Market Analysis

West Side Oahu Rising? A Story of Numbers

November 26, 2012 by Michael Borger

Do you know your numbers?

I love numbers. You know what I love more? Watching people use them incorrectly. Ok, ok, I don’t really love that, but I’m always amused by how numbers can be used misleadingly or inappropriately to tell a story that’s not really there. I used to be in the geography field, and there’s a wonderful book called How to Lie With Maps that illustrates this very same concept.

The October home sale numbers just came out by the Honolulu Board of Realtors. And while the overall message is promising, it’s important to tease out the important data from the statistical noise. For example, the post states that the Ewa and Kapolei area rose 30% from last year (October 2012 vs. October 2011). The rise was specifically the number of recorded sales, from 35 to 46.

So last month there were 11 more recorded sales in that entire region compared to the same month a year before. I’m admittedly not breaking out my statistical z-score formulas right now as it’s now 6:00am and I’ve been up for 2 hours as I’m fighting jet lag having just come home from Thanksgiving in Philadelphia, but that increase of 11 sales, while encouraging, doesn’t seem to be too much beyond statistical noise (random fluctuations). However, it is encouraging.

The flip side? Median prices declined by 4 percent (itself potentially just noise). So what’s more telling to you – more sales or a dropping price point? It’s not a rhetorical question – you likely have different needs or intentions as they relate to real estate and will, therefore, be influenced by different criteria than your neighbors. I’m just illustrating some of the challenges in making sense of data instead of just taking the spin. We gotta be analytical. Take it all in but focus on the numbers that relate more to your objectives, even if they’re counter to current sentiment.

Let’s bounce over to the windward side where in Kailua and Waimanalo, sales rose 85% from 13 to 24. That’s a large percentage increase and is likely indicative of true market uptick, but it’s such a small sample set that you have to at least curb your enthusiasm somewhat. The number to latch onto more is that that the median price for single family homes rose 40%. Even with a small set of only 24, that’s a substantial increase.

Now the report doesn’t mention if distressed properties (short sales and REOs) are included, but I’m assuming they’ve been weeded out. If not, then it’s a giant asterisk of Mark McGwire proportions (baseball fans know what I mean).

I agree that October appears to be a good month and concur with my real estate colleagues that we seem to be entering into healthier times. I just like to be a bit conservative when looking at numbers because they can often incur emotional reaction that clouds judgment and more required analysis.

By the way – if you have a cure for jet lag, then please share below!

2012 Mid-Year Hawaii Housing Status

July 31, 2012 by Michael Borger

Aloha! Ok, we’re about a month past midyear 2012 but it still works as it can take a while for those troublesome stats to kick in. What a first half of the year it’s been for housing and real estate in Hawaii. Let’s look at some key points:

Inventory is tightening up just about everywhere and prices have creeped up. Homeowners are in many instances holding on to properties whereas before they may have considered selling. Is this a sign that the housing bottom is behind us? Perhaps….
….but others still clamor that the banks are holding back about 90% of their foreclosed inventory and we’re about to get whacked back down again, maybe sooner than we thought. Do you agree?
I can tell you from my own experience running my real estate investment company that many homeowners today are also choosing to turn properties into rentals to either cash flow or at least break even and wait out an expected price appreciation to sell down later on the road for more gain.
The controversial Oahu rail project continues on, despite calls for its removal both in and out of the mayoral race.
Speaking of the Honolulu race for the mayor, who do you think is the best candidate for Hawaii’s homeowners? Cayetano? Carlisle? Caldwell? (Apparently your last name needs to start with a “C” to be mayor…)
The banks continue to foreclosure through the courts (judicial) and Hawaii homeowners who were in mortgage default for a year or even longer (yes, it’s happened all around us) are finding out that the time has come to decide how best to move on

It’s my opinion that the temporary tightening of inventory in Hawaii is just that — temporary. Sure, the banks can’t open up the faucet on wide of their shadow inventory and flood the market — we all know that will depress the local housing market to levels possibly even lower than they were a few years ago. But they have to figure something out and that REO pipeline will stay open for, as some estimators predictor, 3 to 5 years.

But here’s thing — it’s still very much tied to JOBS. And while Hawaii’s unemployment rate is very favorable compared to those of our mainland cousins (thanks to encouraging recent tourist numbers), we’re still connected to the national system and all its wonderful nuances.

STAT TIME

Let’s look at some interesting stats courtesy of RealtyTrac…

As this bar chart surely shows, the key point of interest is the steady decline in properties in Preforeclosure. In case you’re not familiar with the term, “Preforeclosure” generally means homeowners who are in default but have yet to be officially foreclosed upon. In other words, they are still the homeowners on title.

To the point, I have a hard time believing that the numbers of homeowners in default went from just under 500 in January to under 100 in June — as is many times the case, stats can be deceiving and not tell the whole story. I suppose there could be a logical reason for this, some mix of increased refinancing and/or successful loan modifications (the latter unlikely). Anyone care to shed some light?

In this chart we can see, unsurprisingly, that the vast majority of homes either headed for foreclosure or already past that point fall in the 300-400K category. Unfortunately, these numbers include all housing types (SFH, townhouse, condo) so making a clear inference is a bit difficult, but it would appear that most homeowners in Hawaii needing help are in the lower end of the price spectrum when compared across the state. However, interestingly enough, the high end luxury homes are represented as well — I guess some people bit off more than they could chew in the good times!

By the way — completely unrelated — but is anyone else enjoying this year’s flowers as much as me and my girlfriend??

Source: via Michael on Pinterest

So Much for Facebook…

June 4, 2012 by Michael Borger

Sad Mark Zuckerberg...

For those looking for an investing shot in the arm, the Facebook IPO wasn’t quite the financial rocketship it was billed to be. Many people lost money within minutes of the opening bell. In fact, it’s already considered one of the biggest duds in the history of the stock market. Not quite the press it wanted – sorry, Mark Zuckerberg!

That being said, what’s an honest investor to do when the market itself has become no better than a weekend trip to Las Vegas and betting it all on 28 black? Well, I’m no fan of the stock market for many reasons (no equity, no collateral, no insurance, to name a few). It should be no surprise, that real estate offers many investment opportunities that the market simply can’t compete with, but there’s one in particular that I feel needs specific mentioning: the ability to say YES or NO at a ‘unit level’.

What do I mean ‘unit level’? I mean being able to say YES or NO as to whether to invest in or buy a particular house, i.e the ‘unit’ is a house (or townhouse, condo, etc.). With the market, you’re buying shares of stocks or mutual funds but are you actually directing the board of a company to make certain decision? Of course, not. You’re investing in a ticker symbol that represents a company (or mix of companies) that has its board of people you’ll likely never meet that make critical decisions every single day — without any input from you. How dare they! But it’s the truth.

However, in real estate, unless you’re investing in a hui or REIT, then you are the ‘board’ of your own personal investing firm and YOU’re the one calling the shots. Not everyone’s comfortable in that scenario, but I LOVE IT.

Now we’re in June, here in Hawaii. Summer is traditionally a good time for real estate — the grass is greener, kids are out of school, love is in the air, yada yada. And while no Hawaiian city made a recent Top Ten list by my friends at FortuneBuilders, there are bound to be some fantastic deals around the corner.

Why? Well, the banks are primed to start releasing more distressed properties, of which there are plenty in Hawaii. Some might say it’s actually started. That means if you have cash to invest or are pre-approved for a mortgage and can thrown down a sizable down payment, then start looking NOW for properties where you can get yourself 15% or more upfront equity. Maybe you can rent it out to cover the mortgage while you watch it appreciate over the next decade (btw, never buy a house at retail — just don’t do it). This goes for here in Hawaii as well as on the mainland. My colleague Scot Stafford of Landmark Properties is finding amazing real estate deals in NW Washington!

Combined with the upcoming glut of more distressed mortgages on the market is the expiry of the non-judicial foreclosure moratorium, which I’ve mentioned many times before and won’t go into again here. In summary, get prepared for more DEALS here in the Hawaii market. If you’re aggressive or get on an investor’s buyers list, you should be able to get a nice deal that suits your criteria and budget.

Bottom Line: The Facebooks of the world can promise the moon and have all the razzle dazzle, but in the end even the biggest firework can be a dud. Real estate, if done properly, can offer all kinds of rewards that a ticker symbol can never compete with.

Waikiki Beach Sand Project and Its Effects

March 4, 2012 by Michael Borger

If you’re on Oahu, you’re likely aware of the Waikiki beach sand replenishment project. If not, head on down to tourist city and check out the big equipment that’s parked there on Kuhio Beach. The machinery, while inconvenient to camera-hungry visitors expecting postcard views from end to end, it’s only affecting a portion of the beach right now and will do so with moving closures over the next five weeks according to a recent news clip. The project is expected to increase Waikiki beach width by over 35 feet when completed.

As a former coastal geography academic, I really find it interesting on a “meta-level” of observation when man tries to control the “permanent impermanence” of coastal systems. There are few things in nature less stable than beaches. They naturally breathe, growing and shrinking in all directions on daily, monthly, yearly and even decadal time cycles. Yet we continue to build jetties, groynes, seawalls and revetments that, at their very best, provide temporary periods of safety and usage, to give the idea of ‘control’. Yet these initiatives are temporary at best, even the ones with longer life spans.

However, that doesn’t mean they don’t serve a purpose. It’s a trade-off between what’s given up (costs, sand in front of a seawall or behind a groyne) and what’s gained (beach width, more permanent shorelines, land and home protection). It comes down to a society’s wants, needs, resources and values.

Back to Waikiki, the cost is expected to be more than negated by the increased aesthetics of a wider beach and greater tourist experience which should bring in greater revenues. Do you agree?

What effects do you think this will have on the vacation rental market in Waikiki? Do you think a landlord will be able to realize increased rents from a wider beach? Will condo owners see any uptick in property value?