Kona Kohala Blog

The real estate news today is like statistics in that you can pretty much look at the data and have it support whatever you want to believe.  I'll get the politics out of the way right now by saying the administration is now grasping at straws and not being very honest about the straws they're grasping.  They made a big deal out of the 3.5% increase in the GDP saying that indicates that everything is on the mend.

The GDP is made up of three components; consumer spending (almost 70% of GDP), business investments and government spending.  All reports show consumer spending is down, so much so the government is encouraging people to quit saving and start spending.  There has been no business investment since most companies are still laying people off, loans are hard to get and why spend money on capital improvements when no one is buying?  That leaves government spending to account for the increase.  The Cash for Clunkers and First Time Homebuyers credit account for just about all the 3.5% increase so really, our booming GDP is nothing more than the country going deeper into debt.  Sorry Mr. President, it's not working!

The much touted recovery graph looks like an over pressurized can of crazy string gone mad.  Depending on where you look in Hawaii county you can find growth in sales, in dollar volume, and in median price or, any combination of the above.  October shows what appears to be an improvement in real estate in general with all indicators moving up.  There are some downs, median price in South Kohala and North and South Kona Single Family Residences (SFR's) are all down by varying amounts.  The number of sales and dollar volume is up in those areas though, so what's happening?  Maybe people are taking advantage of the low prices, low interest rates and large inventories.  If that's true, median price should start up very soon, maybe next month so we'll have to wait and see.

The problem, in my mind, remains unemployment.  Those in the know predict continued rises in unemployment numbers through next year.  How can we have a recovery with more and more people out of work?  I'm not one of the big brains working to fix this but it seems that until people go back to work consumer spending (remember the 70% of GDP) can't increase.  Until people start buying again, especially durable goods, business has no reason and no money to invest in purchasing new equipment or hiring new employees.  That leaves government spending to get us kick started.  The problem is the approximate $1.4 billion of debt we're carrying.  Pretty soon, Made in America is going to be what Made in Japan was in the 50's and 60's, cheap junk.  All that debt is driving down the value of the dollar which may help exports in the short run but how about a long term plan?  How is that going to improve our economy?

The only way to get people back to work is to make it advantageous for businesses to begin investing again.  The government needs to reduce taxes and red tape on business.  Unions need to back off, maybe cut down to size like some of the big companies the gov's going to break up.  We can't expect to compete on the world market place with the highest cost of goods in the world.  Look what's happened to those countries that tried, France (now there's an economic powerhouse), Germany, the Netherlands and all the others with socialized governments.  It's good to gather golden eggs but at some point you have to feed the goose or no more output.  I guess I wasn't done with the politics afterall.

"The bottom is coming, the bottom is coming", cried Chicken Little as he ran frantically through the yard . . . or something like that.  This time it may be true, the bottom may actually be coming or may be here, for that matter.  The question is, is this "the" bottom or just "a" bottom?

Reading the statistics from Hawaii Information Service, our MLS provider, one gets the impression that we may be at or very near the elusive bottom.  Two of the three main statistics are jittery and bouncing up and down while the third, median price, continues to decline at about a 20% per year rate.

The other two stats are Number of Sales and Volume of Sales, the actual amount of money involved.  In the third quarter we saw an increase in the number of sales and the volume of sales for North Kohala, South Kohala, North Kona and South Kona.  This indicates that both investors and home buyers are moving back into the market place; prices have gotten low enough that buyers are seeing value.

In October the number of sales is up in some districts and down in others but all very near zero meaning the decline may be coming to an end.  The volume is also jittery but moving around that same zero percent change indicating that we may be leaving the many months of declines behind us, for now.

The potential mar on the otherwise bright and shiny housing future is the fact that despite the administrations bobble heads proclamations of an end to the recession, jobs continue to be lost.  Until that changes, the average American will not be able to get back into the housing market regardless of how low prices get; no income, no loan qualification.

The people we see taking advantage of current market prices are those wise few who saved money, paid off debt and still have jobs.  Many of these are investors.  The others are the ones who were raised by parents who taught them the worth of a dollar, the value of hard work and how to plan their future.  Unfortunately, this is a small percentage of the American people and we will soon see their appetite for housing satisfied, then we will need the rest of the country to come around in order to maintain any kind of recovery.

And therein lies the rub, so to speak.  As soon as we run out of the current group of buyers, investors and those smart enough to have put some money away, we are going to have to wait until the jobs market picks up in order to see any new buyers on the horizon.

Since this administration is running full speed ahead with blinders on, seemingly unaware of history, I don't see the job turn around anywhere in our future.  The government has demonstrated repeatedly its inability to run a business.  For examples we need only look at Amtrack, the postal system, and now the banking industry and General Motors and Chrysler.  If it wasn't for large and continuous infusions of taxpayer money each of these examples would be nothing more than a footnote in a history book and some may be inspite of the cash infusions.

Fortunately, we still have elections and a sobering electorate.  The elections of 2010 will tell a lot about our future.  One thing we should have learned is that having a democrat house, senate and white house is every bit as disastrous as having a republican controlled government.  We need opposing views to make good decisions.

Instead of republicans and democrats we need true conservatives and liberals although I personally question the value of a liberal.  As has been recommended in the past, maybe we need to vote them all out and start from scratch.  Could it be that much worse with all new bumbling idiots rather than the tenured group of self serving bumbling idiots we now have?  Hard to say but it might be worth a try.

How far away can the bottom be when sales activity begins to rise, volume begins to rise and median price continues to fall?  This is exactly what we're seeing in West Hawaii for the districts of North Kohala, South Kohala, North Kona and South Kona.

First the bad news, if you're a seller. Median prices have continued to slip south at rather high rates considering the turn around in sales.  In North Kohala, the median price for Single Family Residences (SFR's) is down <30.7%> to $572,550.  This is considerable when you look at an area with mostly million dollar plus homes and estates.  The money volume is up a surprising 98% and the number of sales has gone from 4 homes in the third quarter of 2008 to 10 homes in 2009.

Not so dramatic is South Kohala where the median price has dropped <19.3%> to $359,000 for a SFR.  Condos, the mainstay in South Kohala, are down just <11.8%> at $445,000.  The volume for SFR's is up 38.6% and condos are up 13.3%.  Sales for SFR's have gone from 45 in third quarter 2008 to 51 in third quarter 2009, up 13.3%, while condo sales have gone from 30 to 38, an increase of 26.7%.

North Kona leads the way for volume increases this year over last with a whopping 160.2% increase.  The median price continues its decline now at $415,000 for a SFR, down <24.4%> and condos are down to $202,500, a <32.5%> decline.  Here too, the number of sales is climbing with SFR's up 67.4% with sales of 72 SFR's compared to 43 in 2008 and condos up just 7.3% with 44 units closed this year compared to 41 in 2008.

South Kona is the only district with positives in all categories.  Volume is up 50% this year and the median price is up 20.6% to $375,000.  The number of sales also rose to 10 compared to last years 8, an increase of 25%.

Studying one quarter is truly micro economics but it's better to have a ray of sunshine hit you when you're laying by the beach rather than nothing but rain clouds.  Who knows what the next three months will bring.  Historically, October, November and early December are slow in Hawaii.  Once the holiday crowd shows up around Christmas time, things could change.

Perhaps the biggest indicator of what's coming in this age of bailouts will be the governments action on extending the home buyer tax credits and anyother stimulus plans they may have.  The cash for clunkers was a big hit but costly for the feds.  The problem for them is that in spite of the expense, the biggest and only boost we've seen to the economy was those two government backed programs. 

With consumer spending making up nearly 70% of our Gross Domestic Product (GDP), something has to be done.  The jobs market is still looking dismal for the foreseeable future.  There's still talk about a 10% unemployment through next year.

With no new tax breaks coming what will stimulate small businesses to expand and begin to hire again?  In fact, quite the opposite is being planned by the Obama administration.  They plan on raising taxes on the upper income earners and businesses as well as some hefty tax hikes to pay for the generally unwanted healthcare reform.

Most people polled want healthcare reform in the way of tort law reform that has been shown will reduce the cost of healthcare.  Most people are happy with what they have and just want to pay less to get it.  Obama is pretty much killing the goose while telling us there are more eggs to be had.

President Reagan gave us a perfect blueprint for economic recovery.  What he did during his 8 years in office was miraculous economically and it all began with tax cuts.  It's too bad Obama chooses to follow Roosevelt whose policies failed rather than Reagan whose policies worked.

Hits the streets in an electronic sort of way, that is.  This weeks newsletter has been emailed to subscribers and has articles on West Hawaii real estate, a review of both foreclosures and shortsales in North Kona and South Kohala.  In addition there we look at who's not making mortgage payments, the Kona Cold Lobsters farm at the Natural Energy Lab Hawaii, we revisit condo occupancy and how it effects loanability, a look at the dim future of solar energy and the ever popular Shameless Plug.

Bottom line is that although we hear a lot of news about foreclosures, in most categories we're under 5% of the active listings that are actually being sold as foreclosed properties.  There is a higher, much higher percentage of active listings that are short sales right now but even that isn't through the roof the way the media would have us believe.

If you're not familiar with the Kona Cold Lobsters farm you really should check it out next time you're in town.  What a great place to hand pick your cold water lobsters aka Maine lobsters for dinner that night.  He also raises Kampachi, a newer fish on the market but one that is perhaps the best tasting sashimi fish in the world.

If we get enough people hooked on the great taste of Kampachi, Maine lobster and another new fish, the Kona Butterfish, we could see a resurgence in the housing market.  Who wants to live very far away from not only the best tropical fish i.e., ahi, mahimahi and ono but also to have kampachi, butterfish and Maine lobster available almost every day of the year?

If you'd like to sign up for the free, no obligation newsletter of West Hawaii click here.  If you're concerned about the security of your information, please read our Privacy Policy.