January 4, 2011||Mortgages/Economy/Market

Hawaii Real Estate in 2011: Where Do We Go From Here?

Kona Coast

Livin' Aloha on West Hawaii's Kailua-Kona Coast

What Was

As we entered 2010, we were seeing good signs of economic recovery, but then news about a potential economic collapse in Greece emerged and dominated the headlines during the early part of the year. With this news, Europe’s economic stability came into question, putting a chill on the recovery through much of the first half of 2010.

Here on the Big Island, especially in West Hawaii, the trend that emerged as the second half of 2010 unfolded was a defined uptick in sales activity in the $350K to $550K price range. Inventory of appropriately priced, better quality properties, particularly under $500K, has been shrinking at an increased pace, raising questions about how long the best buying opportunities will last.

Although prices are predicted to fall further in early 2011 in some regions, the overall picture for the American economy is looking positive, particularly in Hawaii, as our strongest banks predict more lending in 2011. Growth may be slow, but those who understand the economic forces behind the housing market are advising buyers to consider taking advantage of this “perfect storm” of historically low interest rates and attractive prices. Like gold, real estate, when purchased wisely, can be a desirable tangible asset in a distressed economy.

What’s Ahead

It is important to remember that economic activity is regional. National or worldwide composites are just that and cannot, by their nature, accurately reflect regional activity. For example, one particular distinction in the West Hawaii market is that many buyers are “boomer buyers” and are making their purchases with cash. That said, The Economist recently posted this regarding outlook for the national housing market in 2011:

If the Fed reversed policy and began tightening, then prices would surely fall sharply. If the government ceased supporting mortgage markets while the supply overhang continues, then prices would surely fall sharply. But everything we’ve seen from Washington so far indicates that Republicans, Democrats, and the Federal Reserve are very focused on preventing a major deterioration in home prices.

Real prices are close to normal levels. So is the price-to-rent ratio. The economy seems to be growing at an accelerating pace. Employment growth seems likely to continue picking up pace. Supply overhangs persist, but markets in most metropolitan areas are far tighter than they were. And no one in Washington wants to see prices fall another 10%.

As we watch economic policy unfold in the New Year and observe the resulting impacts on the market locally, we must also keep in mind that Hawaii is a unique market: our financial institutions are in good shape, we have huge alternative energy potential and agricultural production potential and a high quality of life in a warm, desirable environment.

In other words, as the market stabilizes, we have a good foundation for a good future. Frankly, in Hawaii, I think that’s the case in both prosperous times and very difficult times.

Greg Gerard

Greg Gerard

If purchasing a home in Hawaii is on your list of 2011 resolutions, please contact me for more information about available properties and opportunities. Join me in “Livin’ Aloha” on the Big Island!

Hau’oli Makahiki Hou to you and your ohana.

Clark Realty’s Top Producer in 2009, Greg Gerard was also named one of Hawaii’s Top 100 Realtors 0f 2010 by Hawaii Business magazine. He holds several professional designations, including Counsel of Residential Specialist (CRS) and Certified International Property Specialist (CIPS).

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