Friday, November 16, 2007

Will foreigners save Hawaiian real estate?

More from Peter Slate at Haiku Properties.

From: "Peter Slate" <>
Date: November 14, 2007 1:07:05 PM HST
To: <>
Subject: Maui - 10 / 2007

Thanks for your comments and feedback.

Instead of analyzing the October sales figures, I’ve attached the Real Estate Association of Maui’s sales summary. Particularly interesting are the sales figures on page 4, which show the total number of sales month to month, and year to year, dating back to 2002. By looking at these figures, you’ll see there were many more sales, month to month, and year to year in 2003, 2004 and 2005 than in 2006 and 2007. I’ve often wondered about the mental tug of war between buyers and sellers, and now I get to see the transition in action. Considering the large number of new developments that have come on line in the last three years, combined with the growing number of people listing their properties, its no surprise Maui’s real estate market is anxious. Listed in Maui County, today, any buyer has the choice of 1086 homes, 1333 condos and 519 pieces of vacant land. There are 153 homes (14 %) in escrow, 116 condos (9 %) in escrow and 50 pieces of land (9.7%). These escrow numbers are sobering, no question.

More rate cuts are expected when the Fed meets on 11 December. Should this happen, it will total three rate cuts in four months. Sound familiar ? Remember April of 2002 ? Given that real estate movement lags rate cuts anywhere between three to six months, we anticipate buyers to return soon (Dec/ Jan) based on the half point September rate cut. Interestingly enough, I recently spoke with a Canadian couple this weekend who bought on Maui a year ago. They wanted to know the current state of market. After a short explanation, the wife, head in hands, said “Oh s…t, now is the time we should have bought!’ With a weak dollar, “very motivated” sellers, and excessive inventory on the market, foreign money could very well turn this market this winter. Now is the time to do your due diligence and position yourself to buy. Looking forward the next six months, we could see one of the great buying opportunities for years to come.

Please note, if you’d like to opt out of this letter, simply reply to this mail telling me so.

Thank you,

John Papazian R(B) Peter Slate R(S)
Haiku Properties Haiku Properties
808 878 6800 808 276 4017

I detect a bit of wishful thinking from Peter on this e-newsletter. The hope that foreigners, on the strength of their currencies over the dollar will come in and save Hawaii real estate is probably a nice warm dream. Careful not to wet the bed...

While it is true, Canadians, for instance, find their currency reaching parity against the U.S. dollar. Good on them...
Some Canadian cities are still experiencing rising real estate values. The secret is out though Peter, American real estate is doomed and getting doomeder. O.K., I made that word up.
Anyway most savvy Canadians won't run outside while it's raining knives. Sure, I know they talk funny but that doesn't mean they're stupid.

While foreigners are thrilled about their currencies' nominal rise against the Greenback, it will most likely manifest as consumer spending. People still like shiny stuff. It's a D.N.A. thing...

I just came back from a month long trip to the East coast of the U.S. There were angry passengers on my way back to Europe when many could find no room left in the overheads to put any of their four or more bags. Judging from the conversations, I was the only American on the flight.

Maybe foreigners will save Christmas, hopefully before the realization that that their own currencies are merely fiat and of no more real value than ours. I doubt however that they will save our real estate market. keep in mind that the R/E bubble and the free-for-all credit that made it possible is a global phenomenon and many foreigners would have to liberate equity in their own homes, many of those homes falling in value as I write this.

Canada is behind the curve and some crazies still think that real estate prices never go down. But no one is immune. $400-trillion tied to failing credit derivatives tells me that's so. The U.S. is a $14-trillion economy; you do the math... $400 trillion, that's a lot of clams.

Also your wishful thought that dropping interest rates will spur sales is just that, wishful. Global financers are skittish, they are seeing derivative write-downs (re-pricing downward of massive investments) every day now. Liquidity is getting pinched off. It doesn't matter how low the borrowing rate goes if no one will loan the money.

Look for the real financial fits to come from institutions, not at the consumer level. As banks and brokerages begin to show cracks, interbank relations will break down, that's when the real hurt will begin and contagion will spread from there rapidly.


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