2010 1st Quarter Kauai Real Estate Market Update
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Kauai 1st Quarter Property Sales
Reasons for Rise in Foreclosures
What is an REO?
Things to Consider for the REO, Short Sale & Foreclosure Buyer

Are we really in to April already? I don't know about you, but I'm wondering where March went! The stock market continues to climb, real estate sales activity is picking up, global and U.S. financial instability continues, the jury is out on President Obama's ability to lead our country, and we are alive and living in the best country in the world.

In addition to updating you on Kauai's real estate sales activity for the 1st quarter of 2010, I have devoted this update to providing some insight on REO's and foreclosures which I hope you find useful. Our real estate markets here and on the mainland continue to be dominated by distressed properties and is an area you need to be well versed in if you are looking to buy or sell property.

Kauai 1st Quarter Property Sales Changes they are a comin'!

For the 1st time in nearly 4 years, total # of sales and the median price of all properties sold in each of the 3 categories below improved compared to the same period the year before.

We have been used to seeing noticeable declines in all areas since the market peaked in mid 2006. Does this mean we have turned the corner? I believe it is too early to assume that especially in the higher end properties. Inventory levels are still high, the pool of buyers arguably has not increased, unemployment remains near 10%, the government sponsored 1st time home buyer tax credit will end April 30th and our economy is fragile but improving. On the other hand, we have experienced a surge in buying activity since January 1st, those needing to sell their homes on the mainland in order to buy on Kauai have increased, many are sensing that the bottom of pricing is near, interest rates remain low for the time being and lenders are re-introducing loan programs that have been off the table for a couple years.

We are in unchartered waters given all that is going on in our country and globally. I would expect home and land prices to remain low for 2010 and lender credit requirements to exclude some who might otherwise qualify in more stable times. There are however incredible opportunities for those who have cash or good credit and stable income to make incredible deals on quality real estate here on Kauai. Sellers are motivated and are finding creative ways to make deals. Our market continues to be dominated by short sales and foreclosures and will remain this way into 2011.

Sellers...be aggressive. Buyers...don't wait for prices to stabilize because your best opportunities are before the prices bottom out. We fully expect interest rates to start inching up in the foreseeable future.

Here are the numbers through the 1st quarter.


Reasons for Rise in Foreclosures In 2009 we experienced a significant rise in foreclosures nationwide and here on Kauai. We should not only expect foreclosures to continue but most estimates predict a doubling in 2010. Here on Kauai we don't see as high a percentage as the mainland but along with short sales they are largely dictating the market pricing. Here are some primary factors contributing to foreclosures.

1. Predatory Lending - This is the lending practice that refers to loans that are approved for borrowers who do not have the necessary financial resources to meet the obligations of the debt. The sad thing is the lender or mortgage broker knows this but are more concerned with making the loan. Lenders often times fail to provide sufficient information regarding future adjustments of the interest rates
2. Declining Property Values - Millions of homes are now worth less than the current loan on property and are referred to as being "upside down". In this case, if the homeowner can't continue to make the payments, many choose to walk away from the property and allow the lender to foreclose.
3. Unemployment - Since the real estate market is directly tied to the job market, the rise in unemployment to just under 10% nationally has an adverse effect on the market. New jobs are needed to create the need for new homes. It has been estimated that it will take 1.2 new jobs to create the need for 1 more house.
4. Increased Debt - Credit card debt and personal bankruptcy are at an all time high. In a consumer driven society where the "keeping up with the Jones's" has become so prevalent, it is no wonder.
5. Increased Inventory - The concept of supply and demand suggests that when there is a 6 month supply of inventory, it creates a neutral market. Most places in the country including Kauai have properties for sale well in excess of this. If the property owner can't make his loan payments and can't sell his property at or above his loan amount because there is too much competition, he is doomed.

What is an REO? Real Estate Owned refers to properties owned by a lender and acquired through a lawsuit, foreclosure, "deed in lieu" or some other method. As soon as the lender takes possession of the property, it is listed on their books as an "REO" and categorized as a non performing asset. It is usually but not always worth less than the previous owner's mortgage. Here are a few things to know about REO's.

1. The average cost for a lender to foreclose is $50,000. This will fluctuate with market conditions.
2. REO's sell for more than short sales due to the cost incurred by the financial institution to acquire the property. Additionally many buyers are willing to pay more for an REO than a short sale because they can be purchased faster and with less red tape.
3. Disclaimers are not available from the lender because they can't represent the condition of the property.
4. Most REO's are sold in "As Is" condition.
5. REO purchases are less risky than buying at a foreclosure auction.
6. REO properties are usually priced to sell. Making ridiculously low offers is a waste of time and will usually not elicit a counter offer.

Things to Consider for the REO, Short Sale & Foreclosure Buyer Here are some things to think about before entering in to a purchase contract on a distressed property. Be proactive and know as much as possible ahead of time.

1. Are you a good candidate? Make sure you understand the process.
2. Do you have the financial ability to complete the transaction? Can you provide proof of funds or loan approval?
3. Delays are normal... expect them. You may have to maintain your mortgage commitment even through fluctuating rates. This type of purchase is not for buyers who have a rigid near term deadline.
4. Understand your motivation to buy early in the process.
5. Foreclosed, REO and short sale property are usually purchased "As Is". Be sure you get the property inspected by an experienced licensed home inspector preferably before submitting your offer.
6. Initial offer and counter offers - Lenders generally will not allow revisions to their addendum except on price. Make your best offer 1st!
7. Think resale before you buy - How fast could you sell this home if you found yourself in a position where you needed to sell quickly. The market is very competitive.
8. If you are buying at an auction, be aware of the process. There is more risk involved and you must know your market.
9. Make sure you are working with an Realtor who knows the market and is knowledgeable in buying distressed properties.

My hope and prayer is that 2010 proves to be a happy, healthy and prosperous year for all of us. As always, feel free to contact me if you or someone you know is interested in buying or selling real estate here on Kauai. It would be my pleasure to help you find your little piece of paradise.


April 2010

Larry Barton, REALTOR ® (S), SFR, CENTURY 21 All Islands Kauai
P.O. Box 223700, Princeville, HI 96722
(808) 639-7532 Cell   /   (808) 826-9884 Fax   /   Email Larry