Articles
June 2005 Newsletter
by Bill Jardine Jun 30, 2005
Jith summer underway we are noticing a drying of the lawns along the Kawaihae Road. Once again it is startling to see how remarkably different the weather is on the two sides of old Waimea. Over the lands of Puukapu cool trade winds now carry the bracing Kipuupuu rain made famous in ancient songs and chants. Kamehameha the Great sent his elite guards to train in these same uplands to toughen them up. Strength by mildew, I guess. In the sunny, leeward lands of Ouli and Lalamilo things are getting drier by the minute and thoughts of grass fires are starting to percolate!
The cocktail talk in town is slowing down as families gather up their suitcases and iPods to hit the road on summer trips. When the Jardine kids still lived under our roof, and had to do what we said, June brought the anticipation of summer trips to odd places that Mom and Dad thought would be cool. That often meant long hours in the back seat of a rental car with Jana turning various shades of green. However, it also meant meeting new people, seeing new things and having special experiences to share with friends in the Fall. Waimea is a special place to come home to, and our friendships here are very rich and meaningful in our lives.
The Waimea cocktail talk is still buzzing, however, and it remains primarily focused on the high cost of real estate. Houses that were modest ventures two years ago now command chest-beating prices, and offerings are scarce compared to years past, as the village realizes its attraction to life-style-conscious buyers from all over. The combination of unique facilities … hospital, airport, schools, restaurants, proximity to world class resorts, AAA environment … simply cannot be found in other places, so retirees and those targeting retirement properties are willing to trade large amounts of their cash wealth to assure a place to retire.
Nationally, as interest rates trend upward, there is more and more talk about a burst in the housing bubble. Will prices continue to rise as the Boomers move into retirement, or will the high energy costs and increasing interest rates burst the housing price bubble? The arguments pro and con are sincere and well-researched, leaving the average person not really knowing one way or the other. There are those who want prices to rise and rise and those who want prices to fall and fall. They are called Sellers and Buyers, respectively.
Economic trends are likely to put increasing stress on the entry-level families who have bought housing by over-borrowing. As airfare rises in response to energy costs many economy-minded tourists will cancel plans for Hawaii in favor of less expensive destinations. That will mean layoffs for part-time workers in the resorts that cater to the budget tourist, and those layoffs will likely put increased stress on the entry-level families. Historically, people have done all that they can to hang on to their home equity, which is why housing does not show the steep price declines that, say, stocks do. This time things may be different, since a large number of families have borrowed virtually the entire price of the house they bought, or even a bit more! With no equity and no cash in the property they are more likely to give the house back to the bank and rent the same or similar house for a third of what they were paying for the mortgage(s). Accordingly, we may see some price declines and greater inventory in the entry-level housing sector.
When it comes to houses that may appeal to retirees, I expect prices to remain strong and trend further upwards. The simple fact of the matter is that many of the folks buying retirement housing are not borrowing all that much. They are bringing large amounts of cash, often accumulated as capital gains from housing elsewhere. For those folks, determined to buy in Hawaii and preparing for major life style improvements, energy costs and interest rates aren’t all that important. What is most important to them is to get a place and start living their dream before it is too late!
Back to cocktail talk … We find that much of what passes for “The God’s Truth” at a cocktail party is actually false. Time and time again I have heard that So-in-so sold their place for some giant price, when I know the facts … and they didn’t. Many people will now put their houses on the market for pie-in-the-sky asking prices just to see if they can get close. When they do reduce their expectations and sell, it is the pie-in-the-sky price you hear as a sales price at the cocktail party. A buyer told me the other day that the land in his neighborhood had become too expensive for him to buy. We looked at sales prices and found that properties were still within his range. It was the cocktail talk that had discourage him.
So what are we to learn from all this anyway? Well, I guess the thing to do is buy real estate that you need and skip that stuff you don’t need. I don’t think this is a good time to be a speculator, and I don’t think this is a good time to bet on interest rates staying low. The price curve may well remain upward unless a terrorist puts ricin in the air-condition system of the Mall of the Americas or some such thing, and that remains a possibility.
Probably your best bet is to call Jardine Investment Properties and discuss your specific needs and dreams. That is what we are here for, and we are pretty darn good at it!
Imua!
A hui hou,
Bill
William N. Jardine
