South Maui Market Rebounds Through July
Keeping in Pace with the Rest of Hawaii and the Country
By Dave Morrell RS, MBA

If you are thinking about buying or selling a home in Wailea-Makena or Kihei anytime in the near future, I would encourage you to review economist, Paul Brewbaker’s address to the Real Estate Association of Maui (RAM) .

Mr. Brewbaker seems to feel that the economy has turned and as shown by a number of indicators, real estate prices on Maui have already reached the bottom or are very close to doing so!

I will not spend a lot of time reviewing the predictions in that report, but will attempt to focus instead on the South Maui market segment. Reviewing the video link to Mr. Brewbaker’s webcast report should help to put these following charts in perspective.

The South Maui real estate market continued to improve in the first four months of 2010 as sales increased each month. Although sales did drop off a little after the Federal tax stimulus for new escrows expired, home and condominium sales still maintained a very healthy activity level, helping to further reduce market inventory to levels not seen since 2005!

With limited supply and strong buying activity, prices have been firming. There are still very good deals available, (especially with interest rates lower than they have been for years) but I don’t believe we can expect to see prices for quality homes fall much further (If at all)! The following chart seems to indicate that most market segment prices have actually increased, but it is very difficult to extract any kind of meaningful trend with our relatively small, South Maui market.

We are constantly asked:
1. Will the South Maui Real Estate market continue to firm?
2. Are there differences between Wailea condominiums, Kihei single family homes, Beach front homes, South Maui Real Estate in general?
3. Will we see a sudden upward movement in home and condominium prices?
4. Is it time to buy that new home in Makena or should we wait?
5. Will I need cash or is financing available at a decent interest rate available?
6. Is it too late to take advantage of low interest rates and bargain Maui real estate deals?
7. Is it time to sell our Kihei vacation rental condominium or will prices rocket back up to 2006 levels soon?

While no one except you can answer these questions for you in your situation, and no one can predict the future with any kind of certainty, you may want to review some of the following, then call your Realtor (as well as your loan broker and/or CPA) to discuss your own situation.

Market Inventory:
Although market inventory has been declining fairly steadily since the beginning of 2009, prices are just now beginning to reflect the declining supply. Will the inventory continue to decline? If it does, will that push prices up dramatically? How will the so-called “Shadow Inventory” affect the South Maui market inventory? Do we see short sale inventories increasing or decreasing? How about bank sales (REO’s)? The following charts may shed some light on these questions:

New listings of short sale properties (Properties selling for less than the owner owes) began to appear in South Maui in mid 2007. Although the quantity of new short sales listed have fluctuated considerably, we have not seen a significant overall increase of short sale listings in recent months. The number of Kihei single family homes listed as short sales did appear to peak earlier this year. Short sale listings of Wailea single family residences has remained quite low (perhaps explaining the relatively small price decline for these homes?).

Meanwhile, most of the major banks seem to have worked through many of their administrative difficulties in working with short sales so that the process has begun to work a bit more efficiently and short sale listings are working their way off the active inventories.

On the other hand, bank owned (REO) properties have begun making their way to market in the past 12 months so that they are beginning to show some affect on the market, particularly with Kihei Condominiums. Very few Wailea properties have yet been listed as bank owned (foreclosures).

So does this mean that our market is about to be flooded with low priced (and in many cases low value) bank owned properties? Is there a significant “shadow inventory” that is about to hit the market and push the rebound back into recession? What affect would an increase of REO’s have on inventory, sales and prices?

In order to address these concerns, we must look at the short sales and bank owned listings in perspective of the entire South Maui Real Estate market. This chart should help to visualize that perspective.

As the chart indicates, the total number of new South Maui listings has been decreasing over the past few years, in spite of the increase in distressed property listings. The combination of fewer listings and increased number of sales has been instrumental to decrease overall inventory. During 2010 new distressed property listings did account for about 25% of the total new listings.

Although total listings have declined, the increase in distressed properties has tended to dampen prices. Distressed properties are often in a state of disrepair and buyers generally want a discount for the poor property condition, not to mention the hassle of working with numerous lenders and creditors under an entire different set of contract rules, rules which often do not protect the Buyer’s interests nearly as well as in a standard transaction. Standards for appraisers have been tightened considerably so that appraisers are often very hesitant to appraise non distressed properties at a significantly higher value than the distressed homes. As a result, increases in prices may not be allowed by the Buyers’ lenders until cash purchasers set a new trend. If you are a buyer with cash, you have a significant negotiating advantage to purchase premium properties at somewhat discounted prices. Buyers utilizing credit (on the other hand) have some very good incentives to purchase relatively low cost homes now with extremely low interest rates (and low monthly payments) that probably won’t last for long!

So what do you do if you are an owner in need to sell a South Maui Property? Do you sell now (even perhaps taking a loss) to get out from under a high monthly mortgage payment or in order to move on to other goals in your life? Do you wait in hopes that prices will turn around enough to make up for your mortgage payments while you wait? Will the potential increase in prices return enough to pay off your mortgage and have cash left over to do what you want to do next? What do you risk that prices may not increase as much as needed? Does your mortgage exceed the amount that you can expect to sell your property for? Should you consider a short sale? The answers for these questions will be different for different Sellers. They will depend upon your own specific needs. You should definitely discuss these issues with your Realtor and probably your CPA. There can be significant tax consequences as well as pricing and market issues.

Whether you are a potential Buyer or Seller, if you do not already have a relationship with a Realtor, we would love to do our part to help you find the dream property or investment solution that fits just for you.