Maui Real Estate

There has been a lot of talk about “Shadow Inventory” recently. This refers to properties with delinquent mortgage loans.

It is currently estimated that there are 7.7 million properties with delinquent mortgages, and that over half of these, approximately 5.5 million will end up being foreclosed on in the next two years.

According to a new study by John Burns Real Estate Consulting, the “Shadow Inventory” will not hurt the market because there is strong investor demand.

This has certainly been the case here on Maui, where well priced REO or short sale listings are receiving multiple offers.

An example of that was a 3 bedroom 2 bath 3 year old starter home in Wailuku where the price was reduced to $299,999. Within only a few days there were 14 offers, most of which were above the asking price.

Have a wonderful week!

Mahalo Nui Loa,

The Smith Team

P.S. Tired of the snow. Come warm up in beautiful, warm, sunny Maui. It’s a great day to be living in Paradise.

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While the Maui real estate market has a way to go before returning to peak levels, there were definite signs of improvement throughout 2009. In early late 2008 and early 2009, the housing market was hit hard by the economic downturn. Average prices fell drastically and total sales tapered significantly, but as the year went by, slow but steady improvement defined the market.

Housing construction in Western states, for example, is up 8.9 percent in January 2010 from the previous month, and although the figure is still low from a year ago, this is an early indication that the market is beginning to pick up again. If you look at the same figure but exclude apartments and condos, there was a 21.7 per cent increase in housing starts from January 2009 to January 2010.

The slower West coast real estate market has had a considerable impact on the Hawaii market as out of state buyers have dropped off. Still, the shift to in-state buyers has lead to improved sales, specifically as a result of signs of financial recovery in the stock market, historically low interest rates, and the new Home Buyers Tax Credit. Buyers are now beginning to see that the current market is a very favorable one.

The condo market in Hawaii has remained calm most likely because buyers are looking to cash in on bargain-priced homes but even this market is predicted to recover in the coming months. As construction picks up and development of stores, restaurants, and other community facilities returns to pre-2008 levels, the condo market will recover.

In the meantime, motivated sellers are offering some of the best deals seen in Hawaii in more than a decade. Most sales are completed at about 90 to 95% of the asking price and when you combine this with low interest rates and lucrative tax credits, first time buyers and retirees are confident that they’re going to get a great deal. Moreover, investors are beginning to return to the market as they know that low prices now will invariably lead to big profits down the road.

In fact, the Hawaiian real estate market has been quite stable compared to other states. California, Arizona, and Florida suffered from major market crashes, but Hawaii has managed to maintain a 10 year average with regards to average price and the number of sales. Buyers who continue to wait for prices to drop further are likely to be disappointed.

Currently, the Smith Team has already completed $2,000,000 in sales in the first 6 weeks of 2010 and we have more than $10,000,000 in sales pending. So while many experts continue to be concerned about the real estate market in Western states, the evidence seems clear that Hawaii is poised for recovery. Still, the market is obviously bolstered by the bargains that are widely available and buyers should not wait too long to take advantage.

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Obviously the Maui real estate market has been experiencing some dramatic lows but things appear to be turning around, finally. Compared to the same month a year ago, there has been a 48 per cent increase in house sales.

The strong rebound comes on the heels of big jumps on O’ahu, Kaua’I and the Big Island, marking a huge return after record lows. In fact, January 2009 sales were the lowest since in more than a decade. To see such disappointing figures you have to go all the way back to February 1997.

Another discouraging figure has been the median sales price of homes which have dropped 16 per cent to $469,000 from the figure of $558,000 a year ago.

However, a mere 71 condo sales were recorded last month which represents a 31 per cent drop from a year ago. In January 2009, a total of 108 sales were recorded. Still, this 2008 figure was somewhat surprising since it was the most number of sales since 2007 when the Maui real estate market was still going strong.

In all likelihood, a new condo project in Ka’anapali was responsible for the jump in sales figures. The project, named Honua Kai, boosted sales in January 2008 as previously owned and new homes were both included in the data.

Still, the median price of condos has taken a dramatic hit. In fact, the median has dropped nearly 50 per cent to $424,000 down from $805,000 a year ago. Again, experts attribute the huge difference to the Honua Kai project where eight condos were sold last month for a median of $722,500. Compare that to a year ago when 69 condos were sold for a median price of $1.17 million. Because the median price is the point where half of sales are above and half are below the median, the sale of many luxury condos will force the median price up.

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The economic struggles of Maui have been no secret. Businesses are closing down, citizens are losing their jobs, and real estate prices have fallen drastically. Now, in one more blow to the struggling economy, sugar producers are debating whether there is a future for growing sugar on Maui.

Hawaiian Commercial & Sugar Co. (HC&S) currently employs around 600 Maui residents but has recently fallen on hard times. While the company has been a mainstay on Maui for more than a hundred years, their 2009 third quarter results were dismal and a comprehensive review of sugar operations was set in motion.

At the center of the issue appears to be water. The company is waiting for rulings by the State of Hawaii Commission on Water Resource Management regarding water allocations in East and West Maui which are set to be handed down in early 2010. A favorable resolution is critical to continued sugar operations for HC&S.

Expecting more than $30 million in operating losses in 2009, HC&S has a difficult decision ahead of them. Fortunately, the company is taking a more optimistic approach by basing their decision on their view of the future rather than past financial problems. Recent droughts have brought declining yields making the water issue very important.

Employees are concerned. They are hoping that HC&S will stay in the sugar business long enough to transition into more profitable markets like alternative energy as the future of sugar production on Maui is not promising. There are more than a hundred countries around the world producing sugar; most of them with cheaper land and labor than the United States.

The price of sugar actually rose last year, because of poor weather in countries like Brazil and India which are major sugar-producing players. Unfortunately, HC&S were unable to capitalize on these increased sugar prices because they had sold off their sugar supplies before the spike.

Plus, Maui has been suffering from a serious drought for the last 3 years. During its best year, HC&S produced 227,800 tons but because of the drought were only able to produce 125,000 tons last year. Some experts are pointing out that the commodities often vary drastically from year to year with regards to production. But the concern for HC&S is that they would need to have 4 record years of profit in order to climb out of their current financial hole.

Still, the parent company of HC&S relies very little on farming for profit. Alexander and Baldwin (A&B) credited HC&S with a half a billion in sales which is around 12 per cent of their corporate assets. The trend for A&B in the past has been to sell struggling assets.

At the moment, agriculture accounts for a meager 7 per cent of A&B assets and HC&S is unlikely to positively affect their profits. Even in their best years, HC&S had little impact on A&B’s bottom line while management efforts to improve profitability require a lot of resources.

As such, the argument for selling off HC&S to an owner who would concentrate on sugar production is appealing. But in this case, the land itself becomes a focal point. Part of HC&S sugar plantation land could be developed into homes or commercial property, as has been the trend for A&B. Yet, there is little market for undeveloped land in Maui at the moment.
A&B seems to be committed to maintaining their farming assets. Intending to keep 37,000 acres of Maui sugar land, the company is looking into alternative ways of profiting from farming. Energy alternatives like ethanol is one of the ways they hope to make their land profitable.

Again, we return to the issue of water. A&B is willing to invest hundreds of millions of dollars in developing ethanol and other energy alternatives but only if they’re guaranteed a water source. Environmentalists have been petitioning in recent years to reduce the amount of water available to plantations in order to maintain water flow in streams and lakes.

While they’re not trying to put HC&S out of business, they are also concerned about sustainable fresh water sources on Maui. Currently, the water commission has decided that 13 million gallons of water per day should be saved for streams but is considering raising that amount. Meanwhile, HC&S is asking for a minimum of 13 million gallons of water per day.

Summer droughts have been reducing the amount of available water. The crisis point for HC&S is 20 million gallons of water in the East Maui watershed. The county has access to 7 million gallons leaving exactly what HC&S needs to continue operations. Clearly, the likelihood that the watershed will drop below that level means HC&S is left out in the cold.

So water is a critical issue in maintaining operations and poor weather may be enough to decide the future of sugar on Maui.

Photo Credit: Bret Arnett

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Opportunities abound as more and more Sellers get realistic on their pricing.

With new REO’s hitting the market each week, Sellers are either dropping their prices or accepting offers well below asking. Some of these are on short sale listings, which are not guaranteed of closing; however, what do you have to lose.

With interest rates close to record low levels, now is the time to lock in a great deal before prices and interest rates both go up.

Have a wonderful week!

Mahalo Nui Loa,
The Smith Team

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Did you know that you can take advantage of the Homebuyer Tax Credit even if you are not a first time home buyer?

The tax credit which was set to expire on November 30, 2009 has been extended to April 30, 2010, and it has also been expanded to include existing homeowners. Read more.

There is good news in paradise. The market is heating up with sales of homes in January 2010 up 48% over the previous year. Read more.

Have a wonderful week!

Mahalo Nui Loa,
The Smith Team

P.S. Don’t see what you are looking for. E-mail us your criteria and let us see what we can come up with. Currently, we have 6 Bank Owned Properties (REO’s) that are in the pre-list stage. One of these may be perfect for you.

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During the recent recession, affordable housing has become a major concern of local councils. Maui County Council members therefore have been working toward changing the county’s residential work force housing guidelines in order to encourage more development of affordable housing. Members will continue to tinker with the policy which was originally written in 2006 to ensure that as luxury properties were developed so would be affordable housing projects.

Unfortunately, the economy’s recent nose dive hasn’t helped matters much and in its entire life span, this affordable housing policy has only been applied to three housing projects. Many are pointing to these facts as proof that the ordinance isn’t getting the job done. On the other hand, supporters of the ordinance are quick to mention the fact that the poor economy is stalling all new housing projects, not just affordable housing projects. With nobody building due to the recession, little has been done to ensure affordable housing for county residents.

Regardless, something needs to be done to kick start the fledgling construction industry and most people are looking to the government to take the necessary steps to provide housing opportunities for Maui residents. As such, the local government is taking the first steps to revising this ineffective policy.

In their efforts, the city council is reducing the number of affordable homes that must be developed in a new sub-division with five or more homes. Indeed, the first draft of the new ordinance calls for only 25 per cent of new homes in a development to fall into the category of “affordable.” Previously, 40 per cent of new homes in a development were required to be affordable options. If the new ordinance passes, County Council suggests that it apply only to projects in which the houses are expected to bring in $600,000 or less in the open market.

Last year, the average single-family home in Maui sold for around $720,000. With regards to the existing law, when a developer works on a project with market rate homes starting at more than $600,000 at least 50% of these properties are required to be affordable.

Essentially, changes to the affordable housing policy are being lobbied for by local developers and contractors. Hoping for the limit on affordable homes to be lowered to 15%, developers are arguing that the county needs to do something to get construction back on track. New construction will provide new jobs as well as affordable homes.

However, not everybody agrees with these changes. Non-profit organizations and charity groups would prefer a higher threshold, perhaps 30 per cent. As you can see, the county is faced with the challenge of making a compromise. The county needs to take the necessary steps to increase construction but without giving developers the opportunity to take advantage of any loop holes and create neighborhoods only for the wealthiest members of society.

There are also problems with the language of the ordinance that makes it difficult to understand. When a developer works on a project of 100 homes, they can build the affordable homes either “on-site” or “off-site” and this changes the requirement for affordable homes. At the moment, a company can build 100 luxury homes and then have the choice to build either 25 affordable homes at the same site or 40 affordable homes at another site in the same planning district. Local groups want the requirement for off-site affordable homes to be raised to 50 per cent. But some locals are concerned that these kinds of laws will lead to class segregation where luxury homes would be built in one neighborhood and affordable homes in another. The idea of homogenous neighborhoods is a concern because of the difference in community services often seen in neighborhoods of varying wealth.

Nevertheless, the county voted 5-0 in favor of the current ordinance changes and the mayor gives them full support. Over the past year, developers and real estate representatives alike have been submitting proposed changes to this work force housing policy as they want to lift deed restrictions and get rid of a companion law that would force developers to provide their own water sources.

Approximately 3,100 homes have been proposed since the work force housing policy was passed but some of these projects are still in the planning phases while others have lost funding or are hoping for the market to improve before they proceed. Other changes that might be accompanying the housing ordinance are geared to encourage development of affordable housing while preventing owners from selling these affordable homes at market rates.

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The end of 2009 was about as good for Maui real estate as the beginning of the year. The number of units sold was down overall, although there was a slight improvement in the number of condominiums sold. Still, house sales have taken a major hit and condo prices have fallen considerably. While single-family house prices have not fallen as much, they’re still down almost 15 per cent.

Nevertheless, available inventory appears to be declining suggesting that there are some reasons to be cautiously optimistic about a real estate recovery in Maui. At the moment, there are still more than enough properties to satisfy the market for the next year or 18 months and since said inventory continues to include a wide variety of short sales and bank-owned properties the picture is not entirely rosy.

In other words, now is not the time for sellers to test the waters. The market is fairly saturated with highly motivated sellers so unless you need to sell your home you should wait for further market improvement. Dozens of new foreclosures every week help to maintain this buyers’ market.

Current selling prices tell the story fairly accurately. The average price for a single-family home in Maui is down to $713,946 in 2009 compared to $830,578 in 2008, more than a $100,000 difference. Moreover, prices in 2007 were higher still averaging $920,807 making the total drop in average price more than $200,000 in just 2 years.

Similarly, condo prices have also suffered. In 2009, the average condo sold for $719,993 compared to $920,468 in 2008. Condo prices have fluctuated much more than single-family home prices as 2008 prices were considerably higher than those the year before. In 2007, the average condo price was around $817,000 but we can still see a drop of about $100,000 for condos.

Even median prices have shown a decline. Typically, median prices are consulted in order to exclude rare sales and inexplicably expensive houses. Regardless, the median price for single-family homes in Maui has dropped more than $160,000 since 2007. The median prices for these properties were $630,069; $577,774; and $498,106 for 2007, 2008, and 2009 respectively.

And the statistics for condos are not really any better. Since 2007, condo prices have fallen $100,000 from their 2007 and 2008 medians of $550,000 to the 2009 median of $450,000.
However, even though these are disconcerting figures, it’s important to understand that the Maui real estate market is doing considerably better than the national picture. According to experts, the average single-family home sold for $172,600 in November 2009.

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Who is buying Maui Real Estate?

In order to answer this question, we should first look at what has been selling. Last year, there were a total of 1687 properties sold that were as reported through our MLS.

This includes Homes, Condos, Commercial, Business, Timeshares, and Land. The sales broke down as follows:

Timeshares = 40

Homes = 694

Condos = 824

Vacant Land = 109

Commercial = 19

Business = 1

Let’s take a closer look at the two major categories, i.e. homes and condos.

The average sales price of condos was $719,000 with a median price of $450,000. 71 sales were REO’s and 59 were Short Sales. The 3 highest sales were at The Residences of Kapalua with the highest one being $5 Million. 70% of all the sales were over $300K, and of these approximately 90% were bought as part time vacation condos.

The average sales price of homes was $715,000 with a median price of $499,000. 116 sales were REO’s and 46 were Short Sales. The highest sale was $11.25 Million for a beachfront home on Keawakapu Beach in South Kihei. 93 sales were at or above $1 Million.

Probably no surprise to anyone, but our market continues to be dominated by off-Island Buyers. In future issues, we will provide a more detailed profile of who these Buyers are.

Have a wonderful week!

Mahalo Nui Loa,

The Smith Team

P.S. Shortly, you will be able to search sales going back 12 months for any search criteria you might enter.

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As previously announced, Maui Land & Pineapple (MLP) has pulled out of the pineapple business completely at the end of 2009. The culmination of MLP restructuring has cost 285 pineapple cultivation workers their jobs after a year of turmoil for a company desperately trying to remain in business.

Early in 2009, MLP started selling assets like their Plantation Golf Course, which drew $50 million, to try to pay off growing debts. Then in February, MLP announced it would be laying-off around 100 employees at the Kapalua Resort and at the Kahului headquarters. Moreover, employees who managed to keep their job were required to swallow a 10 per cent pay cut. Unfortunately, the company’s woes did not end there and in May then President and Chief Executive Officer Robert Webber resigned after a short 6 months in the position and board Chairman Warren Haruki stepped up as the interim CEO.

Still, the company continued its dive into the red and reportedly had lost nearly $93 million by October; even more than the $71.6 million they had lost in 2008. For the most part, losses were blamed on a struggling Maui real estate market which saw the value of MLP real estate investments nose-dive. Moreover, all the company’s investment in Kapulua Bay Holdings was also lost as well.

Nevertheless, when the news dropped last November that MLP would end pineapple operations, employees and community members alike were somewhat shocked. For the most part, people had hope that a resolution would be found and that operations would continue. Sadly, this was not to be and pineapple operations officially ended in December 2009.

Perhaps what’s even more surprising is a report by auditors that reflected serious doubts that MLP would be able to stay in business at all. A report filed by the company with the Securities and Exchange Commission outlines the problems faced by the struggling company; yet, MLP officials are holding on for an improved economy and are hoping to reverse their financial woes through a secondary equity proposal to current stakeholders.

Some good news has come from this story, however. At the end of 2009, the recently formed Haliimaile Pineapple Co. announced plans to take over MLP pineapple farming operations saving 65 or more jobs.

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