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Maui

Maui Real Estate Market Worse Then We Thought – Foreclosures Galore

Recently I wrote an article Maui home sales are falling, will property prices begin to decline. I wrote the article because there were some things about the Maui real estate market that just didn’t make sense to me. Like why hadn’t prices dropped at the same levels as other Hawaiian islands? A pretty good discussion ensued and the consensus was that reality would eventually catch up with Maui’s inflated home prices and the “Valley Isle” would see property prices drop…it was just a matter of time.

Well that time may have already come. In a recent article from The Maui News titled, Maui wipeout: Residents swept in debt, we learn that there were so many Maui foreclosures at the latest auction (380 pending according to the article) that people were having a hard time trying to keep up with the auctioneer. What’s even more shocking is that the article states Maui is in a recession. Why is this shocking? Because everything I’ve heard regarding the state of Maui up until this point has been about it’s strong economy.

So maybe Maui isn’t the “Golden Child” of Hawaii after all. And maybe their vacation driven economy isn’t recession proof as so many had lead us to believe. Like one person commented (Virtue if you’re out there, we’d love to hear more) in my last Maui article, “Maui residents are in for a “wake-up” shock….economically.”

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Virtue

July 21, 2009

Thanks Justin for your comment. I would like to share a couple more thoughts on the subject of “wake-up-call” for Maui residents.

First of all…..I love Maui…..lived in Kihei for 5 years…..and visit every year.

Instead of a long windy article…..I will summarize my thoughts as follows:

* Maui is not immune to the “real-estate” bubble. From the late 1990’s – 2007, real estate values increased so rapidly, it was “not real”. $700,000 for a small 3 bed / 2 bath home with no view….is simply ridiculous. Same home in year 1999 was $200,000 or less. Those who bought the home at “peak price” of $700K will probably see it go back down to 2002 levels or less.
The problem lies in the “debt” that the new owner took-on to buy it at the peak price. Bankruptcies and Foreclosures will only increase over the next few years as even the higher salaried worker (professionals) will not continue to make the high loan payments!! It is sad….but it is also a necessary “market-correction” that is badly needed to re-balance the real estate market to it’s “true values”.

In addition, boomers (45 – 70 yrs old) nearing retirement have to start saving money. They will not be coming over to Maui to buy homes at inflated prices. They will visit and rent instead.

Also, the growing middle-classes in China and India…..are very savy with their money….and some of the biggest “savers” in the world. They will not be like the Japanese of the 80’s. They are experts in “bargain shopping” and “negotiating” the price down. They will simply laugh at your $700K list price….then offer you $350K.
——

* Maui residents often forget that it is “Tourism” and the “Military” (Fed Govt) that keeps Maui out of the stone-age.
In the past 10 years….during the “good credit spendy years” …..Maui became a “home spot” for mainland tourists willing to spend their “new-found” wealth from easily borrowed money (credit & especially home equity loans). Thus, prices increased for vacation rentals….restaurants…etc.

With job losses, home value declines, stock market losses, credit line shutdowns, many potential tourists can no longer afford the high-prices of Maui. Maui has “out-priced” itself in many ways to become too expensive for the “average joe & family” to come over and enjoy Maui beaches. They are deciding to go to the nearby lake instead, and other places that cost less.
For example, owners of vacation condos in Kihei will have to drop their rates in order to get bookings. Rates in general have to reflect a “new reality” in “affordability” for mainland tourists to return.
——-

* Overall, Maui residents have to accept that the growth in real-estate values in such a short period was a “fraud” (not real) – a true bubble that was going to pop. It’s like what Bernie Madoff was quoted as saying “It’s all a big lie”……probably not just talking about his Ponzi rip-off scheme….but the overall economy of “bubbles” in stocks, bonds, real-estate, and the U.S. dollar……all greatly over-valued.
——-

Sincerely,
Philip Virtue
virtuecsa@aol.com

Virtue

July 21, 2009

Thanks Justin for your comment. I would like to share a couple more thoughts on the subject of “wake-up-call” for Maui residents.

First of all…..I love Maui…..lived in Kihei for 5 years…..and visit every year.

Instead of a long windy article…..I will summarize my thoughts as follows:

* Maui is not immune to the “real-estate” bubble. From the late 1990’s – 2007, real estate values increased so rapidly, it was “not real”. $700,000 for a small 3 bed / 2 bath home with no view….is simply ridiculous. Same home in year 1999 was $200,000 or less. Those who bought the home at “peak price” of $700K will probably see it go back down to 2002 levels or less.
The problem lies in the “debt” that the new owner took-on to buy it at the peak price. Bankruptcies and Foreclosures will only increase over the next few years as even the higher salaried worker (professionals) will not continue to make the high loan payments!! It is sad….but it is also a necessary “market-correction” that is badly needed to re-balance the real estate market to it’s “true values”.

In addition, boomers (45 – 70 yrs old) nearing retirement have to start saving money. They will not be coming over to Maui to buy homes at inflated prices. They will visit and rent instead.

Also, the growing middle-classes in China and India…..are very savy with their money….and some of the biggest “savers” in the world. They will not be like the Japanese of the 80’s. They are experts in “bargain shopping” and “negotiating” the price down. They will simply laugh at your $700K list price….then offer you $350K.
——

* Maui residents often forget that it is “Tourism” and the “Military” (Fed Govt) that keeps Maui out of the stone-age.
In the past 10 years….during the “good credit spendy years” …..Maui became a “home spot” for mainland tourists willing to spend their “new-found” wealth from easily borrowed money (credit & especially home equity loans). Thus, prices increased for vacation rentals….restaurants…etc.

With job losses, home value declines, stock market losses, credit line shutdowns, many potential tourists can no longer afford the high-prices of Maui. Maui has “out-priced” itself in many ways to become too expensive for the “average joe & family” to come over and enjoy Maui beaches. They are deciding to go to the nearby lake instead, and other places that cost less.
For example, owners of vacation condos in Kihei will have to drop their rates in order to get bookings. Rates in general have to reflect a “new reality” in “affordability” for mainland tourists to return.
——-

* Overall, Maui residents have to accept that the growth in real-estate values in such a short period was a “fraud” (not real) – a true bubble that was going to pop. It’s like what Bernie Madoff was quoted as saying “It’s all a big lie”……probably not just talking about his Ponzi rip-off scheme….but the overall economy of “bubbles” in stocks, bonds, real-estate, and the U.S. dollar……all greatly over-valued.
——-

Sincerely,
Philip Virtue
virtuecsa@aol.com

Justin - Head Web Head

July 21, 2009

@Virtue – Aloha Philip, and thank you for your insight.

Justin - Head Web Head

July 21, 2009

@Virtue – Aloha Philip, and thank you for your insight.

Virtue

July 23, 2009

Thanks Justin. Check out today’s (July 23rd) Maui News article on tourism to Hawaii.

Virtue

July 23, 2009

Thanks Justin. Check out today’s (July 23rd) Maui News article on tourism to Hawaii.

Justin - Head Web Head

July 23, 2009

@Virtue – Interesting piece. For all those that want to read it, here’s the link:

http://www.mauinews.com/page/content.detail/id/521353.html?nav=10

Looking at the numbers here’s what I see:

– Visitors are down 18.5%.
– Prices are down ($33/person per night for hotels), but it doesn’t give a percentage.
– Visitor spending down 21.7%.

This tells me that actual visitor spending is down only 3.2% (21.7% – 18.5%) and I would think costs is down by more then 3.2%. So visitors are actually spending more (is this right or am I crazy?) which goes along with the fact that length of stay is up 5%.

The article says that times are changing and that Maui’s visitor industry, “will never go back to what is was”. I disagree. We’ve had recessions before. I’ve been through 2 hurricanes on Kauai, and each time they said real estate prices and visitors will never go back to what they were… and it’s always come back stronger then ever.

Virtue, I agree with your points looking at Hawaii’s (and the global) economy over the short term. But you can’t tell me in 5-10 years that the real estate market / visitor industry won’t bounce back and surpass the highs of our recent economic boom. History has shown us that this has never happened, and we’ve been in way worse situations economically then we are now.

Justin - Head Web Head

July 23, 2009

@Virtue – Interesting piece. For all those that want to read it, here’s the link:

http://www.mauinews.com/page/content.detail/id/521353.html?nav=10

Looking at the numbers here’s what I see:

– Visitors are down 18.5%.
– Prices are down ($33/person per night for hotels), but it doesn’t give a percentage.
– Visitor spending down 21.7%.

This tells me that actual visitor spending is down only 3.2% (21.7% – 18.5%) and I would think costs is down by more then 3.2%. So visitors are actually spending more (is this right or am I crazy?) which goes along with the fact that length of stay is up 5%.

The article says that times are changing and that Maui’s visitor industry, “will never go back to what is was”. I disagree. We’ve had recessions before. I’ve been through 2 hurricanes on Kauai, and each time they said real estate prices and visitors will never go back to what they were… and it’s always come back stronger then ever.

Virtue, I agree with your points looking at Hawaii’s (and the global) economy over the short term. But you can’t tell me in 5-10 years that the real estate market / visitor industry won’t bounce back and surpass the highs of our recent economic boom. History has shown us that this has never happened, and we’ve been in way worse situations economically then we are now.

Katie Minkus, R(BIC)

July 23, 2009

It’s fascinating to me that when a market is raging strong, a majority of people seem to believe that the good times will “last forever.” I can’t tell you how many people I spoke to during the “dotcom” bubble and the recent real estate bubble that would declare this as if it were truth!!

I’ve noticed the same thing when markets are trending down…many people stating that we will “never recover” from this current economic downturn, as if it’s going to be this way forever.

But our markets are already starting to “recover” to some degree – otherwise how to explain the sudden surge in properties being sold on the Big Island these past six weeks while our visitor numbers are the lowest in a decade??? Can it be as simple as mainland buyers believing we’ve “hit bottom” and so now they’re buying? (And yes, of course easier access to loans helps, but I’m seeing a lot of cash transactions right now).

I’m with Justin on this one – this is HAWAII, and having lived in CA for 35 years before moving to my chosen home in Puako Beach on the Big Island, I can say for certain that CA and HI are NOT the same place. At all. However, we do “track” with CA real estate and as long as there are 3/2 1200sqft homes in the Silicon Valley and Orange County selling at $700k without a view and a commute to the ocean, then there will still be buyers for $700k homes without a view on Maui.

One of my Hawaii Life colleagues is involved in a bidding war right now on a foreclosed home in Puako in the $800-900k range. Okay, the house is a little bigger – 2500sqft or so and has a peek-a-boo ocean view, (and needs about $200k in renovation work) but really?? A bidding war in the $800k range?? In THIS economy??

That tells me there are some smart buyers out there who see the wisdom in investing in a market when it’s low, (remember “buy low, sell high?”) especially in preferable locations such as Puako Beach. I’m guessing even Kihei without a view is “preferable” to most people than Sunnyvale, CA. Or Portland, OR, where my colleague’s clients live now.

I’m betting on Hawaii. And plan to be laughing my way to the proverbial “bank” in 5-10 years when once again buyers will be lamenting to me, “If only I had bought that property back in 2009…” and we’re all crying once again to our County officials that we need the Queen K highway expanded to accommodate all the cars on the road…

Perhaps the “wake up call” is not best directed at Maui residents regarding the current state of their real estate market, but serves as a reminder to all of us that our “economy” at its core is made up entirely of human behavior, and as humans, what’s the one thing we can be assured of? Change.

Katie Minkus, R(BIC)

July 23, 2009

It’s fascinating to me that when a market is raging strong, a majority of people seem to believe that the good times will “last forever.” I can’t tell you how many people I spoke to during the “dotcom” bubble and the recent real estate bubble that would declare this as if it were truth!!

I’ve noticed the same thing when markets are trending down…many people stating that we will “never recover” from this current economic downturn, as if it’s going to be this way forever.

But our markets are already starting to “recover” to some degree – otherwise how to explain the sudden surge in properties being sold on the Big Island these past six weeks while our visitor numbers are the lowest in a decade??? Can it be as simple as mainland buyers believing we’ve “hit bottom” and so now they’re buying? (And yes, of course easier access to loans helps, but I’m seeing a lot of cash transactions right now).

I’m with Justin on this one – this is HAWAII, and having lived in CA for 35 years before moving to my chosen home in Puako Beach on the Big Island, I can say for certain that CA and HI are NOT the same place. At all. However, we do “track” with CA real estate and as long as there are 3/2 1200sqft homes in the Silicon Valley and Orange County selling at $700k without a view and a commute to the ocean, then there will still be buyers for $700k homes without a view on Maui.

One of my Hawaii Life colleagues is involved in a bidding war right now on a foreclosed home in Puako in the $800-900k range. Okay, the house is a little bigger – 2500sqft or so and has a peek-a-boo ocean view, (and needs about $200k in renovation work) but really?? A bidding war in the $800k range?? In THIS economy??

That tells me there are some smart buyers out there who see the wisdom in investing in a market when it’s low, (remember “buy low, sell high?”) especially in preferable locations such as Puako Beach. I’m guessing even Kihei without a view is “preferable” to most people than Sunnyvale, CA. Or Portland, OR, where my colleague’s clients live now.

I’m betting on Hawaii. And plan to be laughing my way to the proverbial “bank” in 5-10 years when once again buyers will be lamenting to me, “If only I had bought that property back in 2009…” and we’re all crying once again to our County officials that we need the Queen K highway expanded to accommodate all the cars on the road…

Perhaps the “wake up call” is not best directed at Maui residents regarding the current state of their real estate market, but serves as a reminder to all of us that our “economy” at its core is made up entirely of human behavior, and as humans, what’s the one thing we can be assured of? Change.

Justin - Head Web Head

July 23, 2009

@Katie – Ain’t that the truth?! They say tourism numbers are down and people aren’t buying homes. Then how come this summer is the busiest I’ve ever seen the roads on Kauai? I can’t make a left turn onto Kuhio Hwy in Hanalei, Princeville or Kilauea any more. It absolutely sucks. To be honest, I was really hoping for things to slow down here on the “Garden Isle”.

Justin - Head Web Head

July 23, 2009

@Katie – Ain’t that the truth?! They say tourism numbers are down and people aren’t buying homes. Then how come this summer is the busiest I’ve ever seen the roads on Kauai? I can’t make a left turn onto Kuhio Hwy in Hanalei, Princeville or Kilauea any more. It absolutely sucks. To be honest, I was really hoping for things to slow down here on the “Garden Isle”.

steve

December 13, 2009

Maui real estate is way way way overpriced, the reality is due to set in and prices all over Maui will fall dramatically.

Time for true market valuation to kick in.

steve

December 13, 2009

Maui real estate is way way way overpriced, the reality is due to set in and prices all over Maui will fall dramatically.

Time for true market valuation to kick in.

Hawaii Travel Guide

December 15, 2009

@ Steve – I think the prices are falling as I write this. Check with one of Hawaii Life’s Maui agents.

Hawaii Travel Guide

December 15, 2009

@ Steve – I think the prices are falling as I write this. Check with one of Hawaii Life’s Maui agents.

TravelDude

April 15, 2010

One thing that nobody is mentioning – from real fear? – is what will happen to the Hawaii tourist trade when oil hits $200 per barrel and air fares spike to three times their current rate. Can’t happen? Almost certainly it WILL happen over the next 30 months by the end of 2012. $6-7 per gallon for gas? And it will get worse than that. Only the exact timetable is uncertain, but Peak Oil is upon us and the entire country will be impacted very suddenly and severely. Hawaii is at the very end of the supply chain. HI residents and businesses and government will NOT be able to dodge the worst effects of a sudden, huge and continuing run-up in world oil prices. As Hi has few natural resources like fossil fuels, metal ores, chemicals, etc., Hawaii will be very vulnerable and breathtakingly expensive to visit. It will be even more expensive to live on the islands. What will all that do to real estate prices? Buy now, because the future for Hawaii appears bleak. The lucky ones will buy one-way tickets to California, if they want jobs. Sorry, but that’s the way it’s going to be. HI has just run out of Aloha.

TravelDude

April 15, 2010

One thing that nobody is mentioning – from real fear? – is what will happen to the Hawaii tourist trade when oil hits $200 per barrel and air fares spike to three times their current rate. Can’t happen? Almost certainly it WILL happen over the next 30 months by the end of 2012. $6-7 per gallon for gas? And it will get worse than that. Only the exact timetable is uncertain, but Peak Oil is upon us and the entire country will be impacted very suddenly and severely. Hawaii is at the very end of the supply chain. HI residents and businesses and government will NOT be able to dodge the worst effects of a sudden, huge and continuing run-up in world oil prices. As Hi has few natural resources like fossil fuels, metal ores, chemicals, etc., Hawaii will be very vulnerable and breathtakingly expensive to visit. It will be even more expensive to live on the islands. What will all that do to real estate prices? Buy now, because the future for Hawaii appears bleak. The lucky ones will buy one-way tickets to California, if they want jobs. Sorry, but that’s the way it’s going to be. HI has just run out of Aloha.

Katie Minkus, R(BIC)

April 16, 2010

@TravelDude – few natural resources??? I guess that depends on your definition of a “natural resource.” Last I checked Hawaii has nearly unlimited SUNSHINE, a ridiculous amount of WIND, endless WAVES and oh yes, that pesky volcano gives us GEOTHERMAL as well (already nearly 30% of the energy on the Big Island is powered by the volcano). Perhaps the aloha has only run out for those who believe energy must come from using limited resources that are mined from the earth or made in a lab.

Katie Minkus, R(BIC)

April 16, 2010

@TravelDude – few natural resources??? I guess that depends on your definition of a “natural resource.” Last I checked Hawaii has nearly unlimited SUNSHINE, a ridiculous amount of WIND, endless WAVES and oh yes, that pesky volcano gives us GEOTHERMAL as well (already nearly 30% of the energy on the Big Island is powered by the volcano). Perhaps the aloha has only run out for those who believe energy must come from using limited resources that are mined from the earth or made in a lab.

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