Mike Gallagher’s Real Estate “Crystal Ball” Predictions for Year 2011

CAUTION: DO NOT BELIEVE EVERYTHING YOU READ IN THE HONOLULU

STAR-BULLETIN REGARDING REAL ESTATE SALES

It has been a heck of a year! Many changes took place in the Real Estate Market on Oahu and around the Nation that have significantly impacted many home owner lives in terms of lower equities, negative equity values, Foreclosures, Short Sales, standards of living, all within a suffocating atmosphere of greatly increased State and National Taxes. Due to publication deadlines I am writing this article just prior to the end of December 2010 for distribution on January 1st 2011, but I will provide you with an end of year forecast and 2011 forecast.

1

Oahu SFH Year End 2010 Projected Unit Sales

0

50

100

150

200

250

300

350

400

450

Jan.'

07

March'0

7

May'07

July'0

7

Sept.'0

7

Nov.'07

Jan.'

08

March'0

8

May'08

July'0

8

Sept.'0

8

Nov.'08

Jan.'

09

March '

09

May '0

9

July

'09

Sept. '

09

Nov. '09

Jan.

'10

March '

10

May '1

0

July

'10

Sept. '

10

Nov. '10

Oahu Condo Year End Projected Unit Sales

0

100

200

300

400

500

600

Jan.'

07

March'0

7

May'07

July'0

7

Sept.'0

7

Nov.'07

Jan.'

08

March'0

8

May'08

July'0

8

Sept.'0

8

Nov.'08

Jan.'

09

March '

09

May '0

9

July

'09

Sept. '

09

Nov. '09

Jan.

'10

March '

10

May '1

0

July

'10

Sept. '

10

Nov. '10

Condos have been leading the downturn this year after considerable gain over the sales number for year 2008. At the end of the year 2009, 3,467 sales recorded. I believe we will finish the year 2010 at 3,866, a +10% increase for the year over year 2009. Remember, the market turned and became a Buyer’s market in December of 2006. That year recorded 6,380 sales. Single Family Homes (S.F.H.) performed much better than the Condo sector this year which I find surprising due the increase in the cost of a typical Oahu home. At the end of year 2009, 2,585 sales were recorded. I believe we will finish year 2010 at 2,958 total sales, a +13% increase. In year 2006 recorded sales were 4,041.

Oahu Condo Unit Sales

0

1000

2000

3000

4000

5000

6000

7000

2006 2007 2008 2009 2010 Estimate

Condo Unit Sales

Oahu SFH Unit Sales

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2006 2007 2008 2009 2010 Estimate

SFH Unit Sales

When looking at just unit sales we can expel a sigh of relief that things are looking up. Just looking at the unit sales however does not tell the whole story so we will continue to explore the year 2010 and project into what may come in 2011.

Is Now the Time?

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Before I begin, I must say, I abhorred when Real Estate Agents say: “Now appears to be a great time to buy a Hawaii home.” It brings to my mind another piece of advice: "Don't ask the barber whether you need a haircut." Do your own research, ask questions and get the whole picture.

Oahu SFH Median Sold Price

$560,000

$570,000

$580,000

$590,000

$600,000

$610,000

$620,000

$630,000

$640,000

$650,000

2006 2007 2008 2009 2010 Estimate

SFH Median Sold Price

Oahu Condo Median Sold Price

$295,000

$300,000

$305,000

$310,000

$315,000

$320,000

$325,000

$330,000

2006 2007 2008 2009 2010Estimate

Condo Median Sold Price

Do not get too excited about this news, the rise is directly attributable to higher priced homes, which are flooding the market, selling.

Oahu SFH November '10 Year to Date Units Sold by Price Range

$0-$99,999$100,000-$199,999$200,000-$299,999$300,000- $399,999$400,000-$499,999$500,000-$599,999$600,000-$699,999$700,000-$799,999$800,000-$899,999$900,000-$999,999$1,000,000-$1,499,999$1,500,000-$1,999,9992,000,000+

Oahu SFH Dec. '09 Sold

$200k-$299,999$300k-$399,999$400k-$499,999$500k-$599,999$600k-$699,999$700k-$799,999$800k-$899,999$900k-$999,999$1,000,000 to $1,499,999$1,500,000 to $1,999,999$2,000,000 and Up

Oahu Condo November '10 Year to Date Unit Sales by Price Range

$0-$99,999

$100,000-$149,000$150,000-$199,999

$200,000-$249,999$250,000-$299,999

$300,000-$349,999$350,000-$399,999

$400,000-$499,999

$500,000-$599,999$600,000-$699,999

$700,000-$799,999$800,000+

Oahu Condo Sales Year 2009

$100k-$199,999$200k-$299,999$300k-$399,999$400k to $499,999$500k to $599,999$600k to $699,999$700k to $799,999$800k to $899,999$900k to $999,999$1,000,000 and Up

In Short: 2010 S.F.H. 2009 Sold: $2,000,000+ = 2% $2,000,000+ =3% $1,500,000-$1,999,999 = 2% $1,500,000-$1,999,999 = 1% $1,000,000-$1,499,999 = 7% $1,000,000-$1,499,999 = 8% $900,000-$999,999 = 5% $900,000-$999,999 = 4%

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In Short: 2010 Condo 2009 Sold: $800,000+ = 3% $800,000+ = 1% $700,000-$799,999 = 2% $700,000-$799,999 = 3% $600,000-$699,999 = 4% $600,000-$699,999 = 3% $500,000-$599,999 = 6% $500,000-$599,999 = 8%

Oahu SFH November '10 Units For Sale Year to Date By Price Range

$0-$99,999$100,000-$199,999$200,000-$299,999$300,000- $399,999$400,000-$499,999$500,000-$599,999$600,000-$699,999$700,000-$799,999$800,000-$899,999$900,000-$999,999$1,000,000-$1,499,999$1,500,000-$1,999,9992,000,000+

Oahu SFH Dec. '09 For Sale

$200k-$299,999$300k-$399,999$400k-$499,999$500k-$599,999$600k-$699,999$700k-$799,999$800k-$899,999$900k-$999,999$1,000,000 to $1,499,999$1,500,000 to $1,999,999$2,000,000 and Up

Oahu Condo November '10 Units For Sale Year to Date By Price Range

$0-$99,999$100,000-$149,000$150,000-$199,999$200,000-$249,999$250,000-$299,999$300,000-$349,999$350,000-$399,999$400,000-$499,999$500,000-$599,999$600,000-$699,999$700,000-$799,999$800,000+

Oahu Condo Dec. '09 For Sale

$100k-$199,999$200k-$299,999$300k-$399,999$400k to $499,999$500k to $599,999$600k to $699,999$700k to $799,999$800k to $899,999$900k to $999,999$1,000,000 and Up

In Short: 2010 S.F.H. 2009 For Sale: $2,000,000+ = 15% $2,000,000+ =15% $1,500,000-$1,999,999 = 5% $1,500,000-$1,999,999 = 6% $1,000,000-$1,499,999 = 11% $1,000,000-$1,499,999 = 10% $900,000-$999,999 = 6% $900,000-$999,999 = 2% In Short: 2010 Condo 2009 For Sale: $800,000+ = 14% $800,000+ = 2% $700,000-$799,999 = 3% $700,000-$799,999 = 3% $600,000-$699,999 = 4% $600,000-$699,999 = 6% $500,000-$599,999 = 5% $500,000-$599,999 = 6% During the course of last year one most realize that only so many listings come onto the market in 12 months and only so many sell. What is surprising is the amount that sold is so low.

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Oahu SFH December '10 Year to Date Odds of Selling ALL PRICE RANGES

0

200

400

600

800

1000

1200

1400

1600

Jan.'10

Feb.'10

March'10

April'10

May'10

June'10

July'10

Aug.'10

Sept.'10

Oct.'10

Nov.'10

Dec.'10

For SaleSold

Oahu Condo December '10 Year to Date Odds of Selling ALL PRICE RANGES

0

500

1000

1500

2000

2500

Jan.'10

Feb.'10

March'10

April'10

May'10

June'10

July'10

Aug.'10

Sept.'10

Oct.'10

Nov.'10

Dec.'10

For SaleSold

More along the lines of “Should I ask my Barber if I need a Haircut” is the Honolulu Board of Realtors President was quoted by the Honolulu Star Advertiser ‘that prices were looking up and the market is getting much better due to the rise in percentage list to sell ratios.’ Really?

Oahu SFH December '10 Year to Date % Sold At Full Price Or More

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jan.

'10

Feb. '1

0

March '

10

April '1

0

May '1

0

June

'10

July

'10

Aug. '1

0

Sept. '

10

Oct. '1

0

Nov. '10

Dec. '10

% Sold AT FullList Price Or More

% Sold AT FullList Price Or MoreWITHOUT RE-LISTING ORPRICEREDUCTION

Oahu Condo December '10 Year to Date % Sold At Full Price Or More ALL PRICE RANGES

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Jan.

'10

Feb. '1

0

March '

10

April '1

0

May '1

0

June

'10

July

'10

Aug. '1

0

Sept. '

10

Oct. '1

0

Nov. '10

Dec. '10

% Sold AT Full ListPrice Or More

% Sold AT Full ListPrice Or MoreWITHOUT RE-LISTING OR PRICEREDUCTION

There is so much mis-information out there concerning the Real Estate Market it is no wonder no one knows what is going on. Realtors, Agents all receive a sales report each month from the Honolulu Board of Realtors so in my opinion they are slightly in tune, but when you cannot rely upon the numbers the Board is putting out, what do you do? My advice is you do your own research and of course call me. I will tell what is going on. I will not tell you it is “Great Time to Buy” or that “You Need a Haircut.” I do this because I want your trust and your business. You also deserve to have the ‘straight story’ from someone who will give you the ‘whole picture.’ When it comes to Sellers, it seems they do not really want to hear what their home is worth from a Realtor and will list with the first Realtor who promises ‘the moon’ on sales price. Then when the home does not sell, no problem, the Realtor 5

simply asks and typically receives permission to continually lower the asking price until the home is sold. If that does not work, the Realtor will keep successively re-listing the property and dropping the price until the home sells, all the while the market is heading down and ultimately the Seller looses a ton of money in the ultimate sales price. Kalaheo Hillside in Kailua for example: 19 sales, Total Market Time for all listings, combined: 135 months or 7.10 months / listing. Total combined listing price: $14,646,800. Final combined Sold Price: $13,662,900. Between the initial asking prices and the final sold price the difference is -$983,900 in Price Reductions and loss of Equity for an average loss of -$51,784.21 per listing sold. How many times were 19 homes sold in Kalaheo Hillside Re-Listed by the same agent? The answer is 32% of the time. If you are going to sell your property this year, do it correctly. Just do not listen to what you want to hear.

December 2009

6 Note: Average Prices are within the Area’s Boxes. Not Medians.

Inventory

Much has been said about inventory this year. It IS the single widely used ‘Buzz Word’ in the industry and rightfully so. “Inventory is tight.” “There is not enough inventory.” “Better buy as soon as you see something with these interest rates.” “Inventory is so low, prices are going up.” We have all heard this over the course of year 2010 and for the most part it is true, but it is not the “Whole Picture.”

Months of Supply Months of Supply = Total Sales, Year to Date divided by the number of months and dividing the current For Sale inventory by the answer. 7

Yes, the inventory situation is great for Oahu home sales and prices. Anything under 6 months of supply is considered by the industry as a “Seller’s Market.” Yes, prices are stabilizing and in some areas on Oahu prices are rising. You still have to look at the whole picture to know what is going on. Back in November and December 2010 For Sale inventory started to rise in certain areas on Oahu. In large part the areas that are affected are the more expensive areas of the Island as in 2010 we witnessed a significant rise in high priced homes coming onto the market. I do not believe this will be much different in year 2011, in fact, I believe this trend will increase as more and more expensive homes come onto the market in larger numbers in 2011. One scenario suggests that would be sellers are looking at the opportunity they have with low inventory and stabile and sometimes rising prices.

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The ‘other’ scenario, more in line for the high priced would be Seller is that they are going to get out ‘while the getting out is good.’ For instance:

Oahu SFH November '10 Year to Date Odds of Selling $2,000,000+

0

50

100

150

200

250

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept. '10 Oct. '10 Nov. '10

2,000,000+ For Sale

2,000,000+ Sold

Oahu SFH November '10 Year to Date Odds of Selling $1,000,000-$1,499,999

0

20

40

60

80

100

120

140

160

180

200

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept.'10

Oct. '10 Nov. '10

$1,000,000-$1,499,999For Sale

$1,000,000-$1,499,999Sold

Oahu SFH November '10 Year to Date Odds of Selling $600,000-$699,999

0

20

40

60

80

100

120

140

160

180

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept. '10 Oct. '10 Nov. '10

$600,000-$699,999For Sale

$600,000-$699,999Sold

Oahu Condo November '10 Year to Date Odds of Selling $800,000+

0

50

100

150

200

250

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept. '10 Oct. '10 Nov. '10

$800,000+For Sale

$800,000+Sold

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Oahu Condo November '10 Year to Date Odds of Selling $300,000-$349,999

0

20

40

60

80

100

120

140

160

180

200

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept. '10 Oct. '10 Nov. '10

$300,000-$349,999For Sale

$300,000-$349,999Sold

Oahu SFH December '10 Inventory

0

500

1000

1500

2000

2500

Jan.'

07

March'0

7

May'07

July'0

7

Sept.'0

7

Nov.'07

Jan.'

08

March'0

8

May'08

July'0

8

Sept.'0

8

Nov.'08

Jan.'

09

March '

09

May '0

9

July

'09

Sept. '

09

Nov. '09

Jan.

'10

March '

10

May '1

0

July

'10

Sept. '

10

Nov. '10

Oahu Condo December '10 Inventory

0

500

1000

1500

2000

2500

3000

Jan.'

07

March'0

7

May'07

July'0

7

Sept.'0

7

Nov.'07

Jan.'

08

March'0

8

May'08

July'0

8

Sept.'0

8

Nov.'08

Jan.'

09

March '

09

May '0

9

July

'09

Sept. '

09

Nov. '09

Jan.

'10

March '

10

May '1

0

July

'10

Sept. '

10

Nov. '10

Distressed Property

Distressed Property: Foreclosures, Bankruptcy, Short Sales, Probate, Lender Sale.

Another “Buzz Word” we heard a lot of in 2010: “Foreclosures.”

Distressed Property

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I have created the above Map to show the current Months of Supply of homes For Sale that are Distressed Properties. The GREEN Arrows are Condos and the RED Arrows are Single Family Homes (S.F.H.) The direction of the Arrow, Up or Down indicates whether or not the stats for any particular neighborhood is below or above the Oahu Averages. According to the common explanation for Months of Supply, anything less than six Months of Supply is considered a Seller’s Market. The overall Oahu Months of Supply for Distressed Property is 6.27. This indicates it is still a Buyer’s Market. Not all areas of Oahu are Buyer’s markets. Ewa S.F.H.’s and Condos, Kapolei S.F.H.’s, Hawaii Kai S.F.H.’s and Condos and many more areas are Seller’s Markets. The largest areas on the Island with the most amount Distressed Property Months of Supply are Waikiki and North Shore Area Condos, both exceeding 14 Months of Supply.

Oahu SFH December '10 Year to Date Distressed Property Odds of Selling ALL PRICE RANGES

0

50

100

150

200

250

300

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept. '10 Oct. '10 Nov. '10 Dec. '10

Oahu SFHFor Sale

Oahu SFHSold

Oahu Condo December '10 Year to Date Distressed Property Odds of Selling ALL PRICE RANGES

0

50

100

150

200

250

300

350

Jan. '10 Feb. '10 March'10

April '10 May '10 June '10 July '10 Aug. '10 Sept. '10 Oct. '10 Nov. '10 Dec. '10

Oahu CondoFor Sale

Oahu CondoSold

Oahu % of Inventory Distressed Properties to Total Available Inventory

0%

5%

10%

15%

20%

25%

June December

Oahu SFH % of For Sale InventoryDistressed Property

Oahu Condo % of For Sale InventoryDistressed Property

Ewa % of For Sale Distressed Properties to Total Available Inventory Ewa

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

June December

Ewa SFH % of ForSale InventoryDistressed Property

Ewa Condo % of ForSale InventoryDistressed Property

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Leeward SFH % of For Sale Inventory Distressed Property to Total Available Inventory

37%

37%

38%

38%

39%

39%

40%

40%

41%

41%

42%

June December

Leeward SFH % of For SaleInventory Distressed Property

Waipahu Area % of Inventory Distressed Property to Total Available Waipahu Area Inventory

0%

10%

20%

30%

40%

50%

60%

70%

June December

Waipahu Area SFH % ofFor Sale InventoryDistressed Property

Waipahu Area Condo %of For Sale InventoryDistressed Property

Oahu SFH December '10 Year to Date Distressed Property Units For Sale

Diamond Head 131-138

Metro 111-129

Kailua

Hawaii Kai

Kaneohe SFH

Ewa

Makakilo

Mililani Area

Mililani Mauka

Leeward 181-189

Waipahu 194-194

Central 172-177

Pearl City 196-199

Oahu SFH December '10 Year to Date Distressed Property Units Sold

Diamond Head 131-138

Metro 111-129

Kailua

Hawaii Kai

Kaneohe SFH

Ewa

Makakilo

Mililani Area

Mililani Mauka

Leeward 181-189

Waipahu 194-194

Central 172-177

Pearl City 196-199

Oahu Condo December '10 Year to Date Distressed Property

Units For Sale

Diamond Head 131-138Metro 111-129Kailua Hawaii Kai Kaneohe SFH Ewa Makakilo Mililani Area Mililani Mauka Leeward 181-189Waipahu 194-194Central 172-177Pearl City 196-199

Oahu Condo December '10 Year to Date Distressed Property Units Sold

Diamond Head 131-138Metro 111-129Kailua Hawaii Kai Kaneohe SFH Ewa Makakilo Mililani Area Mililani Mauka Leeward 181-189Waipahu 194-194Central 172-177Pearl City 196-199

Even More Important than For Sale and Sold is “Where we are headed?”

Oahu SFH December '10 Distressed Property Units In Escrow (A.C.S.)

Diamond Head 131-138

Metro 111-129

Kailua

Hawaii Kai

Kaneohe SFH

Ewa

Makakilo

Mililani Area

Mililani Mauka

Leeward 181-189

Waipahu 194-194

Aliamanu

Central 172-177

Pearl City 196-199

Oahu Condo December '10 Distressed Property Units In Escrow (A.C.S.)

Diamond Head 131-138

Metro 111-129

Kailua

Hawaii Kai

Kaneohe SFH

Ewa

Makakilo

Mililani Area

Mililani Mauka

Leeward 181-189

Waipahu 194-194

Central 172-177

Pearl City 196-199

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Oahu had had its fair share of Foreclosures and like Distressed Properties this year. Overall, we are ‘not like the Mainland’, thank goodness. Our current inventory in Distressed Properties is manageable and much lower than the Mainland. The question is: “Is what is happening on the Mainland going to affect us here?” From the Wall Street Journal: "Number of the Week: 103 Months to Clear Housing Inventory" 103: The number of months it would take to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years, at the current rate of sales. How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.

Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier. From Corelogic:

December 13, 2010, Santa Ana, Calif. ‒

CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released negative equity data indicating a third consecutive quarterly decline

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in negative equity for residential properties. CoreLogic reports that 10.8 million, or 22.5 percent, of all residential properties with mortgages were in negative equity at the end of the third quarter of 2010, down from 11.0 million and 23 percent in the second quarter. This is due primarily to foreclosures of severely negative equity properties rather than an increase in home values.

During this year the number of borrowers in negative equity has declined by over 500,000 borrowers. An additional 2.4 million borrowers were near negative equity with less than five percent equity in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

"Negative equity is a primary factor holding back the housing market and broader economy. The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity," said Mark Fleming, chief economist with CoreLogic

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Oahu Median Sold Price

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

2006 2007 2008 2009 2010 Estimate

Oahu SFHMedian SoldPrice

Oahu CondoMedian SoldPrice

Mike Gallagher’s Predictions for 2011

Based upon what we have learned from year 2010, we can honestly say “We are not the Mainland.” I also conclude that if we are not the Mainland, we will still be affected by transpires on the Mainland in 2011.

“What will transpire on the Mainland?”

• Increased Delinquencies, Foreclosures, Short Sales and Equity Loss resulting in reduced Sales Prices.

• Continued high Unemployment, higher personal Taxes and ineffective

Congress.

“What will transpire on Oahu?”

• Increased Delinquencies, Foreclosures, Short Sales and Equity Loss resulting in reduced Sales Prices.

• Continued high Unemployment, higher personal Taxes and a Hawaii Government that will continue to add to the State and City & County Employee rolls and Social Program funding.

• We will see a higher State G.E. Tax, a State Income Tax increase and a

Property Tax increase. This will be done in an effort to create jobs through increased Taxation and Public works projects, which is exactly what we are seeing now on the Horizon in The Rail, Sewers, Water infrastructure work.

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Oahu Median Sold Price Predictons

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

2006 2007 2008 2009 2010 Estimate Dec. 2011

OahuSFHMedianSoldPriceOahuCondoMedianSoldPrice

It is my hope that you have enjoyed reading this report and that you have gained some market knowledge that will prove valuable to you during the coming year. I encourage you to ask questions, do your own research and give me a call to help you buy or sell your next home.

Happy New Year! Mike Gallagher Broker in Charge, Abe Lee Realty Ethics Complaints Review Committee Member, Honolulu Board of Realtors www.hawaiirealestatestatistics.com www.aroundhawaii.com

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