The Great Pause
The following entry was written by my coworker, Greg Andrasick (R), RB-20840. Greg, a top producing agent, has been in the real estate industry for over ten years. For the past few years, I've assisted Greg on his transactions. Our team speciality is trust sales. Greg and I are closing on a trust sale property. We've been working with the trust for over a year. In addition to real estate, Greg is a full time firefighter. As a first responder, he's getting a first hand glimpse on COVID-19.
Greg and I recently had a meeting with an estate planning attorney. During our conversation, Greg presented the following about how COVID-19 is affecting our housing market...
For real estate, we are in the middle of "The Great Pause.” The big question is how long we will take to get out of it and what does the future look like. It looks like Hawaii is going to succeed on managing the crisis from a health perspective, mainly because we can shut down borders easily, local people in general have a sense of social responsibility and follow directions, and we have an outdoor environment that can allow for social distancing moving into future months. However, because we are so reliant on tourism, we suffer as the travel industry suffers, and I feel like the travel industry is going to take the longest to recover. The only way we can let tourists in safely is with a 14-day quarantine or a COVID019 test (or immunity test if proven successful). Right now, we don't have the ability to do mass testing, so we are looking at many more months of minimal state income from Transient Accommodations Taxes (TAT). If we can get the local businesses back to work slowly, at least the general excise tax (GET) will pick up again and derive some income, but you can see the trouble the state is in already with the 20% pay cut proposal.
If we apply the federal funds to state health care and ramping up testing and medical screening, I think we can get back to normal sooner. This would allow the state to screen visitors and travelers better. I am not the governor so who knows how they will apply those funds.
So how does this affect real estate? Hawaii real estate is definitely a local, national, and international market. If Hawaii is viewed as the "safe" place to go in the US, you may see more mainland Buyers who want to come here and even international Buyers too. They will be the wealthy looking for second homes as a "health safety net". Local Buyers are going to struggle. Local and offshore investment property owners are already struggling as rents don't get paid and rental inventory was already ramping up from a diminishing vacation rental by owner (VRBO) market. The luxury market will probably go flat, as those Sellers don't "have" to sell and will wait out the next market cycle. Hawaii has a limited real estate inventory. I think we will see a drop in certain affected markets like the last real estate cycle, but not in others. During the 2008 housing crisis, certain neighborhoods dropped in price due to foreclosures, short sales, etc. COVID-19 could be a similar situation.
There is also an opinion that appraised values are going to plummet in the near future. After more analysis, I think there will be just really limited comparable sales in the future, not necessarily plummeting prices in the near future. And the appraisal market chases the actual market by 6 months so there will be a delay here.
In our micro-cosmic world, we have a condo listing priced mid-400k that was one week from closing, and the Buyers just asked for a 60-day extension because of job loss -- one of the Buyers works at a fitness gym. Our Sellers accepted it because no one is looking at properties right now anyway. The Buyers still want the property which I think says something about the market too.
We also have a Kaneohe listing too. That transaction is going to close, but it’s a contingent sale for the buyer. Ryan and I have recently taken calls from prospective buyer and sellers. This shows that there is still some activity in the market. We might see a big downturn of April closings and record low closing stats in May, June, and July. I think activity will slowly bounce back by the end of the year. Prices could get hit hard in the next couple years in some of the markets, especially if we enter a recession.
Thank you, Greg, for allowing me to share this on my blog. Most importantly, thank you for helping those in need.
Stay safe and healthy.