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Real Estate Cycles and the State of Kauai’s Real Estate Market 2018

There have been a lot of questions and theories of the cyclical nature of the real estate market and if we are at the top of the cycle headed for a bottom. According to the real estate researcher, Homer Hoyt, observed in 1933 real estate cycles last approximately 18 years. Now if you follow this school of thought we are approximately 10 years into an 18-year cycle. I don’t necessarily believe or disbelieve in the 18-year cycle theory. I do believe in common sense when it comes to real estate investing.

 

The last national real estate crash was due to a few main factors. Although I’m not an expert on a national level I feel the factors that cause a national crash are the same factors that caused our Kauai real estate market to crash in 2009:

 

  1. Subprime mortgages. These mortgages are the mortgages that were given to people who did not have the income to qualify for traditional mortgages. In some cases the homeowners and/or buyers did not even have jobs or any income. Mortgages were given based on current equity in the homeowner’s homes or made up income. Once that money was gone they could no longer afford their mortgages.
  2. Unwise real estate speculation. In 2005 & 2006 people were buying real estate with the only intent to do a quick flip. This worked out for the early investors but left the end investor holding a bag on a property they were over mortgaged on. Also because of the buying competition, buyers did not do enough research on the properties they were buying. Some properties had issues that were not addressed.
  3. The crash of the economy fueled the crash of the real estate market. Even people who did qualify for their loans loss their jobs or a considerable amount of income. Homeowners were underwater.

 

The 2009 real estate crash was a stressful time for a lot of homeowners, especially those who loss their homes. Understandably buyers and investors don’t want to go through that experience again. So are we in the peak soon to crash? Here are my thoughts:

 

    1. The Kauai real estate market is strong. Qualifying for loans is extremely tight and through process. Banks had been over cautious at first. They have let up a little but so far I have only seen 1 lender offering sub-prime loans. There are not going to be a lot of loan defaults as there were in past years.
    2. Many of our buyers are not just buying for pure speculation but more for wanting to live and/or visit Kauai. It’s a more committed buyer.
    3. I don’t have ability to predict the national economy. Especially when recent politics is causing some kinks in our otherwise economy. A 3rd world war would definitely strain our markets. However past acts of terrorism had actually increased Kauai’s tourism as it was deemed a safer place to travel.

 

Here are some numbers to help you decide where we are on a cycle, if you believe in cycles.

 

Year Jan-Jun Fee Simple properties sold End of the year Fee Simple properties sold
2004 797 1565
2005 785 1725
2006 946 1508
2007 508 864
2008 312 561
2009 202 479
2010 332 692
2011 382 750
2012 426 867
2013 483 972
2014 526 967
2015 467 964
2016 508 1064
2017 601 1196
2018 620  

Kauai graph predictions

Instead of cycles I believe more in charts with the arrows going up & down but in general the lines that show the market steadily increasing.

In general real estate is a steady investment. It’s best to talk to a Realtor and an investment advisor or CPA to find the best strategy for you.

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