"How's the real estate market?" It's usually one of the first questions that poeple ask me.
They want my perspective on the direction of Hawaii real estate prices, sales activity, and mostly, they want to know whether they should buy or sell right now.
But how does one determine which way the market is going? Conventional wisdom says to look primarily at three factors. 1) The number of sales, 2) The median prices of those sales, and 3) The number of homes listed for sale.
The Honolulu Board of Realtors has gone to great lengths over the years to take those three numbers and drill them down by month, by year, by neighborhood, by region, and by any other division you can think up.
But which numbers really tell us what direction the market is headed? Consider these scenarios under which each of the three factors can mislead us.
- In a falling market, the number of sales could be rising, even while prices are declining. In fact, that is exactly what happened over the last year in Ewa Beach. In a rising market, the number of sales could be low, simply because sellers are not listing their homes while prices rise.
- The median price in Oahu was rising at times over the last 3 years, while prices of individual homes were clearly falling. In this case, the homes that were selling were in higher priced areas like Hawaii Kai and Diamond Head, but that price was fetching a larger or nicer home than it did the previous year. Island wide median price measure the sold prices homes without taking into account the size, quality, or location.
- The number of homes available can be misleading, in that many of them may be low quality or so overpriced that in effect they are not even being considered by any buyers. And when the number of sales is high, a high inventory isn't all that bad. On the other hand, low inventory doesn't help us see the market direction either, as it doesn't mean that any buyers are going to buy the available homes.
This morning an interesting article in the Advertisr by Andrew Gomes pointed out that depending on how you view the numbers, the market could be either going up or going down. The article says that while the Honolulu Board of Realtors says median prices are rising, a Federal agency says the market has been falling.
"The [Federal] agency, which is responsible for regulating mortgage finance giants Fannie Mae and Freddie Mac, uses sale and refinancing values of homes in one quarter compared with sale or refinancing values for the same properties a year earlier. Because of the same-home methodology, the federal data more closely represent inherent property values."
So how do you really determine which way the market is going? Days on market? Percentage of sale price to list price? Number of Realtors not renewing their license? I make a funny ;)
Gomes says, "There are also shortcomings to the federal calculation. One issue is that it represents relatively few transactions because it focuses on repeat sales of the same homes. Another constraint is that it's limited to homes bought with conforming mortgages purchased or backed by Fannie Mae or Freddie Mac, which excludes a significant part of the market financed by subprime and jumbo loans. A good deal of the depression in the local housing market has been concentrated on properties bought with subprime loans."
So is the market rising or falling? The problem is in the question. Oahu is not one market, but actually many different tiny markets. Over the past year we have had rising prices in Aina Haina with falling prices in Makakilo. At the same time, there were so few sales in some areas over the past 3 years that you can hardly even make a judgement even with perfect hindsight.
And this is where a good Realtor comes in. We look at each individual neighborhood, each house, each tiny market, and the current state of listings and buyers, closings and pending closings, and create a market analysis for every individual house.
Consider this - while the market was supposedly falling over the last year, listings were so scarce in the first quarter of this year that a townhouse in Hawaii Kai recently sold for $50,000 above the last sale, which was several months earlier. Then to our amazement, the appraisal came in about $10k above the sale price! In this case we priced the house as high as possible because we knew there just weren't any other available listings. 
The best current example is probably Ewa Beach. With hundreds of short sales, prices have clearly been falling, but if you list a house that isn't a short sale, you can get a $50,000 premium, and sell it in a few days for more than you could have gotten a year ago. It's a tale of two markets in the same area - the short sale and non short sale market.
So which way is the market going? The answer depends on your neighborhood, your house, your market, and usually, your Realtor. It's more than just numbers after all. It's the condition of your house, the presentation, the feeling it gives a buyer, your negotiating strength, and a myriad other factors. Just comparing median prices or number of sales won't tell you the complete answer, that's for sure.
So what do you think? Which way is your market going?
Congrats to my clients who just closed on their purchase of this 2 bedroom marina front condo in the Esplanade last week! 
