Not a lot.  Rates spiked over the last three weeks, and we have light economic news this week, so we don’t expect much improvement in the rate sector.  The weeks Mortgage Market Newsletter from Keri Shepherd explains a lot how rates and bonds move in relation with economic news, and bond buyers and sellers.  Sign up for the free newsletter by visiting Keri’s newsletter and signing up in the upper right corner.  It’s free!

The hot new topic in our industry in Hawaii right now is “Shared Ownership” properties or “Fractional Ownership” properties.  There have been a growing number of properties coming on the market that offer Fractional Ownership .  I get calls weekly about some of the properties because they are listed as single family homes, but for a fraction of the cost of what comparable homes are selling for. 

What is Fractional Ownership?  This is were you own a percentage interest in a property (home), lets say 1/6 interest.  Your 1/6 interest gives you the right to use the home for 2 months out of the year.  If you wish to have 4 months of use, then you would want to buy an additional 1/6 interest in the home, thus giving you 2/6 interest. 

Why would I want to do that?  Well, lets supposed that same property wasn’t being offered fractionally and was only being sold, as most properties are sold on the market, to whoever comes in with an offer to buy the entire interest in the property.  That same property is on the market for $1,500,000.  If you wanted to use it two months during the year and couldn’t afford to have it sit vacant, then, not only are you paying 1.5 million for it, but you have to find a renter for the property that will cooperate with the time-frame in which you wish to use the property, or you have to work around the tenants time-frame for use. 

Fractional ownership gives you the ability to buy the same home at a fraction of the cost ($250,000) and use it part-time without having to find a renter for the other 10 months.

Definitely read the article.  Me personally, I am definitely hesitant about this.   I have a workshop to attend in  a few days on this very topic, but when you go to sell your interest, you will be targeting a very specific buyer market, and will eliminate a majority of the Buyer market, since owner-occupants can only live there for 2 months.  Also, why not just buy a timeshare?  I want to find out if you can roll your fractional interest, ie 1031 exchange, and what limitations/advantages there are to fractional ownership.  What kind, if any, mortgages are allowed.

Back to the China, and for that matter, Asia as the next hawaii real estate market boom debate.  The Honolulu Advertiser had an article headlining “New York Joins Hawaii In China Tourism Deal” 

“New York City tourism officials have reached a deal with the Chinese government to join Hawai’i and other selected American destinations with permission to promote themselves in the Communist nation. Under the agreement, the city will not be able to advertise directly to Chinese citizens, but will hire industry representatives to work with local travel agencies and other providers, …”

“New York City joins Hawai’i, San Francisco, Los Angeles and Nevada, which have already opened offices or hired representatives in China. Such individual arrangements are necessary because China has not awarded the U.S. “approved destination status,” a designation that would facilitate group travel to the U.S. and allow tourism advertising directly to the Chinese public..”

“With the number of Chinese traveling from the mainland each year expected to nearly triple to 100 million people by 2020 — and with China’s growing middle class increasingly able to afford the trip..”

“The representation in Shanghai is meant in part to help position the city for an anticipated agreement between U.S. officials and the Communist nation that would further ease Chinese travel to the United States, Fertitta said.”

Here are my thoughts and opinions on this.  China joined the WTO (World Trade Organiztion) in 2001.  What this means, essentially, is that China raised it’s hand and said to the world, we want to be a major economic player in the world market and play fairly.  By agreeing to the rules of the WTO, it allows China to begin to open up to the world with goods and services and allows companies to have more in-roads to the Chinese markets with less risk, esp. labor.  The Internet, email, fiber optics, etc. have made barriers of working with other countries far less.  China has always been protective and more inward focusing. We have begun to see the transformation of a China in change.  With the drive to become a major economic player, we will probably see less censoring and a slow movement to a more open society. (China allows citizens access to Google, but in a censored format) 

With this in mind, as this begins to happen, we will see such changes as the easing of the restrictions on tourist visas for travel to the US, which is part of the reason we see what is going on in the article mentioned (New York Joins Hawaii In China Tourism Deal).  If tourist restrictions are eased, we will see many more vacationers from China, coming to Hawaii (US in general) which brings more buyers of real estate to a very stable, secure marketplace (US).  Hawaii becomes attractive, because it is a part of the US that is closest to China and is “Paradise”.  Meaning, it is closer to China, for ease of travel, is in the US (Stable Investment), and offers an investment they can come and use while also receiving the benefits of the stability.   Add to it the Japanese market recovery and it makes for a promising outlook in the future.

So, when you read the article about Hawaii home prices appear to be leveling out and will start to appreciate slowly, combined with the fact that most of the real estate news the past year and a half has been bad news, and interest rates are still extremely low (started rising), it would appear now is a good time to buy, to position yourself for the next market cycle.  Again,…what is that saying, “Buy on bad news, sell on Good news.” 

Lets take a look at another example.  this goes back to The Next Hawaii Real Estate Boom .  If economist figure we could see a double in our median home/condo price in 10 years, we will work with conservative figures from this:

You buy a condo for $400,000 with 20% down-payment ($80,000) and mortgage the rest.  You breakeven on the cost to rent the unit (income minus Debt obligation and rental costs).  The market appreciates 50%, (not 100% as mentioned in the above post) and your unit is worth $600,000.  Your $80,000 investment gets a 250% ROI over 10 years.  That averages out to $20,000 a year, or 25%.  This is a very simplified breakdown, and doesn’t take into consideration: taxes, time value of money, IRR, etc. but, it is designed to show you the potential.   

So my thoughts are: now is the best time to buy b/c the market has pulled back, a recovery looks to be in the works, interest rates are still very low, and the future potential is rediculously good. (If you hold long term)  Any thoughts?

Please keep in mind these are my opinions about the market and you should do your own research to determine your best investing or real estate purchasing strategy.

If you have driven on Kapahulu over the last few months, then you have had to deal with lane closures and heavier traffic.  You have also seen the transformation of the new Safeway that is being built.  There have been concerns about the additional traffic that the new Safeway will bring to Kapahulu. (which I travel as little as possible now b/c of all the already existing traffic) Now the additional tenants have been revealed.  I welcome another grocery store to the area, but I too am concerned about the added traffic.  This is going to cause for some headaches at this location, and adding an additional traffic signal at this location will help direct traffic, but will definitely back traffic up and slow the flow on Kapahulu.  My advice….take 6th Ave. unless you have to stop along Kapahulu for shopping.

We have all known that the vacant land on Hawaii Kai Dr. at the base of Mariner’s Ridge was going to be developed with condos, however, the plan may be a little different than what some had thought.  The developer’s plan to build a condominium up to 90 feet tall moved forward at the public hearing that was held.  The City Council Zoning Committee recommended approval for a zoning change that would move the height restriction on the parcel of land from between 40-60 feet, up to 90 feet. 

This article sparked a thought I had been wondering about lately.  I have been noticing, with a slowing in the real estate sales market and new housing starts (new home construction) down, why is it I am having a tough time getting handymen and contractors to either do work for my clients or give reasonable bids.  Everyone I talk to is still really busy.  Reading 69% of homeowners are likely to make renovations or improvements to their homes in the next year sheds some light on the picture.  The shift has been made from trading up to a new home or an upgrade to the more affordable renovation or improvements.  I myself am included, though for different reasons. 

The other item I see as a plus is the good old, “Buy On Bad News, Sell On Good News” theory.

“…most Americans aren’t planning to buy a new home any time soon. Only 27 percent said they’re likely to purchase a house in the next five years.”

In another article about Hawaii’s Extreme Home Prices :

“Local economists Paul Brewbaker of Bank of Hawaii and Carl Bonham of the University of Hawai’i Economic Research Organization have said they don’t believe O’ahu home prices will decline significantly, in large part because of expectations for continued job and population growth, rising personal income, flat interest rates, and a steady supply of buyers interested in second homes.

Last month, Brewbaker and Bonham predicted a 3 percent decline this year for O’ahu’s median single-family home sale price to $611,000 from about $630,000 last year. They predicted that the drop would be followed by a slow rise back to $630,000 by 2009.

Moody’s Economy.com forecasts that O’ahu’s median home price will decline 0.6 percent this year, followed by small gains to $634,710 by 2009. ”

Also read Hawaii Homes Sales Bucking National Trend

Car dealers see a decline in sales in the islands .  So what do you care?  How does this effect you? In reading this article in the Honolulu Advertiser, the belief is that as the Hawaii auto market goes, so goes the rest of the economy.

“The car industry is always the canary in the coal mine,” Rolf said. “As long as new car sales in Hawai’i are above the floor level of 60,000, things are pretty good. When they get below 60,000, the economy is beginning to show some challenges. We are the harbinger of the future.”

OK? I had never heard this before, but if so, then what are the auto sales going to do this year and what does it mean?

With sales down significantly in just the first quarter, Hawai’i’s auto dealers are bracing for the possibility that sales for the entire year could drop below 60,000, which Rolf considers the basement level of a healthy economy in Hawai’i.

Leroy Laney, a Hawai’i Pacific University professor of economics and finance, said the latest new car sales figures are “a clear indication of a slowing economy. I am not surprised to see it.”

While some auto experts point to gas prices and deployments of local troops to Iraq and Afghanistan, Laney believes the sluggish start to 2007 merely represents the cyclical nature of Hawai’i’s economy and the inevitable slow-down in an auto selling industry that had been red hot the past few years.

We’ve had at least a decade, 11 years, of expansion,” Laney said. “But expansion doesn’t go on forever.

It always drives me nuts when the newspapers say slowdown sometimes.  I almost don’t trust their stories when they talk about this, because they paint the picture of a slowdown as the end to everything, when often times, as in the last few years, it means we had one heck of a growth spurt that isn’t sustainable at the same level over the long run and we have to get back to a more normal market.  I am not saying this is what they are saying here, but during our “Housing Slowdown” they painted one heck of a gloomy picture for our slowdown in 2006 and it ended up being our third busiest year in history. 

I always look for what the economist are saying in the article, and try to work around some of the fluff that helps sell newspapers.  Anyway…feel free to draw your own conclusions.

There are warnings that Japan’s economic recovery could cause a bout of inflation. The good news I get out of this article is two-fold.  For one, the economy will grow 2.2 percent in 2007, the fastest since 1996, the MOF estimates, and most likely the beginning signs of good things to come in Japan, as Japan’s Baby-Boomers lag US Baby-Boomers by roughly 10 years.  Are we starting to see the beginning stages of what will lead to our next real estate market push in Hawaii?

Secondly, Japan’s low rates are encouraging companies to refurbish factories and add capacity, fueling wage growth and inflation. Business investment surged 13.6 percent to a record in the first quarter from a year earlier, the Finance Ministry said on June 3. The jobless rate fell to 3.8 percent in April, the lowest level since 1998.

Refurbishing factories, adding capacity, and business investment is an indication of economic growth to come.  Obviously the effects don’t happen overnight.  Let’s see how this one plays out with regard to Hawaii.  To read more on this read, The next big market boom for Oahu?  Also Manufacturing News Is Good. Any thoughts?

Persoanl income in Hawaii for the first quarter of 2007 is up 6.1% before adjustments for inflation.  The after inflation adjustment for 2007 is 1.8%.  The national average before inflation adjustments is up 5.8%.

A key concern going forward will be whether Hawai’i’s relatively high inflation rate will continue to rise or begin to settle down. The purchasing power of Honolulu residents took a major hit last year as the inflation rate jumped to 5.8 percent, the highest rate in 15 years. The UH Economic Research Organization is forecasting a 4.8 percent rise in inflation this year, followed by a 3.8 percent rise in 2008.

Personal income growth above the increase in inflation is good news, giving residents more money to play with.

Already live in or thinking of buying in Ewa, Kapolei or the Leeward Coast and you commute to downtown Honolulu, you may want to consider an alternative to automotive commuting from the Leeward Coast into Honolulu. Consider the new ferry service that is set to begin.  This news has been a little more quiet on the news front than the Hawaii Superferrythat is slated to begin inter-island ferry travel before the end of the year, which will allow you to take your own automobile to the neighbor islands and offers a new alternative to inter-island travel.

For me, if I lived in Kapolei or the Leeward Coast, I would seriously consider this alternative.  I would much rather sit on a ferry and be able to relax, than to sit in standstill traffic having to concentrate on driving everyday.  An hour boat ride one way is roughly the same length of time some sit in traffic commuting into town, and with The Bus transit being a very reliable source for getting around, arriving at Aloha Tower and catching The Bus to your nearby destination could be a more pleasant alternative. 

A couple of questions are, how easy will it be to get to the harbor to board the ferry?  Will there be plentiful parking available? If not, how difficult will it be to catch the bus to the Harbor?