Kona Kohala Blog

Last night, I had the opportunity to speak at the Town Hall meeting sponsored by the Community Enterprises organization.  My topic was real estate, where was it, where is it and where is it going?

From 1991 to 1998, the median price of a Single Family Residence (SFR) in North Kona went from $235,000 to $225,000 while SFR's in South Kohala dropped from $229,000 to $194,000 according to the Hawaii Information Service on-line records.  Then, the crazy times came and changed the real estate landscape dramatically.

In the next 7 years, SFR prices in North Kona went from $225,000 to $620,000 without slowing a beat.  In South Kohala prices jumped from $194,00 to $530,000 in the same time.  Since 2008 we've seen slight declines but nothing like those experienced on the mainland in areas where similar explosive rises took place.

I suggested to this group that we had another 6 to 12 months before we find the bottom and another 12 to 24 months before our market returns to normal.  Normal is defined as having a balanced inventory of property for sale, roughly a 6 month supply.  Today we have a 23.6 month supply of homes in North Kona and a 16.8 month supply in South Kohala.

With the next infusion of money from the feds, I expect to see the banks begin loosening their lending requirements, not to the point of getting in trouble again but at least allowing more qualified buyers into the market.  This will not come without a price, higher interest rates.

When banks dropped interest rates below 5% for a week they were overwhelmed with refinance applications which taxed their operational capabilities.  In my opinion, banks do not believe they can make enough money on loans unless they are charging at least 5% but preferrably, 6% to 7%.

I was then asked the question, "Isn't there a law that limits the percentage spread between what the banks pay for money and what they can charge to loan it?"  I didn't have an answer for that and will research it further this morning; however, I did read that the interest rate charged by the banks did jump after lowering rates below 5% by more than 10% while the fed was lowering their interest rates to near zero to stimulate bank lending with no mention of a point spread limit.

To date, the feds have spent $92B buying mortgage securities in attempting to lower interest rates to consumers.  They plan on spending $500B total to get interest rates down by removing the toxic securities from the bank's books but based on recent history, it may do no good and only result in higher interest rates and wealthier banks.