Housing at the Center of Economic Storm
May 20th, 2008 by Harvey ShapiroThe Fed has now auctioned off over one-half trillion dollars to get banks and investment firms through the current housing crisis. While Honolulu housing prices are still relatively stable, many Mainland areas have experienced drops of 20+ percent in pricing, with more declines needed to move their residential properties. The question is, how long can O`ahu stay immune to this crisis?
“If the retrenchment in house prices becomes deeper than anticipated, its effect on lenders and financial markets could further damp overall economic activity,” Fed Vice Chairman Donald Kohn said.
Its pretty clear from this pronouncement and others that the Fed will not further decrease the overnight rate which they’ve cut to 2.0%. But, inflation is rearing its ugly head again, thanks to the huge increases in oil prices, now over $129 per barrel, which flows through the economy effecting everything. Core inflation (measured by the PPI) rose .4% in April, raising it to 3.0% for the past year, the biggest year-over-year increase since the early 90’s.
The weakness of the US dollar has led to these increases in oil prices, which trades in our currency. Analysts are predicting that oil prices will exceed $150 a barrel this year and this will surely impact our local economy which relies almost completely on imported goods.
So the answer to the original question is this: O`ahu will probably soon lose its immunity and local economic conditions will worsen due to our dependence on what happens in the rest of the world. The impact on housing, however, should be minimal, compared to elsewhere, since there will still be a demsnd for our limited housing stock.
May 20th, 2008 at 11:25 pm
Hi Harvey, You honestly think the impact on Oahu real estate will be minimal? CNNMoneywatch predicts Honolulu’s market will decline 16.2% in twelve months. As you point out, inflation will definitely hold back potential buyers.
Regarding demand, not much there lately. Supply is outpacing demand by a lot. There are still a lot of high end condos popping up all over town. The Watermark, 909 Kapiolani (not all sold), Moana Pacific (not all sold), Keola Lai, Allure Waikiki, The Vanguard Lofts, Moana Vista, offering families an option over high priced single family homes (in town). Also Castle and Cooke is planning 5000 new homes in Mililani.
Prices are stable though it is bound to come down by a substantial amount.
May 25th, 2008 at 11:07 pm
Is this another conspiracy to push local home buyers to buy now instead of waiting for prices to fall? I believe prices haven’t dropped much in this market because the market here wants to deceive the local homebuyers into thinking that buying now is just as good as buying later and prices will never drop as bad as other places in the nation, therefore if you wait til next year to buy you’ll lose out on the best deal on a property to someone else, and you’ll end up paying more next year so buy now! Hogwash! I’ll wait. I feel it’s gonna be a huge real estate meltdown here with the expected majority of ARMS resetting this year meaning more foreclosures expected, people loosing jobs, over extending on credit cards to pay bills, not paying their auto loans, and not being able to pay mortgage, and flooding the market with inventory. Cause and Effect
With the high price of gas, rising healthcare costs, food and everything else under the Hawaiian sun, more families are concentrating more on surviving, putting food on the table, and not getting laid off. Those weekly family outings, and dinners are now once a month or less. To think that stimulus package that the Feds gave out would help get the economy back rolling again….I don’t think so. $600 per person is only enough to pay for the gas expenses for a single family for one month, what about food, rising utility costs. When was the last time the average working man and woman got a $1.00 raise? , and how many business and jobs were lost this year? How much more does everything else cost now compared to last year. For the families that were scraping to make ends meet last year…to the families who threw in the towel this year……I really feel your pain and frustrations.
Everyone who is planning on buying….just wait. Do your homework, keep you eye on the market and what’s going on in our economy. Keep tabs on the job market…because the house you’re thinking of buying today might be selling for $50,000 to as much as $100,000 less or more if it’s a short sale, by end of this year or early next. It would take until later of 2009 to early 2010 until we start seeing the market here flatline and start recovering. By then we should see slight increases and the median price should be about $450,000 compared to $625,000. I think this is very realistic. Just start saving for the down. In about 10 months or so you should have a good amount for closing costs, and the sellers or realtors would be happy to give up some of their percentages in credits to help ink the deal.
May 26th, 2008 at 10:44 pm
Kyle,
My thoughts exactly! Actually I bought a SF home in February of 2001 at a very low price. I am now in the process of trying to selling my place for the inevitable drop. It’s a gamble! About a 310,000 dollar gamble. But, I see the signs as you have. I’m getting offers, and hope to seal the deal soon. I’m looking at NOV-JAN to reinvest into another place or two.
May 27th, 2008 at 10:12 pm
Harvey,
You say, “The impact on housing, however, should be minimal, compared to elsewhere, since there will still be a demsnd for our limited housing stock”. By saying “minimal impact” I assume you mean 2%-5% declines at most.
I, like Kyle and Wayne, think the Oahu market will be slammed this year and into the next few years by 25% - 30% or maybe more.
With the current credit crunch, “traditional” down payment requirements, inflation, a looming US recession, affordability, unemployment, personal income growth at 1%, more inventory and less sales, I think it’s going to come down a lot.
May 28th, 2008 at 10:44 pm
Harvey,
What does the data say to you? I know there is a lot of “analysts” out there saying everything from we’ve hit the bottom already to total doom and gloom ahead. The facts we know are that prices have been flat for two years now and the number of unit sales is way down so it would stand to reason that prices will come down some over the next year or two. I would think a more realistic % for all of Oahu might be 5% to 8% over two years. Of course some areas will come down more and other will not come down at all. I personally took advantage of a super low interest rate 3 months ago and bought a condo in town. If one were to crunch the numbers (and I did) prices would have to come down about 15 to 20% in two years for me to get a better deal then. I think it would be prudent to look at the specific market you are thinking of buying in and actually do your own homework. Time will tell.
May 31st, 2008 at 6:22 pm
With cities like Miami and Las Vegas registering 25% declines, it’s pretty clear that we’re in for some rough times ahead. On O`ahu, inventory is building up, but we’re nowhere near the levels we had after the last boom in 1990 and, don’t forget, there’s much more housing on this island eighteen years later. Demand for housing has been weak and economic conditions are worsening, but the decline in Honolulu housing prices has not yet happened and they just may hold up.