The Honolulu Board of Realtors has released their latest monthly Oahu residential real estate statistical report for February 2017. You can view the reports here: General Housing Statistics Report and Local Neighborhood Market Update.
On October 19, 2016, we e-mailed our clients our prediction that Luxury Home Sales in Kahala would be improving due to the diminishing inventory of new Kakaako luxury condominiums. Then on December 7, 2016, the Honolulu Star Advertiser’s Business Section confirmed that “Oahu home, condo sales jump in November.”
The new condominium projects took many of the $3+million buyers out of the real estate market for Kahala. For example, at the end of 2016, 58 buyers between $3,072,000 and $12,800,000 completed their 2 year-long purchase of the Waiea Condominium. These were 58 buyers who may have bought homes in East Honolulu. Beginning in April, closings will occur for the Park Lane Condominium project in the Ala Moana Shopping Center, where another 100+ luxury buyers purchased in the $3+ million price range. Given the lower inventory of true luxury condominiums in Kakaako, sales did accelerate in the last quarter of 2016. Of the 30 sales over $3 million in East Honolulu during 2016, 13 occurred in the last quarter.
Although there are signs of improvement in the Kahala market, it is a good idea to see what is happening in the San Francisco Bay area and nationwide.
Bay Area Luxury Brokers View the Luxury Market with Mixed Signals
A January 11, 2017 blog written by Alain Pinel, one of the marquee names in the San Francisco Bay real estate market, predicts that 2017 will be much like 2016.
“More often than not, the high-end business sets the tone for the real estate industry. It is a barometer of sort. When it’s hot, it serves as a locomotive for the rest of the business.
. . .
The multi-million dollar property market that blesses many of the coastal regions, had a strange year. Mixed results. Prices, driven by the best of the best (top locations, brand-new or newer homes, fashionable style & design, all smart home features …) went through the roof, while, at the same time, unit sales kept on shrinking. Considering what was going on in the world during this tumultuous year, this was no surprise.
We are, today, in year 2 of what feels like a transition. It would not be smart to expect a substantially different picture than the one we saw last year, although we will benefit from a faster start (2016 had the worst-ever annual start). US sales, mostly flat, will be up 3% at best. Same lukewarm prognostic regarding prices (up to 4% increase?).”
National Statistics Predict a Sideways Market in Honolulu
The Institute for Luxury Home Marketing’s February 13, 2017 Luxury Housing Report uses a composite price index sampling 20,561 luxury homes to evaluate the market. With a sideways movement in the national luxury home prices, coupled with an increase in the number of days on the market, their conclusion is that nationally we are in a “Cool Buyer’s Market”. Specifically, the Institute’s prediction is that the prices are going to go sideways in Honolulu and down in San Francisco and Seattle.
The China Market – China has instituted a very strict new monetary policy that reduces the amount of money that can be brought out of the country. According to Maggie Huang (RB-22050) our Vice President of the Greater China Region, there should be little effect on the Honolulu Luxury Market. Basically, the Chinese who can afford luxury homes have already gotten their money out of China or have income outside of China.
The Japanese Market – There is some effect on Japanese Buyers due to the fluctuation in the yen versus the dollar according to Mami Takeda (RB-22153) our Vice President of Japan Sales. When the yen is in the 120+ range to the dollar, there is less incentive to buy. When it is in the 100-110 yen range, the incentive for Buyers is higher. Despite recent fluctuations in the yen, the expectation is that the Japanese will continue to comprise the vast majority of foreign buyers for various reasons, including the desire to own property that would be purchased in US dollars.
2017 Outlook – This year will probably result in more luxury home sales in Kahala than 2016. Although the national and West Coast markets seem to be slowing and turning into Buyers markets, it is likely that Honolulu and Kahala will remain neutral, due to the continuing strong demand from Foreign and West Coast buyers. In 2016, the leading foreign buyers of Oahu property were as follows:
Japanese 562 ~ Canadians 32 ~ China 29 ~ Hong Kong 21 ~ Singapore 11 ~ Korea 11
California and Washington were the top Mainland buyers for Honolulu.
Luxury Home Sales in Kahala have Increased in the Last 6 Months
Does it seem like a lot of luxury homes are for sale in Kahala and that they have been on the market for longer periods of time? It does seem that the luxury home market has been stagnant for almost 2 years, but the trend is that sales are increasing. Open houses have been well attended and appointments for showings are more frequent. There is an increased number of buyers looking for luxury Kahala homes, which is good news for sellers.
If you are interested in the statistical basis for the above, then the rest of this article will give you more information than you probably need. Statistics can always be examined in more depth, which is what your agent should be doing, but here is the data that would appear from a Comparative Market Analysis done on October 14, 2016.
If we define the luxury home market in Kahala as single family homes selling at $3,000,000 or more, then we can conclude that Luxury Home Sales in Kahala are selling with increased velocity. Take a look at what has happened over the last 12 months:
- For the six-month period from October 1, 2015 to March 31, 2016, there were 5 sales in Kahala over $3,000,000.
- For the six-month period from April 1, 2016 to October 14, 2016, there were 5 closed sales and 6 pending sales (one is not in the MLS system yet).
There are a number of possible reasons for the rise in sales over the last six months. Two are worth reviewing:
1) Possibility that prices have adjusted downward, thereby reaching the crossing point between the supply and demand line
2) Weakening of the “New Condominium” effect.
In the opinion of Patricia Choi, Principal Broker of Choi International, the weakest reason for the increase in sales is that list prices have adjusted to the point that buyers are now buying. In fact, the adjustment of sales prices seems to have had little relationship to the increase. Of the 6 properties now in escrow, there was only 1 property that had a list price drop that was significant – 4834 Kahala Avenue’s original list price was $4,600,000, which was adjusted to $3,950,000 before it went into escrow. Three of the other properties in escrow did not adjust their prices and one other at 918 Koloa Street had only dropped the list price from $3,950,000 to $3,475,000. Of the 5 Sold properties, 4 had not reduced their original list price and 1 had reduced their original price a relatively small amount. So, it turns out that price adjustments have had little to do with spurring demand.
The most likely reason for the increase in demand is the diminishing inventory of new luxury condominiums. For about the last two years many of the luxury buyers have been lured to the Park Lane project at the Ala Moana Shopping Center and to the Waiea and Anaha condominiums being built at Ward Village. The new luxury condominiums advertised heavily targeting luxury buyers who were in the $3,000,000 to $10,000,000 range. Indeed, the Park Lane project has sold more units to Luxury Buyers than all other Luxury residential sales on Oahu for the last two years. According to a study done a few months ago, the sales of $3.5 Single-Family Home and Condominium Sales Combined since November of 2014 (presumably excluding all project sales) was about $400 million in total. The Park Lane Ala Moana sales were just about $700 Milllion. This does not even take into consideration the sales at Waiea and Anaha in Ward Village. So, the takeaway is that if you were selling a luxury home in Kahala over the last 2 years, then a large number of buyers were being diverted to the “New Condominiums”, hence the identification of the “New Condominium Effect”.
So, what is the good news? The good news is that the Park Lane Ala Moana is about 85% sold. The Waiea and the Anaha at Ward Village may have a smaller percentage sold, based on the remaining value of their inventory, since the super high priced Penthouses remain. With the tightening of inventory at the New Condominiums in a price range of about $3,000,000 to $10,000,000, there seems to have been the likely cause of the increase in luxury home sales in Kahala. Choi International expects that this trend will continue until the inventory of new or newly remodeled homes in Kahala are exhausted or prices go up significantly.