Hawaii real estate market update

The Hawaii real estate market showed some signs of strength across the different islands, although foreclosures continued to exert increased influence on the housing sector.

In the first tracking period of the New Year, there were nearly two hundred single family properties purchased – an increase of more than eleven percent from the same period a year ago. Similarly, more than two hundred and fifty condo units changed hands during the first month of the year, representing an uptick of slightly less than ten percent from January 2010.

However, these properties were purchased for a lower average purchase price than seen in previous months, falling further from the $600,000 threshold to around $570,000 for single-family homes. This was a decline of a little over four percent from the same time last year, and a decrease that also affected the condominium market. The average condo sold for $291,000, about
three percent than last year.

Additionally, single-family houses are selling in a shorter amount of time while condominiums generally experience a longer time on the market. This information suggests that consumers are increasingly turning to single family homes as opposed to condominiums, and in turn that consumer confidence may be increasing. This is because single family properties are generally purchased by Hawaii residents, while condos are more often purchased by investors from the mainland.

The suggestion that investment is on the decline is interesting, because the latest forecast indicates that commercial security investments in the Hawaii real estate market will increase past two billion dollars over the course of the current fiscal year. Although still substantially below the peak figure of $4.3 billion reached in 2005, the two billion dollar projection is well above 2010’s $1.48 billion and especially dramatic relative to 2009’s $630 million.

This recovery in mortgage-backed commercial securities can be understood better in light of two contextual factors. First, the Hawaii real estate market in general never experienced the catastrophic crash seen in markets such as Las Vegas or Sacramento, and therefore remained a relatively strong market throughout the recession. Second, the overall economy is improving as well as Hawaii’s specific market, which helps to explain the return of some investment capital.

Distressed properties influenced Hawaii’s housing market more heavily during the 2010 calendar year compared to previous tracking periods. Over the course of 2010, there were nearly 1,700 properties sold in Hawaii which were at some stage of the foreclosure process. Relative to the entire Hawaii real estate market, these properties composed approximately eleven percent of the entire market.

Because foreclosed properties almost always sell for less than their appraised value or the median price of the market, an increased proportion of foreclosed properties being purchased results in a depressed average price across the market. Specifically, over the entirety of 2010, the average foreclosed property was purchased for just over $380,000, which was fourteen percent less than the median price for the state in general. Still, the percentage discount for Hawaii was substantially less than the rest of the United States, which as seen discount rates between twenty and thirty percent for the last three years.

Additionally, Hawaii’s foreclosure rate was ranked in the lower half of the nation, although its proportion of foreclosures has been increasing over the last several months.

Of course, there is still a considerable amount of uncertainty within the Hawaii real estate market. It is possible that recent figures for home sales and housing prices were manipulated by the federal housing tax credit. Although the tax credit has expired, for many states it artificially inflated sales figures and median price, which in turn depresses year-over-year comparisons.

The positive news for the Hawaii housing market is that this possibility has largely not come to fruition – although there has been some distortion, it appears minor at worst.

The continued recovery of the state economy will be largely contingent upon the recovery of the national economy. Since the Hawaiian economy’s largest component is tourism, any macroeconomic change that depresses national discretionary spending will negatively impact the local economy. In other words, if the economy does not continue its nascent recovery on a national scale, then the Hawaiian economy and the local real estate market may well suffer as well.