Kohala Coast Vacation Rentals

Forecasting the 2009 Hawaii Real Estate Market

To buy or not to buy? That is the question…

Written by Bill Jardine long time Big Island realtor, Big Island Buyers Brokers

It is in the nature of all of us to wonder what is going to happen next. Anticipation is a key element in survival, after all. For instance, if we did not anticipate seasonal flooding, we might well build our house in a dry creek bed. If we didn’t anticipate a fall harvest, would be bother to plant in the Spring? Yet our powers of prediction are weak and pitiful, and our predictions can be heavily influenced by our desires.

Just think of all those poor people who insisted the real estate bubble would keep on inflating. They hoped to make gigantic profits from buying high and selling even higher. The reason often was that “it has been happening lately”. That weak excuse, coupled with the desire for rapid riches, was enough to get them to make a foolish purchase, and millions did just that. Their money is now lost, and their injuries are real and enduring.

We don’t want our clients to ever be members of that group. Yet, predict we must, and certain old rules may still be applied with some reasonable expectation of accuracy. For instance, we know that the supply and demand relationship will endure.

There are too many resort condominiums, in my opinion, and I believe that many were built based on speculative demand versus owner/user demand. Accordingly, I think prices will have to fall a long way before those resort condos become cheap enough to recommend. On the other hand, we have a shortage of good acreage near town, so prices for that kind of thing don't really slump, since demand is owner/user based and is relatively steady.

This past year we have been working with many buyers who intend to take advantage of this current malaise in the real estate market, and most of them believe that you can make a great deal of equity by taking advantage of under-valued properties. For instance, let’s say that you can buy a rental house for substantially less than its replacement cost. That being the case, you will quickly gain the difference as the demand for Hawaii real estate gradually swells. At this point, there are many properties available at prices far below replacement value, and we expect our loan appraisals to exceed the purchase price by substantial margins.

Very soon the Baby Boomer generation will begin making their retirement plans, and some of them will want to be in Hawaii. Our market area, the west side of the Big Island, is the area most likely to see the creation of wonderful new retirement communities and facilities, because we have the room, the infrastructure, the weather and the medical facilities. There are all ready financial giants here who are participating in the growth of the area, and they are serious people with wonderful vision. If we were to attract just one-percent of the Baby Boomers we would need to create 70,000 new housing units to accommodate them all.

There are many conservative investors who now predict that we will see inflation ahead, due to the Federal Government fiscal policies created to deal with the crisis in the financial sector. They believe that once Mr. and Mrs. Sixpack figure out that this bailout money is all being borrowed from them they will hit the breaks and start voting people out of office. The easiest way for politicians to keep their jobs is to print money, so the logic follows that they will. We are not so sure, however if these predictions come true real estate will once again be seen as a first rate hedge against inflation.

According to these simple, major factors, we think that demand for real estate that will appeal to retirees should stiffen quite a bit over the next few years as our national economy recovers in more efficient condition than before. It seems to make sense that those who purchase at today’s deep discounts will be handsomely rewarded.

We are soon to be awash in cheap mortgage money at a time when prices are just too low, and we think this may be a historical economic anomaly that can benefit our clients greatly.

Our very best to you and yours for this coming year. May you enjoy prosperity, good health and the love of your friends and family! Imua! Jardine Investment Properties