3rd Quarter 2008 Kauai Real Estate Update

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Kauai's real estate market
Kauai Census Information

Needless to say, a lot has happened in our country over the last quarter, much of it coming to a head in September. As if a 3 year old receding real estate market wasn’t enough, Fannie Mae and Freddie Mac (the largest backer of secondary market home loans valued at $5 trillion) were taken over by the federal government, the world’s largest insurance company, AIG and one of the world’s largest investment banking firms were bailed out by the U.S. government. Another large faltering investment banking company, Merrill Lynch was rescued from the brink and purchased by Bank of America, Wells Fargo has agreed to purchase Wachovia Bank, J.P. Morgan Chase acquired Bear Stearns and talks are ongoing for other mergers and acquisitions including Morgan Stanley and Washington Mutual to ensure solvency of faltering financial corporations.

Many other financial institutions, especially those tied to the real estate market are treading on thin ice at the time of this update. Through the government’s intervention, for now anyway the credit markets can look forward to the landmark $700 billion government bailout program although many investors are not convinced it is enough. Treasury secretary Henry Paulson stated on October 10th that the government will now provide cash to financial firms in exchange for equity but will not have voting rights in most cases. On October 13th (the day of this newsletter publication), the Dow Jones Industrial Average closed up 936.42, the largest single day gain in history and the largest % gain since 1933. Could we have seen the bottom on Wall Street? I don't think so.

What does this all this mean going forward? Here are a few of my observations:

• Government operation and bailouts of large financial institutions ensures solvency but will ultimately put more burden on the American taxpayer. The economic crisis is global.
• National and Kauai real estate values will continue to soften for the foreseeable future as buyers are cautious of key economic indicators including job stability and availability of credit.
• The # of options for real estate loans are shrinking as fewer lenders have money to lend in the short run but should improve over the next few months with the government bailout. Credit requirements of borrowers continue to tighten up. If you have a 20% or more down payment and your credit score is good, there are plenty of loan programs available now at good rates.
• The election of a new president is expected to bring positive change to our financial markets which directly affect the real estate markets although it will take time to implement.
• The direction of mortgage interest rates is unclear at this time. The Fed lowered short term interest rates again by ½ point on October 7th. Unfortunately this move does not guaranty the same for mortgage rates which are tied to mortgage backed securities.
• Unless your property is very unique, it must be priced aggressively ahead of the market to have a likely chance of selling.
• Your taxes are going to go up regardless of who America selects as our next president. Some rates may not increase until 12/31.2010 when the Bush cuts expire. Even before the $700 billion bailout, the Federal government was spending $400 billion more each year than it was taking in.
• Take heed of the advice of the savviest and battle tested investor of our time, Warren Buffet.
  Here are his 3 rules for investing in a crisis:
  1. "Cash combined with courage in a crisis is priceless".
  2. "Don’t invest in things you don't understand".
  3. "Don't try to catch a falling knife until you have a handle on the risk".

Kauai’s real estate market Kauai, like everywhere else has fallen victim to the housing crisis measured by declining values and total unit sales. You will see below through the 3rd quarter, prices are down 4.31% for single family homes and unchanged for condos compared to the same period in 2007. That’s quite good compared to the vast majority of the country. Property values in several places on the mainland have declined 35-40% from their highs. I have outlined below the Kauai comparison between 2008 year to date (YTD) sales vs. the single family residence (SFR) market high in May 2006. Notice the difference in the island wide median price for single family residences in particular – there is less than a 10% decline from those highs but some areas are down by as much as 25%. Condo and land median values are up since May 2006 but skewed by a couple of higher end projects, We haven’t seen the pricing bottom yet in most areas.

WHILE THESE ARE UNCERTAIN TIMES IN THE WORLD’S ECONOMY, ONE THING IS CLEAR. KAUAI REAL ESTATE IS A GREAT INVESTMENT OVER THE LONG HAUL AND IS EXPECTED TO REBOUND STRONG WHEN PRICES STABILIZE.
Sales activity is showing signs of increasing here, so “get while the getting is good”. Similar to the stock market, no one knows when the market values will hit bottom. What we do know is that It can turn quickly. And we have no assurances that mortgage interest rates will remain at their current low levels for very long! There are great rewards awaiting the opportunistic buyer.

Kauai Census Information

QUICK FACTS (all most current available)	KAUAI	STATE OF HI.
Population estimate 2006	63,004	1,285,498
Land area 2,000	622.44	6,422.62
Persons per square mile 2006	94.0	188.6
Persons under 18 years old / under 5 years old	23.7% / 6.4%	23.7% / 6.8%
Female persons 2006	50.1%	50.0%
Asian persons 2006	33.1%	40%
White persons 2006	34.5%	28.6%
Native Hawaiian and other Pacific Islander 2006	9.1%	9.1%
Persons of Latino origin 2006	9.3%	7.8%
High school graduates, % of persons age 25+ 2000	83.3%	84.6%
Persons with a disability 2000	10,662	199,819
Housing units 2006	28,321	500,036
# of persons per housing unit 2006	2.22	3
Home ownership rate 2000	61.4%	56.5%
Persons below poverty % 2004	8.6%	9%
Private non farm businesses 2005	1,923	32,244
Women owned companies 2002	30.6%	30.2%
Retail sales per capita 2002	$11,914	$10,537

Based on the U.S. Census information, Kauai is the least populated of the four major islands with 1/2 as many people per square mile as the entire state of Hawaii. 8.75% more people own their own home here compared to the statewide figures suggesting reasonable income potential and affordable housing is achievable. Kauai retail sales per capita are 13% higher than the entire state as a whole and there are 40% more people per housing unit statewide than on Kauai. From a small business opportunity standpoint, there is one “non farm” business for every 33 people as opposed to one in every forty statewide.

Those of us who live on Kauai or spend a substantial amount of time here realize we live on the least crowded, most beautiful and opportunistic island in the Hawaiian Islands. Despite the current economic downturn, the quality of life and opportunities to own your own home and business on Kauai continue to be very promising. For more helpful data on Kauai or a free consultation on how you, a family member or friend can take advantage of incredible real estate buying opportunities here, please give me a call at (808)639-7532 or visit my website at www.kauai-realestate.com.


October 2008

Larry Barton, RA, CENTURY 21 All Islands Kauai
P.O. Box 223700, Princeville, HI 96722
(808) 639-7532 Cell   /   (808) 240-2417 Direct line   /   (808) 826-9884 Fax   /   Email Larry