Here is our 01/10/2017 e-mail update. It is sent after the statistics for the preceding month have been posted on the Board of Realtors website. You can find previous newsletters by visiting www.stott.com/news.
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The median sales price on Oahu continues to climb as strong demand continues in a market with constrained supply. The median sales price in December for single family homes was $730,000 (4.3% higher than December 2015) and for condos was $390,000 (1.0% higher than December 2015). December demand was particularly strong as single family home sales surged 15.4% and condo sales soared 23.5% higher than December 2015. Sales should remain higher in the next few months and pending sales for houses is 15.4% higher and for condos is 20.2% higher than last year. The supply of homes continues to drop, as new listings can’t keep up with the current pace of sales. There are currently 2.5 months of remaining inventory for single family homes and 2.6 months of remaining inventory for condos.
The University of Hawaii Economic Research Organization (UHERO) predicted in September that housing prices would continue to climb as job growth and rising income provide potential buyers more purchasing power while housing supply remains constrained.
While the sales market is soaring, the long-term rental market has turned and rents have been dropping for the last quarter as a sudden surge of available rental properties has flooded the market. Stott Property Management had more vacant rental properties in December than the last time the rental market turned. Tim Kelley, who regularly updates his clients, has never seen so many Oahu vacancies advertised for rent in December. A large number of military tenants have received orders to leave the island over the past few months and it appears that military home owners who have purchased a home over the past few years have decided to try and rent their homes versus selling when they received orders. Honolulu has seen a net migration out of the city as high rents have convinced many people to move and seek their fortunes elsewhere. Honolulu is currently the fourth lease affordable city in the country for rents. Tim and Tracey saw a similar sales and rental market in 2006.
UHERO predicts reasonable levels of economic growth according to their annual economic forecast. Modest expansion of airline and room capacity will support two percent visitor growth next year and the number of arrivals is predicted to taper off in 2018. Construction is also predicted to remain strong with activity also tapering off in 2018. Potential downsides to Hawaii’s economy include short-term interest rate increases by the Federal Reserve and uncertainty surrounding Asia-Pacific trade policy due to November’s election results.
San Francisco-based RealtyReturns aims to be the first crowd funding platform involved with the Hawaiian real estate market. The startup’s goal is to operate a peer-to-peer lending operation for loans to flip homes and an equity operation that will allow physical ownership of an investment property. While at first glance, it may sound great to make “investment real estate” available to the “little guy,” it appears that RealtyReturns is over-simplifying the business and setting up uninformed people to take excessive risks. Tim and Tracey have witnessed the carnage of 2008 and 2009 when overleveraged investors were foreclosed on and regularly see the chaos involved when “business partners” buy a property together and have not agreed upon a clearly defined exit strategy. This is one investment platform that investors should not rush into until the business model has proven itself over many years. What sounds too good and easy to be true; usually is.
The Federal Reserve announced a one quarter percentage point increase in the federal-funds target rate which will mean higher payments for homeowners who have an adjustable-rate mortgage or who have a balance on their home-equity line of credit (HELOC). Mortgage rates have jumped three quarters of a percentage point since the election and future anticipated rate increases in 2017 will likely drive interest rates higher next year. Most HELOCs require interest-only payments for the first ten years and then principal payments begin. Delinquencies on HELOCs have been rising as millions of homeowners are experiencing a jump in their payments. Higher interest rates on homeowners currently struggling to pay mortgages at ultra-low interest rates could be pushed into default as interest rates climb higher.
The Federal Transit Administration extended the deadline for the Honolulu rail project’s recovery plan from December 31, 2016 to April 30, 2017. The Honolulu Authority for Rapid Transportation (HART) recently revealed that the cost of the rail project could reach $9.5 billion, $4.3 billion above the original price tag. The interim plan proposed two options, raising taxes or stopping the rail system short of Ala Moana Center. Had the project started at Ala Moana and moved west, the City and County of Honolulu would have eliminated the risk of building a multi-billion dollar white elephant. Unfortunately, officials started construction where the project met the least resistance in order to get the ball rolling before opponents could stop the financially strapped project from burdening Oahu taxpayers.
Hawaii Volcanoes National Park opened a new lava viewing area following the collapse of a large lava viewing area into the ocean on New Year’s Eve. Park Rangers had to chase after five visitors and force them to turn around 15 minutes before the area that the visitors were standing on collapsed into the ocean. Nearly 26 acres of a lava delta are now gone in addition to more than four acres from an older coastal cliff area. The new viewing area is approximately 900 feet east of the current lava flow. The New Year’s Eve collapse lasted several hours creating blasts of volcanic rock, waves, and plumes of debris and gas.
Small businesses may soon receive some relief from rising healthcare costs driven by Obamacare. The federal Department of Health and Human Services granted Hawaii a State Innovation Waiver for the Small Business Health Options Program. The action places small business back under Hawaii’s Prepaid Health Care Act, which requires employers to offer healthcare to all employees working more than 20 hours per week. The waiver provides federal funds to replace the small business tax credits that would have been provided by companies buying insurance through the state’s failed healthcare website. This program will help qualified small businesses to pay for a portion of the healthcare premiums. Of course, this announcement may be moot if Obamacare is repealed this year.
Honolulu’s police chief, Louis Kealoha, has decided to retire from the Honolulu Police Department (HPD) as he focuses on defending himself in a federal grand jury investigation into alleged conspiracy and corruption that centers around Louis Keoloha, his wife, Katherine Kealoha, Deputy Prosecutor, and several police officers. Louis Keoloha sworn in as police chief in November 2009 amongst enthusiastic support from the police union, State of Hawaii Organization of Police Officers (SHOPO) and police officers. A large contingent of police officers was present to congratulate Kealoha after he was sworn in at the mayor’s office. Unfortunately, Keoloha’s years as police chief have not lived up to the high hopes of his supporters. His term has been marked by a long string of news stories about illegal activity, abuse of power, spousal abuse, and other infractions by Honolulu police officers. In late 2014, Keoloha and his wife became involved in a messy family dispute with Katherine’s uncle, Gerard Puana. The dispute spilled over in court when the Kealoha’s accused Puana of stealing their mailbox. Puana’s public defender accused the police chief of intentionally causing a mistrial when he testified as a witness on the stand. The public defender turned over FBI documents suggesting further wrong doing by the department, which has apparently resulted in the grand jury investigation. No decision has been made regarding Kealoha’s retirement or separation package. Kealoha’s second term was expected to run through November 27, 2019.
Oahu property owners will see their property tax bill jump 5.9% on average while owners on the Waianae coast will see property tax increases of 12.6%. The assessments, which roughly mirror market prices, have consistently risen during a seller’s market that began in 2012. The housing market is following a similar cycle where the higher end of the market leads the lower end of the market. The flattening of prices at the higher end signal the approach the peak of the current housing cycle.
To no one’s surprise, Honolulu is ranked #1 when it comes to heating homes by solar. The study apparently focuses on the use of solar hot water heaters since it reports that there are only 34 solar-heated homes per 1,000 homes. The penetration of solar heated homes could be higher considering that Tim and Tracey’s home does not have heat. The house gets warmer when the sun comes out and cools off in the evening. A Canadian couple once asked Tim if there was central heating in a Ko Olina townhouse and were surprised to learn that there was no heating system at all. Lucky to live Hawaii.
Kakaako’s building boomlet has prompted the City and County of Honolulu to renovate and upgrade Ala Moana Regional Park across from the Ala Moana Shopping Center. Renovations and improvements include new sand volleyball courts, renovating bathrooms, repairing the Magic Island exercise path, irrigating the great lawn, fixing rocky beach areas, building a new playground, and hiring staff to maintain the park and improve safety. Good luck finding parking. The park is already one of the most heavily used parks in Honolulu.
The Kauai Island Utility Cooperative (KIUC) has been able to lower electricity rates by 18% since 2008 by integrating renewable energy into its grid and decreasing the amount of diesel fuel used. KIUC stated that renewable energy now accounts for roughly 36 percent of the island’s electricity supply and includes large scale solar systems and a new 7-megawatt biomass plant. On some sunny days this year, KIUC was able to generate 97 percent of the electricity used from renewable sources (77 percent from solar). Now, on an average clear day, KIUC can shut down all but one of its diesel generators.
Hawaiian Electric Company (HECO), on the other hand, is seeking a 7% increase to its base rate. It appears that the state sponsored monopoly’s margins continue to be squeezed by homeowner’s adoption of rooftop solar. Rate increases during historically low oil prices help those argue that the cooperative model is superior to the regulated monopoly model. The difference in Kauai’s results and Oahu’s results appear to support the cooperative model.
As if on cue, the Hawaii Island Energy Cooperative (HIEC) was recently granted tax exempt nonprofit status by the Internal Revenue Service, a major step in becoming an operating non profit utility similar to KIUC. HIEC’s electricity plan includes new solar, wind, and energy storage to reach the states 100% renewable energy goal. Notably absent was geothermal energy. The Big Island is the only island utilizing geothermal energy and could supply the entire island with clean, renewable energy. Hawaiian Electric Light Company (HELCO), a subsidiary of HECO, was did not comment on HIEC move to purchase and take over management of HELCO’s assets.
There are many reasons why Hawaii’s electricity customers pay significantly higher rates than the rest of the county. One reason has to do with the state’s habit of tacking on fees to customers’ electric bill. One fine example is highlighted by the Hawaii Public Utilities Commission’s (PUC) request for an energy efficiency manager who will be responsible for providing consulting services related to the management of a fee collected by HECO rate payers. The goal is to encourage energy conservation by the state’s population. The article did not mention how much HECO’s customers pay for this “service” and any benefits beyond the PUC’s radio ads encouraging Hawaiians to purchase compact fluorescent light bulbs. Hopefully a cost versus benefit analysis will be provided in the future.
Long-term health care options for Windward Oahu received a boost with Castle Medical Center’s completed purchase of Hawaii Pacific University’s (HPU) Windward Campus. Castle Medical Center will lease the property back to HPU for three years with an option to extend the lease for an additional two years. The time gives HPU a chance to find more classroom space in Honolulu and gives Castle Medical Center time to plan its future expansion.
Ko Olina is cementing its position as a luxury resort destination on Oahu with the announcement of Atlantis Resort & Residences on Oahu. The developer has released plans to develop 800 hotel rooms, 524 luxury residences, an aquarium, water park, restaurants, bars, a spa, gym, wedding chapel, and conference facilities. Atlantis Resort & Residences will join Four Seasons Hotels & Resorts, Disney’s Aulani Resort & Spa, and Marriott Ko Olina.
Alexander and Baldwin Inc.’s Hawaiian Commercial & Sugar Co. harvested its last crop of sugar cane this month. Both the sugar processing plant and the power plant were mothballed on December 23rd. The remainder of the approximately 700 employees was laid off on December 30th. Cheaper sugar production elsewhere in the world led to the demise of Hawaii’s once booming sugar industry. Alexander and Baldwin Inc. plans on dividing up the plantation into smaller farms with a variety of agricultural projects.
Andy Mohan Inc., a men’s clothing store specializing in custom tailored suits, is closing its downtown store after nearly 50 years in business. Founder Andy Mohan died in 2013 and Alies Mohan who owned the store with Andy is retiring. Tim Kelley was fitted for his first business suit at Andy Mohan back in 1995 when he was resigning his commission from the U.S. Navy and preparing for business interviews. He remembers getting fitted personally by Andy. Business attire on Oahu has changed significantly over the past 50 years as most Hawaii business professionals have shed the business suit in favor of slacks and aloha shirts. Tim is also grateful for the change in business fashion even though he is saddened by the closure of an iconic business.
Hawaii currently is ranked #48 in a category that makes many people’s skin crawl. According to Orkin, Honolulu ranked #48 among cities with the most bed bugs. Orkin’s bed bug revenue rose more than 10% compared to last year. Bed bugs were virtually unheard of in the United States ten years ago.