2nd Quarter Kauai Real Estate Update

2008 is half over and there is no better place to spend your summer than on the Garden Island. Those of us who call Kauai home know that we may be living in the most beautiful place in the world. As the locals say, "Lucky you live Kauai, yeah?" From the resort areas of Princeville and Poipu Beach to the attractive residential areas of Kapaa and Lihue, it doesn’t get any better.

While our economy continues to slow, the key economic indicators suggest that we are NOT in a recession despite what much of mainstream media would have you believe. High oil prices, rising unemployment and a sagging real estate market are all a reality but not enough to put us in a recession. Our overall economy continues to grow at a modest rate while certain parts are faltering. U.S. Treasury Secretary Henry Paulson predicted on June 25th that U.S. housing prices would stabilize by year’s end and overall economic growth would improve by then. He said, "I feel moderately optimistic that at the end of the year we will have signs of economic recovery". Well informed, motivated sellers are selling their properties and opportunistic buyers are buying. I can show you how to maximize results on your sale or purchase.

Jump to:
Kauai's real estate market
Mortgage Rates and Financing
Princeville Update
Kauai News and Notes


Kauai’s real estate market Total combined Kauai unit sales through June 2008 were down 40% (see data below) from the same period in 2007. This was certainly expected. What was not expected is the relative price stability of home sales. Unique and higher end homes with ocean views have appreciated since the high in 2006 and have remained relatively strong. What to expect going forward is some softening in prices as sellers become increasingly motivated and an increase in mortgage rates between now and year end. Inventory in all categories seems to have leveled out somewhat and land sales remain low due to an absence of speculative building. We currently have a 10-11 month supply of inventory here on Kauai. A 5 month supply is considered a tight market. Mortgage rates are beginning to creep up and will likely offset any or most of the monthly out of pocket benefit of waiting for a lower purchase price. Residential new construction is close to 15 year lows nationally at 3.8% of GDP through April. So what’s going to stop the housing decline on Kauai or anywhere else? Quite simply the thing that caused the bust: affordability.


Mortgage Rates and Financing We have seen the floor for mortgage rates effective late June 2008. Any interest rate movement will now generate from this benchmark and expect to see points (loan origination fees) attached to most loan programs going forward. Rates for conforming loans (up to $773,950) are still in the low 6% range at the end of June for 30 year fixed programs for borrowers with good credit (720 score or higher). Jumbo rates can be ¾ - 1 point higher. Very important to keep in mind – If you are a prospective buyer that will need financing and are waiting for home prices to hit bottom, BE CAREFUL. Higher interest rates will likely eat up over the long haul whatever you saved trying to guess correctly (good luck!) and buy when prices level out. Here is an example of the difference in interest only payments:

$700,000 loan at 6% = $3,500 monthly payment $700,000 loan at 7% = $4,083 monthly payment

⇒ Difference is $583/mo. or $6,996/yr.

The rate you are able to obtain will depend of several things including but not limited to your credit score, amount of down payment, points paid, documentation provided, etc. The key to financing currently is full documentation of income and assets and strong credit scores. The best rates result from strong credit and higher down payments. There is no substitution for a sterling credit score...anything above 720 is like music to the lender’s ears!

Here are a few creative conforming loan programs available today you may not be aware of:

Program	Down pmt required	Description
Rural Housing Loan	None	Escrow fees only out of pocket expense; owner occupied; min. 620 credit score; full doc; all areas of Kauai
FHA 3%	3%	Option if borrower can’t qualify for traditional financing; 3% down can be family member gift; 2nd homes O.K.
FHA 203K	3%	Borrower can finance cost to fix up property including payments during renovation period
House America Loan	3%	Borrower with 2 jobs – one without documented income; can claim up to $1,200 undocumented income
Expanded Approval Loan	20%	Poor credit scores as low as 580; interest rates 1.5-2 points higher

Please note that these programs can change but have been pretty consistent lately.

Princeville Update The Princeville Partners who own all the undeveloped 11,000 acres in Princeville recently unveiled their plans for future development. The good news is the amount of development has been scaled way back. The bad news is there will be fewer opportunities than expected to own Princeville real estate in the future.

There will be 2 residential lot subdivisions:
1. “The Greens” – 38 single family lots along the Prince Golf Course just the Kilauea side of the entrance to Princeville
2. “The Meadows” – 184 single family lots between The Greens and The Prince Club House mauka of the highway.
   
   
3. 72 large 25-50 acre parcels makai of the highway between the Prince Clubhouse and Anini Vista. These parcels will be very expensive and can cumulatively be divided into a maximum 75 CPR lots of one half to three quarter acres each. The emphasis in this area will be on cattle and horse grazing.
   
   
4. The 8,000 acre Princeville Ranch mauka of the highway across from the Princeville spa is planned for a total of 12 units primarily to house people who will oversee cattle and horse grazing as is currently being utilized. The Carswell family will continue with the hiking, horseback riding, zip lining, etc. activities currently permitted there.

The emphasis in #3 and #4 above is being put on preservation of open space, wetlands, forested areas and in particular the Princeville Ranch. There will be requirements for water retention and reuse, energy conservation and strict adherence to CC&R’s in these new areas. The timing for these future developments was not disclosed although The Meadows project has county final approval.

If you are an investor and looking to maximize on your real estate investment, Princeville offers tremendous upside. Here are a few good reasons to buy:

1. Buyer’s market – low pricing
2. Low mortgage rates
3. High demand for future vacation rentals (Princeville is in the VDA); (see my 1st quarter update)
4. Future total residential development limited to ONLY 309 total units forever
5. Princeville is the only community of its kind on Kauai.

Don’t miss out while the getting is good! Kauai property values as a whole are expected to appreciate ahead of the national average when the market returns to more prosperous pricing.

Kauai News and Notes

• Kauai mayor Bryan Baptist died unexpectedly of cardiac arrest on Sunday June 22nd 9 days after bypass surgery. Acting Mayor Gary Heu will serve as mayor until the county council selects on Monday, July 7th, by majority vote, one of its members as mayor to serve until the next general election and assumption of office in December.
• Current airlines providing direct trans pacific flights to Kauai are American, United, Delta and Alaska. Inter island carriers are Go Airlines and Hawaiian Airlines.
• 455,516 visitors have come to Kauai year to date through May
• Current resident population of Kauai is 63,004
• If you are eligible and intend to vacation rental your property on Kauai and it is located outside of the 4 designated visitor destination areas (VDA’s), you MUST apply for a permit before October 15th or forever lose that legal right to do so. See me for details.
• Real property tax rates for the new fiscal year starting July 1st have been released. Categories have been consolidated from 8 to 4. The 2% annual cap on increases has been eliminated, and the homeowner’s exemption has been increased to $300,000.

I welcome your comments as to specific information you would like to see in future updates. Feel free to contact me if you or someone you know is interested in buying or selling real estate here on Kauai. You may also visit my website www.kauai-realestate.com for other useful information.

Aloha,
Larry


July 2008

Larry Barton, RA, CENTURY 21 All Islands Kauai
P.O. Box 223700, Princeville, HI 96722
(808) 639-7532 Cell   /   (808) 240-2417 Direct line   /   (808) 826-9884 Fax   /   Email Larry