January 4, 2005 – Newsletter for the Maui Market

Aloha! Shortly after the December, 2004 Newsletter, I sent out a list of ten things pertaining to real estate you could do by the year's end to save money. Now that we are at the beginning of a new year 2005, you should make sure you have a copy for the preparation of your 2004 tax return of all of your 2004 expenditures; credit card statements with any charges or interest; what repairs or expense were incurred throughout the year on your principal residence or investment property; and any other documents that you may require for your accountant or tax preparer.

At some future point when you sell or if your are buying and the time comes when escrow closes and you have to deal with HARPTA or FIRPTA, having good records, so you only have to pay the withholding on your actual profit, will pay great dividends. Set up a file now and keep all of that information in one location so you can deduct all of your expenses during the hold period from the sale price and only wind up paying the tax on your actual gain.

If you own property on Maui or some other location, periodically having a Net Proceeds Statement Prepared so you know what you will net from the transaction at the time of sale is valuable information to have when you are thinking about selling.

At the beginning of December, 2004 there were 186 condominiums for sale in the West Maui area and the total value was $156,629,640.00. At the beginning of January, 2005 there are 202 condominiums for sale in the West Maui area and the total value is $181,300,850.00 . The year end statistics will not be available until our newsletter in February. The number of condos for sale rose by about 8.6% and the total value by 15.75%. This means owners decided that 2005 would be a good time to sell or other reasons. So the inventory has risen slightly. In West Maui using a scale of 1 to 10 with 10 being a good Seller’s Market, West Maui is approximately an “8” and will likely weaken a bit for Sellers as 2005 progresses.

Even though interest rates are beginning to creep upward, they are still relatively low, and it is still a very good time to buy or sell. Properties that are priced according to the market are moving very quickly. Current mortgage rates as of 11/22/04 are: House/Condo loans primary residence 5.25% 2 pts or 5.5% 1 pt 30 year loans; No Doc loans from 5.625% 1 pt 30 yr fixed; Condotel loans 6.25% 1 pt 5 yr ARM 1.75 pt; Construction loans 6.25% 30 yr fixed 1 pt and Land loans 7.0% 3 yrs 2 pts and No Income, No Doc, 103% loans are available. Currently CityBank has a Condotel Special 5.0% 1 pt 5yr ARM.

For the real estate market in general, f ew economists predict that a major national drop in real estate prices is on the horizon, but many are painting a cautious picture for 2005.

In a recent interview with National Relocation & Real Estate magazine, Robert Shiller, a Yale economist and best-selling author, believes there is already a real estate bubble in some regions, though he can’t pinpoint when the market will weaken. “The boom seems to be going on as strong as ever in most cities,” Shiller adds. “Any real price drops are at least a year away. … It could be eight, 10 years that prices are a lot lower than they are now. … The boom has been going on since 1998. I don’t know when it will come to an end.”

The Economist magazine reports that American housing prices are now almost 30% overvalued based on select criteria.

Shiller identifies a few factors that could hurt the U.S. real estate boom. One of the key ones is interest rates, which underwent a series of increases during 2004.
“Interest rates are going up at least at the short end,” Shiller says. “If long rates respond, it could end the boom. So many people take adjustable rate mortgages.”

According to recent predictions by the National Association of Realtors, the 30-year fixed-rate mortgage should rise slowly but average only 6.4% in 2005.

“The deficit is only going to get worse with aging Baby Boomers and Social Security (payments),” he says. The federal deficit was near $400 billion at the end of 2004—which is more than $100 billion higher than any deficit during the 1980s or 1990s, according to a recent University of Michigan study.

As of early December, residential real estate activity generally remained at high levels across the Federal Reserve’s 12 regional districts, but “continued to show signs of cooling,” according to the Fed’s most recent analysis.

The National Association of Realtors (NAR) is presenting a very positive outlook for 2005:
• The NAR projects 6.38 million sales in 2005, which would be the second highest level on record.
• New-home sales are expected to be 1.13 million for 2005, just shy of the record expected in 2004.

David Lereah, NAR’s chief economist, explains that not every year can be a record-setting year, “We’re setting our fourth consecutive record year (2004) for existing-home sales, and even with strong fundamentals such as household growth, low interest rates and an improving economy, we simply can’t set records every year,” Lereah said. “Given the sharp rise over last year’s (2003) record, a lot of buyers have found the home they’ve been looking for and we can expect a bit of a breather in 2005, which will remain a historically strong year.”

In 2005, Lereah expects the median existing-home price to rise 5.0% and the typical new home price to grow by 5.8%.

”The slowing rate of price growth will be good news for first-time buyers,” Lereah says, “but since inflation is expected to remain modest, home prices will still be rising a little faster than the historic norm of 1-to-2 percentage points above the rate of inflation.”

If you would like to view the most current sales statistics for Maui or West Maui Condominiums you can go to my web site www.jamesbfoster.com and click on Condo Sales in the upper left corner of the home page.  I also post a Vacation Rental Management Report for your viewing by clicking on that tab in the upper left corner of my web site. The fourth quarter, 2004 should be posted within the next thirty days. If there are any specific condominium complexes that you wish to be notified by email when a condominium becomes available for sale, send me an email as I check the MLS data about four times daily and if a new listing comes on the market I immediately notify any clients who have requested that information.  Many owners also like to track what units are selling for in the building where they own which they can do from my site.   

Chase ‘N Rainbows
Real Estate Inc.
P.O. Box 10398
Lahaina, Maui, HI 96761
Email: jim@jamesbfoster.com