Aloha,
I want to give you the results of the 2nd quarter sales numbers and the July sales numbers. I’ll also go into some detail about foreclosure sales, short sales, and the home loan modification program. Hopefully this information will be helpful to you or someone you know.
2nd Quarter Data
We saw a spike in sales with North Kona residential sales hitting 79 units. This is up from 41 in the first quarter of the year. We also saw condos go from 32 to 40 sales in North Kona. The median residential price fell to $433,000. That's a decrease of 3.1% from the first quarter and a decrease of 16.8% from the same period last year. The median price for condos was $292,000 for a 13.4% decrease from a year ago.
South Kohala saw residential sales fall from 38 to 34 units, but condos gained significantly going from 12 units in the first quarter to 29 sales in the second quarter. The median residential price dropped to $386,750 for a decrease of 20% in a year.
July Sales Data
North Kona residential units sold were up to 27 from 14 in July 2008. Condos were up to 15 units sold compared to 14 in July 2008. The median residential price was $435,000 for a 16.7% decrease from July 2008. The median condo price was $200,000 for a 33% drop.
South Kohala units sold were up to 15 from 13 in the same period last year. Condos saw 12 units sold for no change from a year ago. The median residential price was $370,000 down from $400,000 in July of 2008. The median condo price was $632,500. As I always mention, the median price of condos in South Kohala will vary greatly due to sales of high end luxury condos in the resort areas. In the last year median prices there have been as low as $400,000 and as high as $2,850,000.
Summary and Opinion
Prices are down, but we are seeing more units sold. The general feeling is that we may have turned the corner on this market, in the sense that things are not in free-fall anymore. That is not to say that we will see the market get hot. We are not anywhere near a seller’s market, and I don't expect to see prices climbing fast anytime in the foreseeable future. Basically, things are getting more in balance. The properties which are selling fast (properties in escrow in less than 30 days) are lower prices houses and condos which are being sold by the banks. These foreclosures, when properly priced, will get multiple offers. Traditionally, foreclosure properties have usually been in bad condition. While we still see that a lot, we also see some foreclosure properties in good condition, ready to move in. I also expect to see more of the resort condos on the foreclosure market. Many of these properties are second and vacation homes. The owners tend to not pay the mortgage on these properties as a first step in difficult financial times. As a result, we are starting to see them on the market, and I know more are on the way. The prices in these areas are dropping pretty fast. High monthly fees have made them less attractive to potential buyers when the prices are already high. It is not unusual for identical units to be for sale with a price difference of $200,000. A general rule for any type of property is to have all your ducks in a row (have your pre-qualification letter from a lender and the money ready for a deposit) and be ready to move fast on a property. With the foreclosures being so much lower in price than other properties in the area, buyers have found the type of property they want (in a particular complex or neighborhood), and these buyers are just waiting for the next low priced listing to hit the market. These people are your competition if you are a buyer.
Foreclosures, Short Sales, and Home Loan Modifications
Foreclosure sales (aka REO or bank sales) are different now than they were a few years ago. In the past there would be an auction at the courthouse steps and the highest bidder won. The banks realized that they were leaving tens of thousands of dollars on the table with this situation, since only a very few buyers have the cash on hand to make such a purchase. Now the banks have a representative make the first bid for the amount owed on the property. This is usually more than the property is worth (after all, if the owners owed less than it was worth, the owners would just sell it). As a result, the bank always wins the auction. You can of course outbid the bank, and they will happily let you win, and collect their money from you, which will be more money than it is worth. I still get calls from people wanting to know about auctions, thinking that they will be able to buy a $500,000 house in Hawaii for only $100,000. Those days are long gone.
What the bank does now is get an agent to list the property just like any other house. The bank does want to sell it and sell it fast. They usually try to make it one of the lowest priced properties in its market segment, if not the lowest priced property. Often there will be a lower priced "short sale"...but we'll get into that in a few minutes. From the banks point of view, this system allows them to open the property up to more potential buyers. Buyers do not have to have a cashiers check and the buyers can get a traditional mortgage. This allows the banks to get more for the property and minimize their losses. This is a good thing for all of us since if the banks have huge losses, they eventually go under, taking the money which customers have deposited with them (yes these deposits are Federally insured, but in the end all of us tax-payers would ultimately have to pay ourselves back). These sales are driving the market now.
Short Sales are when the owner tries to sell the house for less than they owe, and instead of bringing a check for the difference to the closing, they ask the bank to forgive the difference or "short" amount. The banks may do this, but they do not have to. It is up to them. A short sale is a very long process. First the owner tries to sell the property. Once they get an offer, the bank has to sign off on it, agreeing to the short sale amount. For the bank, they have to decide if the sales price in the offer is as good as they can expect on the market if they sell it themselves. For example, if the owners owe $500,000 and have an offer for $300,000, the bank needs to decide if the house is really worth $300,000, or is it worth a lot more. If it is worth more, the bank will not sign off on the sale. This process, simply deciding if the short sale amount is acceptable to the bank takes 60-90 days. From there the escrow process can start if the bank signed off on the sale price.
The banks take a while for this process because they need to do their due diligence. Some short sellers have decided to list the property incredibly low, far below what it is worth. From the seller’s point of view, they don't care if the house sells for $100,000 or $400,000, either way they will not make any money on the sale and they just want out of the situation. Some of the more amazingly low listings you see are these sellers. The bank always figures this out, and they will go back to the seller and buyer and let them know the price which does work for the bank. The buyers can accept it or walk away. Oftentimes, the buyers will have already cancelled the contract; the 2-3 months of not knowing can be stressful and if they find a property they can put in escrow and know they will close on, they will usually do it. In the end, the sellers are still helped by this process since they at the very least know what price the banks want for the property. Now they can adjust their price, and the next offer will not have to wait the 2-3 months for the bank to decide.
An important note on short sales; the bank usually will not just "forgive" the short sale amount. Usually they will file a default judgment against the sellers. Also, they may take a look at the seller’s finances. If the seller has money in non-retirement investments (things besides IRA's and 401k's) the banks want the sellers to use that to pay them back. If they see that the sellers have a loan for a Cadillac Escalade or other luxury item, they will not be very willing to just write off $100,000 that the sellers do not want to pay.
Most of us know about home loan modifications or "The Obama Plan" to keep people in their homes. Most likely, all of the readers of this will know someone who has been adversely affected by the economics of the last few years. Currently, the government and the banks are working harder than at any time in our history to keep people in their homes. This is good for the banks and this is good for families. Most people in difficult circumstances already know about this program, but some don't. If you know of someone having trouble with the mortgage, do them a favor and make sure they know about this program. I know it can be a difficult subject to bring up, and that it can be rude to talk finances in polite company; however, I believe this is one of the most helpful and important programs to help families stabilize their situation in these very tough times. The modifications are not open to everyone, if the owner is not working, no amount of modification will help until they have income. If the owner makes too much money, they will not qualify. Second homes and investment properties will not qualify. The banks use 2 things to help out; a lower interest rate and a loan extension, up to a 40 year note. There is a 3 payment "probation period" to make sure the new loan will work for the owners. Usually, once they make that, the modification is finalized, if they don't make all the payments, foreclosure will not be very far off. I have a few friends who have used this and their mortgage payment dropped by over 40%. For an owner to see if they qualify, the simply need to call bank with the loan, and ask about the home loan modification program. They will need old tax returns available.
I hope this was helpful to everyone. As always, feel free to call or email me at any time.
Mike Drutar R(S)
Accredited Buyers Representative, e-PRO
Century 21 Paradise International-Kailua-Kona
Mike@MyKonaAgent.com
www.MyKonaAgent.com
Mobile: 808-895-3067