I was intrigued last week by an article from the KCM Blog, a group of experts who understand real estate trends. It inspired me to look at our Kauai market and explore how we are doing. I have injected some additional comments and added some graphs relative to our own market.
Housing Market News: A Matter of Perspective
Many people want to look at any news on the housing market and immediately categorize it as either good or bad. In reality, most news about real estate is not ‘good’ nor ‘bad’. It is simply news.
Our current home values are much lower than just a few years ago. Homeowners may see this as bad news. However, each transaction has both a buyer and seller with different perspectives. When a house sells today, 50% of the people in the transaction (the sellers) could see the lower prices as bad news. However, the other 50% (the buyers) probably see this as great news.
Some will say that the struggling global economy is horrible news for the real estate market, but the current economic challenges, like what’s happening in Europe and other global influences, have also brought us sub 4% mortgage interest rates.
We may see the eventual resurgence in the economy and world market stabilization as good news for housing values, but as the global economy stabilizes, we’re likely to see a change back to interest rates in the 5’s and 6’s. Many will also see rising mortgage rates as bad news for buyers.
National Association of Realtors Chief Economist Lawrence Yun addressed the issue of a possible home price jump at the National Association of Real Estate Editors conference in Denver when he said:
“This time next year, there could be a 10% price appreciation. I would not be surprised to see that.”
At the same time, Gary Schilling, president of A. Gary Shilling & Co., has been very outspoken about his belief that prices will continue to fall:
“Excess inventories are the mortal enemy of prices…I’m looking for another 20% decline and that is what it would take to bring them back to the long-term averages.”
This difference in what national media sources and experts believe causes confusion for both buyers and sellers. This uncertainty can create doubt as to whether or not a buyer or seller should act now.
How to Determine Where Prices Are Headed
There are three things to consider in order to determine where prices are headed:
- The months’ supply of visible inventory (homes currently on the market)
- The months’ supply of shadow inventory (distressed properties about to enter the market)
- What the majority of housing experts project for home prices going forward
What About Our Kauai Market?
Have we recovered and are prices heading upward? There are generally two steps to a market recovery. Firstly, we see an increase in number of sales, i.e. a recovery in the number of houses sold. Then, there’s a recovery in prices when the prices come back. Generally, we get the recovery in numbers of sales first and then later on prices will move upward.
One key statistic to track are the pending home sales from NAR and how are they trending. The numbers of pending home sales are trending up. Just a week ago, the Wall Street Journal published a headline in their Real Estate Section stating, “The Numbers Point to a Lasting Recovery in a Housing Market.”
Current Kauai Inventory
And what about our inventory? Our overall inventory on Kauai is down from a couple of years ago and hovers between 1,120 and 1,170 total active listings at the moment. At the peak of the housing boom in 2005 there were less than 800 listings (and more than 800 REALTORS®) or less than one listing per REALTOR® island-wide.
The shadow inventory on Kauai, well that’s hard to say. There are between 300-400 active foreclosures going on, countless loan modifications, some of which will fail, and a large number of short sales. As you can see by the graphic, Hawaii is now one of the top states in the nation for % of judicial foreclosures.
Due to Act 48 and Act 182 there is a foreclosure backlog in our Circuit Courts. So it’s possible that the backlog may effect our prices. Look at the other chart. Traditionally speaking, when we have only 1-4 months of inventory for sale, prices can start heading up.
4-6 months of inventory means the market is stable and normal. IF there is more than 7 months of inventory, we may be declining further. If we have more than 7 months inventory, the amount of buyers can’t qunech the thirst of the sellers and there’s not enough demand to satisfy the supply.
What Are the Housing Experts Saying Going Forward?
Well, the Home Price Expectations Survey, which brings together an expert panel of more than 100 leading economists to share expectations for future home prices in the United States, says things are looking up.
For the first time, the individual economists surveyed were largely in agreement on the trajectory of home prices nationally, signaling that a true bottom may be imminent. The consensus is that home prices will decline only slightly in 2012, falling 0.4 percent for the entire year, and will rise by 1.3 percent in 2013. Read the projections below:
The Home Price Expectation Survey is derived from 111 of the top minds and pundits regarding the housing market and housing finance
Consider this. In some areas of our island prices have rolled all the way back to 2011, but in 2001, the interest rate was higher. For example, if you purchased a two bedroom condominium in Princeville for $250,000 in 2001, you would have been paying $491 a month more, or almost $6,000 more a year because of the higher interest rates ten years ago. That tells you it’s a great time for buyers.
For sellers though, we must be cautious about anticipating the market turn. When sellers hear “prices are going up” they may think its going to be like 2005. It is not. Not for a long long time to come. If you want to better understand our island market, from the selling or buying side, I can help you too understand it.
View Kauai Short Sales & Foreclosure Deals in my Kauai Foreclosure Gallery.