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Not surprised a property of that magnitude is a pocket listing.
His primary residence is in Florida (no state income tax) and he could definitely afford to maintain the property with a net worth north of $80 million.
I wonder if someone will buy it and divide it up - it has a massive oceanfront footprint.
I find it amusing that people try to time the real estate market. I have a few friends that sold their homes over the last year or so and are now renting and waiting to jump in when prices fall. They are so confident this will happen, almost at arrogance level. It's so odd to me to have such confidence in something they have zero control over. Now they are slowly admitting they probably shouldn't have sold. I always wonder how many people are in this same position sitting on the sidelines waiting for prices to "crash". At what point do they decide to jump back in?
Generally speaking, the reason people lose money in real estate is because they buy and sell in a short time frame. If you buy real estate, particularly Hawaii real estate, history has shown that you will always do well as long as you buy and hold very long term. I'm not talking 3 years or even 10 years. This isn't very long term. Very long term is 15+ years. It seems like a long time but is only half of the duration of a conventional 30 year mortgage. People that buy knowing they will be moving and forced to sell (i.e. can't keep as rental) in short 5-10 year periods are exposing themselves to significant downside risk. In such a short window it's very possible that values will be flat or lower than what they acquired the property for. But if you draw any 15 year period going back to the 60s when records were available, prices, on average, have doubled. You can literally pick the peak of a bubble and go out 15 years and you'll be worst case up 70%. This is historical worst case scenario and this is still 3.6% annual returns per year. This is a very good return considering you are buying at the very peak of a "cycle".
Timing the real estate market is no less silly than timing the stock market. Both ideas are equally dumb. Buy in "old money" conveniently located neighborhoods where owners have little mortgage debt compared to owners in newer neighborhoods that require long commutes. These older neighborhoods always underperform when the market rockets but outperform when the market tanks. Think of them as core large cap blue chips vs fledglings start up tech companies. Meaning in a market downturn these areas see the lowest peak to trough price drops. Areas I personally feel are solid include the urban core (Kaimuki to Kalihi) and east Honolulu with the exception of far outlier communities that sit east of Koko Marina and Costco. Those are a long commute to the urban core. Brand new housing communities in central and west Oahu have the lowest long term upside and higher exposure to a correction because they are new and people pay huge premiums for sparkly stuff regardless of more important factors like location and neighborhood mortgage debt.
My opinion is the market can go either way at this point. Or it can just stay flat for 5+ years. Despite what everyone reads on the internet, nobody has any idea what the market will do
Generally speaking, the reason people lose money in real estate is because they buy and sell in a short time frame. If you buy real estate, particularly Hawaii real estate, history has shown that you will always do well as long as you buy and hold very long term. I'm not talking 3 years or even 10 years. This isn't very long term. Very long term is 15+ years.
I agree - short term holders are very exposed to price drops (and real estate transaction fees)
Specific to Oahu - since 1985, the island has only seen 2 significant price drop periods. 1994 saw a multi-year drop when the Japanese stopped their buying spree and started a fire sale. But even if you bought at the absolute peak in 1994 - you were ahead by 2003.
The only other price drop period was the Great Recession - and even if you bought at the peak in 2007 - you were back up ahead by 2013 and you would have nearly doubled your money by 2022.
The real winners are the folks who bought in 2001 - your mortgage is now 2/3 paid AND you've nearly gained 4 times the value of your house (or more depending on neighborhood) when the median back then was only $300,000.
My opinion is the market can go either way at this point. Or it can just stay flat for 5+ years. Despite what everyone reads on the internet, nobody has any idea what the market will do
Things are relative in a high inflationary environment. The price of housing has to increase to retain it's value relative to the fiat currency it's priced in.
It should be noted - higher interest rates should lower demand - but, will likely lower supply also as sellers hold onto homes rather than moving as they aren't interested in higher interest rates either. Higher interest rates likely won't cause a bubble.
I am in a position now where I'd like to move to a property with a larger yard. My current home has a small yard and my gf and I are looking to start gardening. While it could be argued it's not the best time to be "upgrading" to a larger property, I don't believe in timing the market. We decided we want a home with a bigger lot now so that's what we're going to find. But to your comment, I would normally want to sell my current house to take advantage of the $250K tax-free gain, but with the low interest rate I have on the home's mortgage I decided to keep it as a long term investment and rent it out. I would assume there are others in a similar position whether they are upsizing, downsizing, or just want to move to a new property in a new location. But with a long-term mortgage locked in at a historically low rate, it may make sense to hold onto it as in investment rather than sell. I don't think all the bubble bursting prophets are factoring in that people are going to be less likely to sell a property if it has a low fixed rate mortgage that's significantly lower than today's rate or near-term available rates.
Other factors that water down the doomsday rhetoric are current mortgage holders have an average credit score of ~751. In 08' the score was ~699; this is a huge difference in the quality of the borrower. Current mortgage holders also have far more equity with mortgage debt reaching an all-time low of only 43% in 2022. Nearly 40% of all homes in 2008 came with ARMs with resets that were only 2-5 years out. Currently, about 9% of mortgages are ARMs with most resetting in 7-10 years.
Quote:
Originally Posted by whtviper1
3) Almost to late for this - but on Oahu, remove height limits on new towers. The low height limits have created one of the most boring skylines in the world with every building now built to the height limit and hence no variety in the skyline. Create more units/supply with higher towers.
I've always wanted this. The city should allow landowners to build up to 650 feet in height (from current 400 ft). Let them build a dozen or so of these ultra high end condos in the urban core. Developer of these 650 ft towers pays 50% of all profits on the sale of those units located in the 400-650 ft range of the tower to a state fund that provides incentives for the same developer or other developers to build affordable housing. Or the fund could be used for other purposes that can help increase the stock of affordable units on Oahu. The gross profits from the sale of these sky-high condos would be staggering. Assume a sale price of $3,000/SF which would be dirt cheap for a condo towering over all other condos; multiplied by 14,000 SF (typical usable condo floor plate. Assume $1,500 of $3,000 is gross profit, state takes $750. $750 x 14,000 SF x 25 floors = $262M to the state. Then multiply that by 12 and you get $3.1B. This is not small potatoes and would do amazing things for affordable housing here.
On top of this massive public taxpayer gravy train, the city would collect substantial city revenues from these Class A taxed condos. At an average 1% tax rate on $12.6 billion of valuation, the city will collect an additional $126 million a year. Note that the aggregated value of ALL the residential real estate on Oahu is currently $211 billion. So just the top 25 floors of 12 condos would increase the total aggregated value on Oahu by 6%. But because most of these units will most likely be investor owned and not owner occupied, and therefore taxed a the Class A rate, these high floor units could increase the city's annual RPT collection by over 15%. Again, for just 12 condos. This is on top of the $3.1B in up front profits received from the developer. And we haven't even taxed the bottom 40 floors yet.
And then of course think of all the jobs and ongoing maintenance these towers will require. They will employ thousands of people and generate solid income for countless families for many decades to come.
Looking at the value of my own home in Hawaii tells me it is over-valued. In many states, properties are receiving multiple cash offers over asking. Some markets are valued at 4 times their 2012 values. It is symptomatic of the market as a whole. We are in a bubble.
Not sure if you're still lurking around here but I have heard of prices tripling in some areas in the mainland US since 2012. Not quadrupling like you stated but we aren't even doubling here in Honolulu. I would surmise my SFH in town is worth maybe 70-80% more than it was 10 years ago in 2012. This is less than 6% YOY growth over a decade. Our island's median sales data also aligns with this.
I would agree with you that if prices tripled or quadrupled (as you stated) over 10 years, something is going to crack and crack bad. But no such thing has happened here... not even close.
The below chart is about a year old, but when prices were going nuts in the mainland, things were quite tepid here. This is evidenced below.
Not sure if you're still lurking around here but I have heard of prices tripling in some areas in the mainland US since 2012. Not quadrupling like you stated but we aren't even doubling here in Honolulu. I would surmise my SFH in town is worth maybe 70-80% more than it was 10 years ago in 2012. This is less than 6% YOY growth over a decade. Our island's median sales data also aligns with this.
I would agree with you that if prices tripled or quadrupled (as you stated) over 10 years, something is going to crack and crack bad. But no such thing has happened here... not even close.
The below chart is about a year old, but when prices were going nuts in the mainland, things were quite tepid here. This is evidenced below.
That's an interesting chart. My sense is that Hawaii closed down during this period so real estate probably did too. The covid effect on RE was from city/urban dwellers moving to less densely populated areas, which is kind of hard to do in Hawaii. We have little publicly available data on real estate in Hawaii, so it's hard to know what is going on. On an anecdotal level, I bought in 2012 at $240 per sq ft, in Maui. My home was recently listed at $713 per sq ft. That is nearly a threefold increase. In April of this year, homes were selling for those multiples. Things have since calmed down a bit. You can read what you want into that, but I describe that as a bubble. Yes, there were bidding wars. Just because you don't hear about it doesn't mean it isn't happening. And the fact the 'irrational exuberance' has now subsided means it has likely burst. The last bubble took four years to bottom. While there is never any certainty where we go from here, you use what you do know to makes an informed guess about where we may be heading.
We know inflation is still high and that the Fed's focus is on getting it under control by targeting the short term interbank rate. That has impacted prime rates, which impacts mortgages. Mortgages have nearly doubled. Debt levels across the board are at excessive, record levels, so it's not unreasonable to assume debt markets will feel the pinch as debt servicing (and mortgage) costs jump. That will likely impact growth and tilt us towards a recession, which will negatively impact real estate.
Your chart is interesting because less traditional markets are the focus of sharp valuation increases. My view is iBuyers (institutional investors) moved into these markets in search of value, having already exhausted previously targeted markets. Some analysts say these will be the first to fall. Others say traditionally over-valued markets (CA) will fall the fastest, and in terms of affordability I would include Hawaii in that bracket. According to the NAR, HI is the most unaffordable state. 'Unaffordable' measures incomes to home prices. When distortions between value and the fundamentals occur, there is usually a reversion to a mean. This means we can expect a correction in real estate prices in Hawaii over the coming months or years. That doesn't mean there will be one. It just means given what we know, all things being equal, it is likely.
I've done a quick dig into some of the numbers and thought it might be useful to see where we are in terms of median home prices and affordability. The first chart below maps the median price for SFH (single family home) in Oahu [source: HAR]. There was a significant increase in home values in 2020, likely associated with changes in behavior due to covid. The median price broke the $1m dollar price point for the first time (also true for Kauai and Maui).
The chart below shows the rate of change of median prices for SFHs in Oahu. From 2011 home price appreciation slowed until 2019. From 2019 to 2021, the rate of change was 20% indicating a significant break with trend. 2022 is only a partial years data, but show a decline in the rate of change to-date.
The median price of a SFH in Oahu is currently $1,107,000. The median household income is around $91,000 for Oahu (not verified). Annual principal and interest payments for the median priced home at 5.1% is $58,000. Annual income needed to service the payments using 1/3 rule is $175,000, roughly twice the median income.
Interesting outliers
In January 2022, Oahu and Maui saw an increase in condo sales of 40%, and 35% respectively. This may have been due to an 18% y-o-y increase in SFH prices, putting prices out of reach of many buyers.
In February 2022, Kauai saw a 37% y-o-y lift in prices for SFHs, and Maui experienced a 31% increase in condo prices for the same period.
In March 2022, the Big Island saw a 31% y-o-y increase on in condo prices. Sales of condos dropped 40% for the same period.
In April 2022, condo prices in Big Island and Kauai increased a wopping 50% y-o-y.
In May 2022, sales of condos in Maui and Kauai dropped 37%.
In June 2022, the median price of a home on Kauai was $1,550,000. That is probably a record for any of the islands and marked a 41% y-o-y increase. It has since dropped back quite a bit. Sales declined by a massive 51% for the same period. Maui experienced a 34% increase in median price for condos in the same period, and a 40% decline in sales.
In July 2022, both Kauai and Maui saw a drop on 52% in condo sales. Kauai experienced a massive 65% increase in y-o-y median price for condos, clocking in at $1,035,500. That is probably another record. This will probably fall back in August.
There's likely all sorts of explanations for these data. How representative they are is hard to say, but that we have changed gear (and then some) is not in dispute. I found one apparent large error in the numbers, which I have reported to the HAR. Could there be other reporting errors? Maybe. I notice one heading stating the "average median" price. I'm not aware of such a statistical measure. I'm assuming all prices use the median as it smoothes out outliers, although looking at the above you wouldn't think so.
The most concerning effect of rapidly increasing prices, on top of rising mortgage rates, is on affordability. And while unemployment remains low, the Fed is unlikely to start loosening anytime soon.
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