’ level so I don’t think that the average sale price needs to reach a national ‘average’. In western NY you can get a very nice home for ~$200K. I don’t see those prices in HI. Although there are more properties reaching the market in NY an HI people don’t seem to be in a panic to sell.
Brad
December 6, 2008
Dear Matt,
Thanks so much for the information you’re providing! I was on the Big Island recently, and was trying (and failing) to figure out the real estate market there — assuming that it’s something like what’s going on in Kauai, you’ve said a lot to make sense of things.
cmills
December 12, 2008
Go to the statistics provided on this webpage, http://uhero-kauai.prognoz.com/ and look at the median and average sales prices for condos.
You will see the classic bubble graph. From first quarter 1994 to fourth quarter of 2002 (nine years), the median prices stayed relatively steady, rising slightly at a compounded increase of 4.4% per annum. Then they exploded up until the second quarter of 2008 at an annual rate of nearly 19%.
If you assume 4.4% increases from 1994 to today, then 15 years later today’s median price for condos on Kauai should be $269,000 or prices that condos sold for in 2003.
For the same time period the average sales price rose similarly at 4.47%, then exploded at just over 18% per annum to the second quarter of 2008. Using 4.47% increases, the average sales price should be $312,750.
So when you price a condo, your comparables should be from early in the year 2003.
David
December 12, 2008
Matt, I just did a quick (in)sanity check on your search engine. For Northshore Kauai (all neighborhoods) there are 175 homes for sale with a list price of $750K or more; 3 are contingent. There are 70 condos listed for $750K or more; none contingent. There are 112 vacant lots listed for $500K or more; none (zero, zip) contingent. Apparently, few are taking your (very solid) advice on how to price their listings correctly, and instead are using the “what I paid in 2005, plus 30%” pricing method.
cmills, how many of these “listors” (they are not actually selling anything, so we should can’t call them “sellers”) on Kauai are listing at 2003 prices? That’s right. That’s why there are no sales. Bring on the banks, already!
BC
December 13, 2008
Conversely, if sellers don’t need to lower their asking prices then we can assume they are in no hurry. Relax, Hawaiian time and pace. As I have pointed out previously, if you don’t really need to sell then wait. Besides someone I think at this site made the point of ‘land banking’ … hedge against dollar inflation. They are printing money so eventually real property may be a better investment and sellers may get their price albeit in Hawaiian time scale. Previously I was thinking we would be out of the recession by 2010. I think now that this is an optimistic projection. Tack on a couple of years or three or four … Hawaiian time … no rush. Remember we pretty much crushed the financial system so it’s really not something the government will easily fix. When bubbles pop and we are left with nothing. Take the Rip Van Winkle approach to real estate … oh, but that was a 20 year lull.
David
December 13, 2008
BC, maybe you’re right. Maybe few, if any, would-be sellers in the over $750K and $500K price range “have” or even “want” to sell at this time, and the vast majority are simply trolling the beautiful buyer-free waters that is the north shore of Kauai, enjoying the sunshine and fresh air. Does not matter if they do not catch a sale. There’s no bait on the hook, anyway.
There’s no better explanation for the complete lack of activity, although it does not bode well for realtors on Kauai.
BigD
December 15, 2008
Matt,
You’re analysis of the market is accurate for the Big Island, where I have been searching for appropriately priced residential homes for sale for the past 3 months. I have spent time on the Big Island on three separate occasions over the past two years. Several commentors posted in response to your initial opinion have accurately concluded that the true market value of most if not all properties is actually what buyers paid in 2002-2003. So the 1500 s.f. house that sold for $350 K 5 years ago is now priced at $ 625 K, and sellers are wondering why there are few bonafide offers being tendered. I have seen only two or three properties appropriately priced at the 2003 market value over the past 90 days, and they are all still listed active for sale. Buyers like myself have little incentive to even pay adjusted market value (2003 value) or more unless they really need to buy in a timely fashion, since most buyers I assume are purchasing a second/vacation home, and can certainly rent a condo or home for the few weeks or months that they will actually spend living there each year. Since home prices will be declining for the next 1-2 years, only sellers that truly need to sell will likely be pricing their homes accurately, or considering offers at 50 – 75 % of their ‘fantasy’ asking price. I suspect that as reality sets in and the global economic slide personally impacts realtors, sellers, and lenders, the market will adjust downwards significantly in 2009 and 2010. Previously affluent potential buyers who are still cash rich and/or able to assume more debt are becoming more scarce, and until all of the parties to the sale really appreciate this,the real estate market will remain challenging to everyone involved.
David
December 17, 2008
BigD, you are spot on. I had a conversation with an agent on Kauai yesterday, who was describing a “$500K property” in which the seller (in an effort to genuinely try and get it sold) had recently reduced the price to $400K. The agent commented that the property will probably sell at $300K.
However, this same agent predicting the selling price as $300K was nonetheless calling it a “$500K property”. To him, current selling prices are just temporary, and the previous inflated “values” are still the real values. Okie dokie.
David
December 29, 2008
The fastest way to clear the excess inventory would have been to use the billions in bailout money to give first time homebuyers a guaranteed loan on any home at 1% interest. This is what the feds are loaning the banks money at so why not give it to buyers. Alternately let anyone transfer an existing mortage to a new buyer with government backing. (Making all loans assumable – no fees.) This could dramatically increase sales. Hopefully someone here knows how to reach Obama’s family in Hawaii and propose something like this that will help everyone.
David
December 30, 2008
For the record, the “David” of the immediately preceeding comment is not the same “David” (me) of the prior comments to this thread. I strongly disagree with the other David. Giving more whiskey to the drunks does nothing but delay the inevitible sobering. Houses became grossly overpriced compared to their historical value, as people viewed tham as “investments” instead of housing. The bubble must be allowed to deflate, not prolonged. If you start giving out garanteed 1% loans, then you will have to do it forewver, since once inflation kicks into high gear (coming soon), and real rates have to skyrocket, everyone who buys at a sustained inflated price because of 1% financing is even more underwater if they try to sell. We need to stop the “free money” loose lending standards, not perpetuate them. Everyone does not need to “own” (haha) an over-priced home to live a meaningful life.
Ernon
March 21, 2009
Do you guys have a recommendation section, i’d like to suggest some stuff