What will ’08 mean for buyers, sellers?

By LISA SCONTRAS
Custom Publishing Group

The second half of 2007 showed clear signs that the Hawaii real estate market will slow further in 2008, according to Bill Chee, CEO at Prudential Locations and 30-year veteran in the Hawaii real estate industry.

He forecasts flat overall appreciation with single-digit variations — some up and some down — from neighborhood to neighborhood in the upcoming year.

"Appreciation in the market cannot be taken for granted in 2008 as some neighborhoods will experience declining prices, while others will show stable or increasing prices," says Chee,

It remains to be seen which of the 245 neighborhoods could increase or which are destined to see prices fall, but the message to buyers and sellers this year is the same: Don't wait — time is not on your side.

 

MONTHS OF REMAINING INVENTORY ON OAHU
Months of Remaining Inventory (MRI), which measures how much time it would take to sell a listing at the current market value, remains low, equivalent to 2001 levels.

For sellers, 2008 is going to be a new environment. Aggressively overshooting the market and pricing high — a tactic widely used by sellers since 2002 — may backfire in 2008. Sellers can no longer wait until the market comes up to meet their price — which in recent years, it regularly did.

"This year, time could be your enemy," says Chee. "The possibility that the market will go down this year, means the longer you are on the market, the more exposed you are going to be to possible decreases in prices."

Sellers, on the other hand, who do their homework on pricing, will find qualified buyers quickly, he says.

Buyers too, are urged not to wait.

"As soon as you say prices may come down, the first thing buyers say is 'shouldn't I wait?,'" says Chee. "First off, we don't anticipate dramatic price decreases. And secondly, if interest rates rise and you wait, your buying power is affected. If mortgage rates go up 1 percent, you may suddenly be out of the market again."

Chee explains that even if prices fall 2 or 3 percent, it may not offset a 1-percent increase in interest rates.

"You can't just think about prices, you have to think about terms too," Chee says.

In general, Chee forecasts 2008 to be clearly a buyers market, with unsold new-development inventory, together with an increase of properties on the market, more choices, low interest rates and some declining prices in some neighborhoods.

Because of the possibility of declining prices and negative cash flows, Chee says it may not be a good time for entry-level investors but says the time could be right for existing investors.

"Across the board, significant price appreciation is not in the cards for 2008," he says. "It is, however, a good time for people who already have investments to upgrade their portfolio in a less frantic market, where sellers are more reasonable and credit is relatively inexpensive to the well qualified."

Additionally, Chee forecasts a 10 percent decrease in the number of sales while citing a list of positive factors such as low/extremely strong Days on the Market statistic, six months of inventory remaining, a strong local economy, low unemployment, stable tourism and military, and modest local growth projections.

Risks that could potentially affect the local market include interest rates, growing fears of a recession, a reduced number of Mainland buyers — especially in many California areas where the markets are in trouble — and the ongoing subprime mortgage problems.

"The subprime mortgage crisis fallout hasn't yet completely played itself out," warns Chee, who maintains Hawaii has less subprime exposure due to the fact that there were fewer of these types of loans originated here. "The real effect for Hawaii is consumer confidence."

 

 

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