Archive for May, 2009
With the economic troubles that have plagued the nation lately, people are being more frugal and spending less. This means that many families and individuals are cutting back on luxuries and extras such as vacations. For a tourism hub like Hawaii, that’s definitely not good news. While economists have previously predicted a downturn for Hawaii’s visitor industry, the University of Hawaii Economic Research Organization now estimates that it will take a number of years before visitor numbers return to their past high levels.
This forecast has resulted from a combination of a loss of interisland cruise ships as well as significantly reduced consumer spending across the country. While the impact of this downturn is expected to result in only a modest decline of total jobs on Oahu, areas such as Maui County which are more dependent on the tourism industry will likely experience a greater negative effect. For instance, economists are expecting a 6 per cent decrease in jobs in the service and lodging industries in both Maui County and Kauai County. The Maui construction industry is also expected to be one of the most negatively affected sectors. Overall, Maui County is expected to experience total job losses of 4.4 per cent.
Of course, there are other factors which could influence the above economical predictions. Most notably, the impact that the swine flu will have on Hawaii’s tourism industry remains uncertain. Past experience with the SARS virus has shown that an epidemic in Asia can have a significant effect on Hawaii. However, economists say that it is still too early to determine exactly what impact the swine flu will have on Hawaiian tourism and economics.
Despite all of the bad news, however, there is still reason for hope. Certain sectors of the Hawaiian economy, such as health care and social assistance, are still expanding. Also, while it’s believed that visitor numbers will take several years to fully recover, the downturn is expected to stabilize before the end of the year. This means that it may not be too long before we start to see the situation beginning to move back in the right direction.
In the last real estate cycle, it was the high priced properties that led the way. In our current market environment, we agree with Mary Ellen Podmoliks’ conclusions that are well articulated in her article, “Distressed Properties and First-Time Home Buyers – The Recipe for Real Estate Recovery?”
Yes, it will be the first time home buyers and investors buying up foreclosures and other distressed properties that will ignite the spark leading to a recovery. We can’t predict exactly when that will happen on Maui, but it does appear to have begun in many areas around the country, so we shouldn’t be too far behind. Why?
Well, for starters, there are many more distressed properties in the low and middle end of the market, and these properties have dropped disproportionately more than properties in the high end. Over the next 12 months, we expect a convergence between all segments of the market, i.e. the low and middle end of the market will drop less while higher priced properties will probably experience even steeper declines until they eventually catch up with each other.
Add to this the tax credit incentive for first time home buyers, and historically low interest rates, and you have a recipe for recovery.
This, of course, does not mean that you can’t find great deals in the high end luxury market segment. On the contrary, there is often more room to negotiate for properties in the $1 million plus range. Our featured property this week is evidence of that with an over 50% drop from its original list price.
Let us know if you would you like a list of pre-foreclosures, short sales, and REO’s (Bank Owned Properties).
Have a wonderful week.
Mahalo Nui Loa,
The Smith Team