Fact or Fiction: Kohala Coast Resort Real Estate Market

Fact: real estate activity in the Kohala Coast resorts (Mauna Kea, Mauna Lani and Waikoloa Beach Resort) tends to track visitor traffic. Therefore, Hawaii real estate brokers talk about Thanksgiving to Easter as our “high season;” summer brings a second wave of real estate buyers, while fall is traditionally thought of as our slow time.

Is this seasonal real estate market fact or fiction? Because if it is true, the fourth quarter (NOW) represents an opportunity for buyers. Less buyer competition = more leverage with sellers.

Kohala Coast Market Annual Cycle – 2013 Versus 2012

I looked at some very crude metrics to establish how the Kohala Coast real estate market behaved last year versus how it is looking this year. I analyzed only the condo market, because there are few residential homes and lots sold, so the numbers are not very meaningful.

I also separated out the three resorts, because even though the range from highest to lowest priced condo sold is not that different between the resorts, the average sales price (whether calculated as median or mean) climbs from Waikoloa Beach Resort to Mauna Lani Resort to Mauna Kea Resort.

The summary indicates there may in fact be an opportunity for buyers this year. In 2012, the fourth quarter saw a surge in sales at Mauna Lani and Mauna Kea, and a drop in sales volume at Waikoloa Beach Resort. However, this year all three resorts currently seem slower, if we look at the number of properties currently in escrow.

Here are the resort statistics:

Waikoloa Beach Resort had 79 condominium sales in the first nine months of 2012; at that pace the fourth quarter should have been 26+ sales, and instead 15 condos sold. This year, in the first nine months, 64 condos sold and there are only 12 in escrow, with 46 active listings to choose from.

Mauna Lani Resort had 32 condominiums sales in the first nine months of 2012; at that pace the fourth quarter should have been 10-11 sales, and instead 15 condos sold. This year, in the first nine months, 44 condos sold. There are 23 units showing as contingent or under contract, however, all but 7 of these are developer pre-construction sales at Ka Milo or Kulalani (which means most will close in 2014). There are 58 active listings.

Mauna Kea Resort had 10 condominiums sales in the first nine months of 2012; at that pace the fourth quarter should have been around 3 sales, and instead 6 condos sold. This year, in the first nine months, 9 condos sold. There is only one Kauna’oa showing contingent (read more in my partner Pam’s Mauna Kea blog post) and only five active listings.

Factors Slowing Down the Kohala Coast Real Estate Market

So what is slowing down the Kohala Coast real estate market in the last quarter of 2013? Is it just a return to the annual seasonal pattern?

First, it isn’t the rise in interest rates. Most of these condo projects are considered resort condos or even “condotels” (and so loans cannot qualify for Fannie or Freddie). They require a high down payment and a slightly higher rate than conforming loans.

And if anything, when it comes to higher end properties, there is evidence of a “jumbo loan rush” as I explained in my Kolea market blog post. Even at Waikoloa Beach Resort, the average sales price for the first nine months of the year was $884,000, so roughly half of the Kohala Coast condo sales are in jumbo loan range.

At Waikoloa Beach Villas all sales must currently be cash. This short sale is priced at $449,000 (MLS# 265832)

Second, it isn’t the government shutdown. Sure, it is making some buyers more cautious about over-extending themselves. But as explained in the previous paragraph, the federal government agencies are not as significant a factor in the second home/investment property market in Hawaii as they are in primary home markets.

There is a way in which what happens in mainland real estate markets affects what happens in Hawaii real estate. It’s not an automatic rule of thumb, as when folks confidently cite “Hawaii real estate markets follow California markets with a six-month lag.” That’s fiction. But the fact is that many of the buyers I am working with right now are selling…or have sold…a property on the Mainland and are moving to/investing in Hawai’i.

Healthier markets on the Mainland have helped sales here. But many of those markets also have a seasonal pattern, with most of the sales in the spring and summer months. By fall those markets slow down, and prospective buyers who haven’t sold may be looking at a long wait until they are ready to buy in Hawai’i.

Where the Best Buys Are

In my humble opinion, the biggest factor behind the slow down in the Kohala Coast real estate market is PRICE. First, in many luxury condo communities the current group of sellers want significantly more than the most recent comps. That’s true from Wai’ula’ula in Mauna Kea Resort to Villages at Mauna Lani, to Kolea and Halii Kai in Waikoloa Beach Resort.

My first best buy recommendation is look at anything listed within 10% of the asking price of the most recent comparable sale. One of the reasons the developer sales at Ka Milo and Kulalani are so strong is that they price each release with only gradual increases.

Developer single family home style at Ka Milo looks like a deal relative to resale listings (MLS# 266104)

Second, there is simply a larger pool of buyers at lower price points than at higher price points. That larger pool of buyers is reflected in the higher sales pace at Waikoloa than at the other two resorts.

However, while currently there are 46 active listing at Waikoloa with the lowest being $285,000 and the highest $2,750,000 – the distribution is skewed so the Waikoloa Beach Resort median listing of $849,000 is actually above the current median list price at Mauna Lani Resort of $749,000.

My second best buy recommendation is to use what appraisers call the principle of progression. In other words, buy the relative bargain within a complex where other properties are selling for much more. This is especially a good entry strategy in a rising market.

Kolea 2-bedroom listed at $699,000 is priced 19% below nearest competition (MLS# 266199)

I have a few other ideas, but I’ve got to save something for my clients!

A hui hou,

Beth Thoma Robinson R(B)
Direct: 808.443.4588
Email: beth@hawaiilife.com

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