Kona Kohala Blog

There has been very little activity in the sales of raw, undeveloped land in the last couple of years in these two districts, North Kona and South Kohala or North Kohala for that matter.  The problem is two fold; first, there is so much inventory of existing homes that buyers can get pretty close to their dream home with what's on the market now.  Second, even though labor costs have gone down, the cost of building supplies is still on the rise.  We've had a couple disasters that have put a large demand on building supplies coupled with ever increasing fuel costs and building materials in Hawaii are expensive.

What this means for the savvy investor is negotiable land prices.  There was a beautiful one acre lot in Kahakai Estates subdivision, wonderful views and close to town that was listed at $395K and sold for $310K, a more than 20% drop from asking price.  This is a great time to buy a piece of land and hold onto it until either it's time to build your dream home or the market turns and builders are again looking for good lots to build on.

Now, my current peeve . . . Our current administration is citing Franklin Roosevelt and the New Deal as a model for getting us out of the mess we find outselves in from decades of financial shenanigans since Reagan left office.  I predict the following quote will ring just as true in 7.5 years as it did when it was spoken over 60 years ago.  Henry Morgenthau, Jr., Roosevelt's treasury secretary said after 8 years of the New Deal, "we have tried spending money,  We are spending more than we have ever spent before and it does not work . . . We have never made good on our promises . .  I say after eight years of this Administration we have just as much unemployment as when we started . . . and an enormous bebt to boot"

An extensive study was conducted by UCLA economists Harold L. Cole and Lee E. Ohanian in 2004 and they said, " . . . ill conceived stimulus policies . . ." extended the Depression by seven years.

I can not for the life of me understand why our current administration embraces policies that have been proven not to work and turn their back on Reagan's policies which were proven to work in very similar circumstances.  What am I missing?

Developers are setting the prices on condos in both Mauna Lani Resort and Waikoloa Beach Resort these days.  Close on their heels are foreclosures, using developer prices as a guideline then undercutting them just enough to sell the foreclosure before the developer unit.

The developers have already made their money on their original sales where most buyers got taken to the cleaners.  It's not like there was a choice back then, if you wanted the property you paid their bloated prices.  Today, the developer could give away the remaining units and still walk away with a nice profit on the project.

Keep an eye on Hali'i Kai and Ka Milo, two very nice properties where prices for developer units and foreclosed units keep dropping lower and lower.  Either of these should be quick to recover in value when the market picks up again.  Currently prices are under $400K for a 2 bedroom, 2 bath unit.  If you're interested, contact us and we'll give you information on the projects and the area, if you're not familiar with it.

Now, about Dr. Norman Vincent Peale.  He wrote a book at about the time President Jimmy Carter was making a mess of the country.  I came across an interesting paragraph he penned that is as applicable today as it was then.

"An effort is being made by some gloom artists, self-styled intellectuals, to sell Americans on the erroneous notion that since there is a disparity of wealth in this country, it should be taken from some and given to others by political action, and that thereafter everything will be just sweetness and light.  Totally ignored by these social babes-in-the-woods is the fact there is another way to distribute wealth, namely, get an idea, develop enthusiasm for it, and just  plain go to work to build it into reality.  There's nothing in the world that can activate prosperity like that formula!"

Two good buys just came on the market.  The first is in Casa de Emdeko, an ocean front complex compete with a fresh water and a salt water pool.  This is a 2 bedroom, 2 bath unit with a very nice remodel.  The price is $465K.

The other listing, this week's Best Buy of the Week in our Aloha Friday newsletter, is in Country Club Villas in Keauhou.  This is a third floor, loft unit with expansive ocean views looking over the 18th fairway of the ocean course of the Keauhou Kona Country Club.  This unit needs a cosmetic face lift but is priced $60,000 below the next lowest priced loft unit there.  Needless to say that much money can go a long way to redoing the condo.

The Casa unit is MLS #224500 and the Country Club Villas is MLS #224640.

Laugh of the Month has to go to Secretary of the Treasury Timothy Geitner.  Speaking before a large crowd at the university in Bejing he was telling the audience how strong the U.S. economy and the dollar was and how well our recovery is going.  The crowd burst out in laughter leaving Mr. Secretary blushing at the podium.  Funny he'd think the rest of the world is as gullible as most Americans.

Adding to the choices of condos in North Kona is Casa de Emdeko B-231.  A 2 bedroom, 2 bath remodeled unit listed at $465K.  You can go to Search MLS on our website and type in MLS #224500 and I'll have video coverage on this site in the next 24 hours.  This was remodeled as the owner's retirement home but the economy got them like so many others.  Instead of retiring, they'll be at work for a little longer so their home in Hawaii is on the market.

Interest rates inched up this last week which may or may not be a precursor of things to come.  At some point, all this funny money being printed is going to kick off inflation and when it does, it will be a good time to own real estate.  Right now there are lots of choices and prices are at or near bottom so if you can afford it, now's a good time to jump in.

Most of what is selling remains those properties under $400K.  We are now seeing the same prices we saw in 2003, before thing really took off here.  Prices are predicted to continue downward for a bit longer, maybe 4 to 6 months but then stop the drop.  It will be interesting to see if these crystal balls are any better than those of the past but who wants to appear like they don't know what's going on?

Meanwhile, President Obama, who is trying so hard to stay out of Washington D.C. was in Nevada.  He was talking about all the new jobs being added by alternative energy, wind and solar in particular.  It would be a great thing if these new industries could keep up with the layoffs in other sectors of the country.  Manufacturing has been dying for years so maybe, building components for alternative energy producers will add some of the lost jobs we've had over the years as the manufacturing sector went overseas.  Maybe the time is right for wind and solar.  I only hope these are not new government ventures, totally supported by our tax dollars like the auto industry.

And speaking of tax dollars, when are the banks that are holding so much tax payer money going to loan it out?  I can't imagine how much interest they have earned on the billions of dollars loaned to them since the days of "W".  My guess is they're waiting for interest rates to move up a bit, say to the 6% and 7% range.  At least then, they'll get a solid return on their money.

Is it true that many of the largest banks tried to give the money back due to the strings attached (none of which helped us taxpayers) but the feds wouldn't allow that?

Aloha!  I've just spent the last couple of weeks on the mainland aka the madland and is that name appropriate; some people are really crazy there.  We were in Portland, Oregon for just over a week for the annual "fix Mom's house" visit then to the Bay area to visit other family and friends.

Portland is a great city, a little cold and wet but beautiful when the sun comes out which it did for most of the time.  Spring is great there, so much life popping out of the ground after months of mud.  There's a wonderful climbing gym there, Portland Rock Gym in North East Portland.  Over 30,000 square feet of climbing surface.

Climbing is an exciting sport that can be shared by families.  It was very cool seeing whole families sharing the experience; watching little kids scramble up those walls reminded me of just how natural it is to want to climb things.  There were also the very talented and experienced climbers seemingly defying gravity as they move across the ceilings called "roofs" in climbing lingo.  It's a fun sport that can be enjoyed by just about anyone in any condition, pretty much.

Okay, real estate in west Hawaii.  Still plodding along ever so slowly but persistently.  The median price in North Kohala is up 31% this year so far at $900,000 although sales remain sluggish.

In South Kohala the number of sales is down <30%> year to date for Single Family Residences (SFR's) at $399,000 which is a <20%> decline over last year at this time.  Condo sales are down <67%> year to date with a median price of $539,500, a drop of <17%> from last years median.

In North Kona, the median price of a SFR is at $460,000, off <17%> from last year and the number of sales is <40%> lower than last year.  Condo sales are down <41%> year to date compared to last year and the current median price stands at $279,500, a decline of <24%> compared to last year.

The total number of listed properties is holding steady but we are seeing a slight increase in the number of escrows.  The biggest obstacle today is getting the final loan approval and funding the purchases.  Banks are still changing the rules almost every day so you can be qualified one day and not the next.  It's crazy out there and the government doesn't seem to be helping at all.  What happened to all that help for the middle income class?

Wow!  What a crazy 100 days it's been since obama took office.  I never dreamed one person, okay, three people if you count Princess Polose and Prince Harry, could dismantle so much of our country in such a short time.  I really didn't think so much damage could be inflicted and still have most of the populace thinking this guy is helping.

Just like Juan Peron and Hugo Chavez, obama has nationalized first, our banks, now our auto industry.  He has single handedly scrapped private enterprise and replaced it with government controlled industry and we all know how well the government does with industry.

After dumping untold billions of dollars into the failing auto industry he's admitted it didn't work so he's turning the majority ownership over to the union, the UAW and all that tax payer money, yours and mine, is lost.  Do not doubt for a moment that what we are seeing is socialism, pure, unadulterated socialism.

So, what does this mean for investors?  Buy real estate!  Why?  Let's start with all the funny money that's been printed in an effort to save industries and companies that should have been left to die.  Interest rates are being held down by the feds, the private banks (yes, the federal reserve is a private banking consortium) are being told to keep rates down against their better judgment.  One of the reasons loans are so hard to come by is that the lenders can't make obscene amounts of money loaning at 4% to 5%. 

Given a little time, we'll see all this new money hit the streets and we're going to have inflation.  When the begins, probably by years end, the feds will have to raise interest rates giving the banks official approval to raise their rates.  Loans will start to be made.  As time goes by, inflation will continue to grow; it can't help but happen when you create over a trillion dollars in play money.

Why real estate?  Let's say you buy property today at todays rates and you're paying your mortgage in todays dollars.  When inflation begins we're going to see it spread across the board meaning we'll be paying more for everyday items but we'll also be making more.

If your budget allows you to comfortably make payments on a home or second home or even an investment property then when your income goes up with inflation, that mortgage will make up a smaller percentage of your income.  This is assuming you get into a fixed rate mortgage which, today, has a lower interest rate than an adjustable loan.

The value of real estate will also be going up giving you even more equity and buying power.  Remember, everything cycles so we will recover from this recession but we will also have a down turn following the up turn.  Planning ahead now for the turn around can not help but be in your best interest.  Property is on sale and while we may not yet be at the bottom, we are close.  Buying real property is an excellent hedge against the impending inflation.  Even buying an investment property now that you can sell when you're ready to retire will provide the money you need then to buy your dream home at the then market value.

As long as the administration understands that a strong housing sector is the only guarantee of a strong overall economy they won't mess with it.  Housing will not be nationalized like so many business sectors like banks, finance and now the auto industry.  Real property, held for a substantial length of time, minimum of 5 years, is the best investment you can make. 

Talk to your investment and tax advisors.  Make sure this kind of investment will not cramp your style and that it fits in your budget.  Make sure that you won't have to sell before the market has had time to recover; be conservative in all your estimates then seriously consider real property as a viable option for your portfolio.

If you're not on our newsletter email list contact me at Robert@FerrariPacificRealty.com, no charge, no obligation and cancel at any time.  Aloha

Hawaii county government owned a bulldozer that in 2000 was declared surplus.  Now this particular bulldozer could be bought through various companies on line for $125,000 to $150,000, the county of Hawaii decided to sell it to their good friends at C&H Ishii Construction for $60,000.  Okay, that's stupid and we all have come to expect that from our politicians and their good ole boy friends, it's how they entertain us.

Last week, it came to light through an article in West Hawaii Today, our local newspaper that's commonly known as West Hawaii Yesterday, that the county has been leasing back that very same bulldozer since 2000 for $15,000 per month.  Not only are they leasing it, they're paying for any modifications needed and all maintenance costs.  One figure has the cost of the bulldozer at over $1.4 million so far.

Now, for the really amazing part, no one is doing anything about it.  Calls have been made to the mayor aka "good ol boy #1, the county prosecutor and a number of department heads all of whom have not returned calls.  I'm wondering just how far you can push people before they begin to push back?

I have a client, two actually, who are looking at this buyer's market through true investor eyes.  In my last newsletter, I commented on two condo complexes in South Kohala, one in Waikoloa Beach Resort and one in Mauna Lani Resort, that had both experienced large price declines in the past couple of years.  I believe there are great bargains to be had in each of the complexes and that there will be huge appreciation in the next 5 to 7 years.  One, they are in great locations and two, they are newer, very well built condos with all the amenities.

My clients currently own a condo in the Waikoloa Beach Resort that's a cut or two below the ones I recommended but still a very nice unit.  After reading the newsletter, they drove over to look at one of the complexes since they are now on island.

They said the developers agents couldn't offer enough to get them to buy.  They had just dropped the prices again, they were offered a huge amount of money to cover all their closing costs and the developer would rent back the unit for a year as a model at a very competitive price . . . wow!

We could look at the fact that they paid top dollar for their current unit and they'd be taking a $200K+ loss or we could be realistic, which they are.  We look at their Schedule E since they have been using this as a rental property since they bought it.  This tells what their annual bottom line is.  They didn't buy all cash, they put a small percentage down.  Then we look at the principal they paid and other monthly costs that weren't tax deductions because it was a business. 

Then we look at their rental income, which has been pretty good for them.  When we add up the costs and subtract the income we see that they really aren't losing anywhere near $200K+, in fact, it's a very small fraction of that number.

Now we look at how discounted the price on the new property is compared to where it was a year ago.  We look at the cost of getting in and the potential for income as a rental unit.  What we have come to realize is that if you're moving up in this market it is a great time to buy.  You may take a small loss on your current holding but you may realize a huge savings and appreciation on your new purchase.  It is time to think, realistically, about moving up if you have investment property in Hawaii.

Contact me and let's go through the numbers. aloha.

We're nearing the bottom of our real estate market in west Hawaii.  It's been over 3 years now, prices have come down quite a bit, interest rates are at historic lows and there's a very large inventory to choose from. 

As far as the economy is going, the administration is pretty much going all out to pump imaginary money into the economy through numerous means, most of which are helping the very wealthy, the unions or the very poor, more on that later.  For now, suffice it to say that there's a lot of money flowing into our economy that can't help but stimulate something.  The money has been created out of thin air and will the recovery be but a recovery none the less, just one we're going to pay for big time in the not too distant future.

That being said, the market is near the bottom and will begin to turn around within a year.  Before the turnaround takes place there will be a leveling off which, I believe, is what we're seeing now.  Here are three best buys for condominiums, two in South Kohala and one in North Kona.  My opinion is that when the market starts to turn and prices begin to recover, it's going to be the nicer, newer condos that recover their prices first and that's where we're going to see the greatest appreciation, in my opinion.

The first condo is in Golf Villas.  This is a newer complex located in the Mauna Lani Resort.  I just sold one of these and am familiar with the units and know what to look for.  The condos are roomy with nice golf course and mountain views.  Higher end fixtures and amenities are used in the units and as an owner, you have membership in the Mauna Lani Advantage Program.  This gives you a number of discounts including half price golf and use of the beach club.  There is a short sale in there listed at $399K, a 2/2 with 1,460 sq ft of living space and was built in 2005.

Next is Hali'i Kai.  This is one of my personal favorites and is located right on the ocean, the complex not this unit.  The private beach club sits right above the water with a free form lava rock looking pool complete with spa and water falls.  In the club house is a beautiful restaurant with it's own chef.  The units are very well done, large and comfortable.  The best buy here is listed at $425K, has 2 bedrooms and 2 baths and 1,082 sq ft of living area.  This property is between the Hilton and Mauna Lani.

The last best buy is in North Kona at Sea Scape.  This is also a 2/2 with just over a thousand square feet of living space and is listed at $248,500.  This is not a well known complex originally being built as a lower income project.  The builder went ahead and used nice finishes and a very comfortable floor plan.  This one was built in 2007 and the maintenance fees are very doable, at least for now.

For information on any of these units please call 808-896-0661 or email me.  I'm an Accredited Buyer's Representative and can assist you with any property in west Hawaii.

A brief comment on the Spread the Wealth programs being created by our president.  He talks about tax reduction for the lower income classes but that's not what's happening.  Instead, he's using the tax code to create more debt for the country.

Stimulus bill HR-1, the American Recovery & Reinvestment Act of 2009 created the "refundable" Making Work Pay Credit and increased and made "refundable" the Hope Scholarship Credit, now called the American Opportunity Education Credit.  This administration just loves these titles and probably has a whole department that does nothing but create these names; maybe people that used to work in the greeting card industry.

He's also increased the two largest "refundable" credits, the Earned Income Tax Credit (EITC) and the Child Tax Credit.

"Refundable" really means spending program.  "Refundable" credit means that low income tax payers whose tax liability is less than the credit value get checks from the IRS for the difference.  Let's say their tax liability is $2,000 and they get a "refundable" credit of $5,000, the IRS sends them a check for $3,000.

Increased government spending does NOT increase economic growth.  In order to get that $3,000 that money has to come from somewhere either taxes or borrowing.  There is no new spending power, no new creation of wealth just a redistribution of wealth.

These types of programs are not stimulating the economy.  They aren't putting people back to work or encouraging entrepreneurs to start new businesses.  It's just another spending program and you can not spend your way out of debt.

Inventory, also called supply, is measured in months for property.  It's the number of months it would take to sell all existing listings if no new property came on the market.  A 6 month inventory is considered a balanced market.  Less than six months is a seller's market and more, a buyer's market.

Today, in North Kona, we have a 30.76 month inventory of condos and a 24.6 month inventory of Single Family Residences (SFR's).  South Kohala is a little more skewed with a 40.09 month supply of condos and a 16.9 month supply of SFR's.  North Kohala has over 4 years worth of homes on the market at 48.57 months.  That's a lot to choose from for a buyer.

These properties are in all price ranges, also meaning you have choices no matter what your price range is.  Interest rates are staying low, for now.  Bank of Hawaii reports 30 year fixed rate loans for just 4.375% interest with 2.375 points for an APR of 4.580%.  That is a great rate!

People are complaining about how hard it is to qualify but it's really not.  It's the way it was before all the creative financing came into play that got us into this fix in the first place.  There are still 100% loans, believe it or not but most require some down, a good credit score (over 700), a job and proof of your ability to repay the loan.  Being a conservative, that sounds reasonable to me.

We have two of the three components of a perfect buyer storm, low interest rates and a huge inventory.  All that's missing are low prices.  The median price today is about where it was in mid 2003.  Hawaii hasn't come down as far as the "sand states" where all the trouble seems to be.  The sand states are California, Nevada, Florida and Arizona.  I have no idea who first called them the sand states; I thought it referred to their less than stable base for all the crazy growth that went on there.

Hawaii may still have a ways to go but when things pick up on the mainland is when people start looking west again.  Although seemingly a little farther away, Hawaii remains a sought after goal for many who dream of living out their golden years, at least part of each golden year, in the sunny warm clime of the 50th state, and why not?

Hopefully, our president will grow a spine and stand up to the other demigods out there like Kim Jung Il who get their kicks firing missiles over our allies like Japan, missiles that could make a mess of Hawaiian real estate.  Obama seems to enjoy playing nice with these people who threaten to annihilate the United States, people like Kim, Iran (I don't want to waste my time learning how to spell or pronounce his name), Chavez, Castro and the rest of the socialists who don't like us.

It's unfortunate that Obama knows so little other than the party dogma.  It's too bad he's had no experience beyond his little Chicago neighborhood organizer role to know what it's like in the real world.  He doesn't believe that there are people out there who want us dead.  He does believe that he can make nice with these people and we can all live happily ever after . . . NOT!

In a time when Russia is rearming itself, when China has more money than it knows what to do with and is building a first class army, navy and air force and when the whinny little demigods like those in North Korea, Iran, Somalia can back down the greatest country in the world, holding onto real estate may be the only asset worth having.

This administration is taking over banks and now industries like GM, Chrysler, etc. and putting their puppets in place to run them.  These are people with no experience, no hands on time in such positions and no business being there.  We know from experience that government can not run a business, there is no question about that.  You think the market is down now, wait till government is making the decisions.

Enough of this rant.  Yes, I'm worried.  Socialism doesn't work.  If it wasn't for the U.S. the world would still be in the 1930's.  It's our ingenuity and creative spirit that drives the world.  It's competition that has made us great.  Socialism kills capitalism so while capitalism may need some reforms, it doesn't need the death knell of socialism.

What a time to be a buyer.  We have a large inventory of Single Family Residences (SFR's), condos and land to choose from.  Interest rates are staying at historic lows and prices are down to where they were in 2003.

Sales activity is slow, very slow meaning most sellers are anxious to see a qualified buyer show interest.  Sellers are willing to negotiate and some are willing to help buyers by carrying part of the note or even complete owner financing.

In North Kohala there has only been one SFR sold this month compared to 5 last April.  In South Kohala the number of sales of SFR's has gone from 12 last year to 5 this year and in North Kona the number has gone from 33 in 2008 to 12 in 2009.  Condo sales in South Kohala are down 78.95% from 19 to 4.  North Kona is no better having gone from 20 to 4 this year which is an 80% drop in the number of sales.

All in all this a probably the best buyer's market we've seen in a very long time.  It may stay this way for a while the way the administration continues to botch housing recovery efforts.  The only thing that seems to be working right is the First Time Homebuyers Tax Credit.  Large numbers of first timers or those who haven't owned in three years, are rushing to apply according to the IRS.  You do have to buy before November 30, 2009 in order to qualify for the $8,000 credit which unlike the earlier $7,500 loan, does not have to be repaid.  At least they seem to have gotten one out of about 6 plans right.

One they don't have right at the local, state or federal level are the new "fees" we're getting in lieu of new taxes.  It seems that all governments at all levels have trouble living within a budget and a fixed income.  We, the people, have to do just that so why not those who "serve" us?  Or do they?  It seems that they only serve themselves, how sad is that?