LIHU‘E — Foreclosures are on the rise and buyers are scooping up properties across the island, recent statistics show, but the two may not be correlated, said University of Hawai‘i-Manoa Associate Professor of Economics Dr. Carl Bonham Friday.
While another wave of foreclosures descended upon the island, rising from around 600 in January to almost 1,000 in April, according to data from RealtyTrac, many of the foreclosures “probably haven’t gotten into the market yet,” he said.
“Very low home prices and incredibly low interest rates” are likely reasons for the rise in residential sales, neither of which will “last forever,” Bonham said.
First-quarter sales jump 70 percent
The number of sales for the first quarter of 2010 was almost 70 percent higher than last year, according to Multiple Listing Service.
“Many of the sales have been influenced by the need to compete with the multitude of short-sale offerings (homes sold for less than what is owed) … thus the sale prices reflect this,” said Kaua‘i North Shore Properties Principal Broker Dennis Toth.
Up until November 2009, the North Shore was experiencing the “horror of 10 sales per month on average,” he said. This number increased to around 50 in January and more than 60 by April.
People are “actively looking for purchases where the prices have fallen,” Bonham agreed.
The year-to-date, median-home value on Kaua‘i was around $465,000 in April, down 15 percent from last year, according to MLS figures.
“Prospective and speculative real estate homebuyers feel prices have bottomed and that now is the time to purchase,” said county Office of Economic Development Director George Costa.
Home ‘values’ to be had
“The bulk of (real estate) velocity is being triggered by the values out there and the adjusting property values,” agreed Hawai‘i Life Real Estate Services Short Sale and Foreclosure Specialist Ron Margolis.
Also, some of the sales could reflect those individuals who caught the first-time homebuyers’ tax credit wave which expired April 30, he said.
This could be true especially for “Eastside sales,” Toth said. However, the majority of North Shore sales — where he largely does business — are essentially investments or second homes which would not qualify for the incentive.
“Nobody knows exactly what the effects have been from the tax credit,” Bonham said.
Since homebuyers were only required to be under contract by the deadline, the next two months of sales could still include some influenced by the rebates, Bonham said.
It won’t be until July or August when “sales numbers will be free of the tax effect.”
Overall there is little doubt it is a buyer’s market, Margolis said.
‘Terrible time for sellers’
“It’s a terrible time for sellers right now,” he said.
The “distressed property market” has been on the rise over the past year and that “doesn’t account for hundreds of people who may be behind” on their mortgage payments, Margolis said.
Bank-owned or real estate-owned properties — those which have been foreclosed upon and did not sell at auction — and short sales comprise around one third of all properties sold on island, he said.
Many people borrowed against their homes when the “market was at the top,” when money was “free and flowing” and “now they have a mortgage they couldn’t possibly afford,” he said.
With lower home values and other factors, such as job loss, it becomes difficult to keep up with payments, Margolis said.
However, it is “not a good idea to pack up and move,” he said.
The situation “can be very difficult and upsetting and people just freeze … but that’s not going to fix the problem,” Margolis said. Options do exist for homeowners, like short sales.
10 short sales last month
In April, 10 residences on Kaua‘i sold as short sale transactions, while 11 sales were REO properties, Margolis said.
On the other hand, “short sales can take over a year to close,” Margolis said.
But programs like Home Affordable Foreclosure Alternatives are helping to remedy the situation. Not only does it expedite the short sale process, it makes the transaction easier on all parties, Margolis said.
A short sale is the “least detrimental” to one’s credit score, as opposed to being foreclosed upon in which case one cannot purchase a home for seven years, he said.
Despite escalating numbers of distressed properties, “we have seen some price stability and growth. The real question is whether that can continue,” Bonham said.
“I don’t think prices are going to fall off as they did the past couple of years,” Bonham added. Instead, they will likely continue to “plateau for awhile.”
Statistics are indeed indicative of a “mild recovery” and that “we have hit bottom,” Toth said.
Increasing sales in the housing market is a “really good thing,” but it does not “create an enormous amount of economic activity,” Bonham said. Construction is really where the economic activity occurs.
Visit www.kauaiavoidforeclosure.com, www.uhero.hawaii.edu or www.kauainorthshoreproperties.com for more information.
