Covid-19 delayed this installment of our quarterly newsletter. While we focus on the Q1 data below, with April now behind us, we can sneak a peek at the initial impacts of the shutdown on the real estate market performance on Kauai. Since real estate closings lag the more fundamental market activity of showings and opening of new escrows, it is not until several weeks after the onset of the shutdown that one would expect to see the initial impacts of the shutdown reflected in the sales data.
The new year commenced with a strong real estate market on Kauai. Across most segments and most metrics, there were clear and significant increases compared to the first quarter of 2019. Island wide residential volume was up more than 24% from $109M to $135M this year. Similarly, the number of island wide residential sales had increased from 107 to 121. On the north shore, residential volume increased from $34.5M to $45.4 on a decrease of sales from 25 sales to 21. The condominium segment on the North Shore also performed very well rising from $12M to $22M in volume and from 17 sales in Q1 2019 to 25 during the period this year.
While Q1 may feel like long ago at this stage, the numbers were strong for the first quarter, despite any initial impacts that presented in March due to Covid-19 (and there were certainly lost sales in March due to this event). The high end in particular had several noteworthy sales and in early April, the market witnessed the closing of three adjacent beachfront homes along Hanalei Bay.
If you’d like to explore the numbers a bit deeper, check out the market snapshots below for Q1 and April, respectively or via these links (Kauai Snapshot Q1 and Kauai Snapshot April) for an enlarged version.
Monthly Sales and Median Price Statistics
The graphic below includes Q1 + April monthly sales and median price statistics. The statistics below for April appear to be in line with data over the past year. Considering the shock to the market that Covid-19 has presented, this may seem surprising. However, as we have often said in the past about our market statistics, with such a small sample size of transactions in our market on Kauai, we need to consider statistical inference with a grain of salt. In Q2, it is likely that the impacts of Covid-19 will likely be more pronounced in the data.
Long Term Quarterly Median Sales Price Trends
The strong first quarter is reflected in the bounce in median sales prices evident in both the island-wide and north shore residential trend lines. Both of the plots below show an increase in values that ran from the end of the Great Recession until sometime in 2017 and since then, have more or less plateaued.
Reflections on Covid-19 and Kauai’s Real Estate Market
Considering the fact that this market shock is likely to be the most severe in our lifetimes, the truth, of course, is that nobody knows how this will play out over the short term. Every real estate market in the country is nuanced and the market forces from this event will unravel differently; even within the Kauai market, effects will vary greatly between segments.
I think that it is a fair assumption that most market segments where there are substitution effects and a higher supply of inventory will experience a decrease in values in the months to come. If sellers are not willing to, nor in a position to, hold on through the next down cycle, the reality check may come in the form of deep discounts in order to catalyze buyers looking to take advantage of the buyer’s market. Tightening in the lending markets in the immediate term also means that cash buyers will wield even more negotiating power than they have for many years. While the above potential impacts do not require much insight or prescience, it is not unreasonable to wonder if the low numbers of cases on Kauai, combined with our remoteness and natural island borders drive some positive pressure on demand? That remains to be seen and if there is such an effect, how much will it offset the other negative effects?
At the highest end of the market, I don’t believe that values will diminish much. With AAA property owners positioned to weather this storm and such an extremely limited supply of the most prized properties on Kauai, the substitution effect to suppress values is non-existent and the demographic of the demand-side will also still be able to support the current values for a tangible and livable, one-of-a-kind property on Kauai.