Covid-19’s Effect on Hawaii Real Estate Market

By April 14, 2020

Covid-19 Effect on HI Real Estate

Knowledge is Wealth!

I usually start off the first article of my newsletters with a cheeky and humorous opening story. However, I will refrain from that this time because of the horrific and tragic situation humanity is now finding itself in as a result of Covid-19. As of this writing the US has witnessed over 605,000 known infections and over 24,500 deaths, more than any country in the world, surpassing Italy. It has been projected to eventually cause 60,000 deaths in the US and reach up to 1 million in the world. It is essentially WWIII with all of humanity pitted against Covid-19.

Just as horrific as the death toll, the havoc caused on the world economy has surely pulled most countries’ economies into recession already. 6.6 million Americans have applied for unemployment benefits with overall unemployment reaching 13% – the worst since the Great Depression. In a previous newsletter I had predicted that a very light recession at the beginning of 2021 would occur and it looked like we were on that trajectory. That is until Covid-19 hit us. The reality is now a worldwide recession caused by the WWIII Covid-19 war we are fighting. The recovery will also be similar to what has been experienced after the occurence of major or previous world wars. Recoveries in those times usually take a bit longer but once they do occur, periods of economic booms usually follow. I am hopeful that it will be the same case for this WWIII Covid-19 war we are in.

How will all of this affect the Economy and Real Estate in Hawaii? As we all know a major component of the economy in Hawaii is tourism and world wide it has ground to a halt. Anyone arriving on a plane in Hawaii has to go thru a mandatory 14 day quarantine, flights have basically ground to a halt except for online deliveries e.g. Amazon deliveries etc which are so busy we are seeing 1 month delivery times. In reality 23% of the Hawaii Economy is derived from tourism. That is quite a significant amount but the other 77% (everything else) is even more significant and could be jump started more quickly (more on this below). For tourism to get back to 23% the ultimate panacea will be a vaccine for Covid-19 which is probably still 12 months away. I think before then we will see some moderate success in drug treatment e.g. drugs like Leronlimab etc. which are going thru trials now. To just get back to even half of the tourism to Hawaii, we will have to get well beyond peak infections and very strict testing be in place so potential visitors can verify they have been tested for Covid-19 (and don’t have it) before they get on a plane. I have no crystal ball but my best guesstimate is we are many months away (as long as a year?) from reaching even half the normal amount of tourism as before WWIII Covid-19. If Hawaii can manage to keep infections low and under control, we could market ourselves as the safe Covid-19 free destination – in that case tourism could possibly rebound more quickly.

How do we jumpstart the other 77% of Hawaii’s economy? Thankfully this should be much easier than tourism. Social Distancing, lockdowns, closing schools etc. seemed to have worked well to keep the infection rate in Hawaii relatively low. However, and unfortunately, this is also what has been keeping our economy on lockdown as well. These restrictions will have to be eased but in order to do so the following must first be implemented.

  • Visitors to Hawaii will have to show proof of being tested before catching their flight to Hawaii (or anywhere else for that matter).
  • Fast, easy, inexpensive and reliable tests for Covid-19 have to become readily available with results in hours, not days. 
  • Some continued but hopefully less strict form of Social Distancing.
  • Contact Tracing – Basically what this means is when someone tests positive for Covid-19, tracing back to every single person he or she came in contact with during the previous 14 days.

The first two bullet points above should be attainable in the near future. It’s a matter of logistics and manufacturing lots of test kits, make them available in stores. In parallel we may start seeing children taking their own temperature at school as part of their daily routine. Regarding Social Distancing we will see restaurants open up again but probably follow the example of places like Singapore and Hong Kong where tables are placed further apart. I can imagine a situation – not sure how it will play out – where just as you show your ID to get into a bar or order drinks, you will have to show proof at the door you have been tested for Covid-19 recently. The more difficult Contact Tracing will be the hardest to implement but will still be achievable. Right now it’s mostly an “analog” process where investigators ask the infected person to retrace his or her steps to every place and everyone he/she had come in contact with. The investigator then calls those people to warn them to self quarantine while ideally a family member picks up a test kit and results are back in hours. The “digital” form of Contact Tracing which I have heard about is being worked on now. It would most likely work like an app to be installed on everyone’s phone that automatically keeps track (anonymously) of everyone that came within a few feet of you within the last 2 weeks (I’m imaging an airdrop bluetooth like app). Once an infected person is discovered an automatic text message would then be sent out to everyone he/she has been in close physical contact (say within a few or 6 feet) with for the last 2 weeks.

As for the question of how WWIII Covid-19 will affect the real estate market in Hawaii? I will not sugar coat my response. If you look at the market stats (see last section of this newsletter) everything looks like it was rosy in March. Closed sales and prices for single family homes up etc. However, this doesn’t take into account that when Hawaii’s lockdown started on March 25th, most all transactions closing were already in escrow from at least 30 days prior to that. April will slow significantly and we are already seeing double digit declines in new listings.

Unfortunately there will be home owners that will absolutely need to sell during this recession and it will likely turn into a buyers market across the board. Hopefully extremely low interest rates will help mitigate that somewhat. If you are a buyer, now would actually be a good opportunity to negotiate the best fair price on a home or condo for the above reasons. If you are a seller and you must sell then my advice would be to make your home stand out, spend some money to get it looking nice (new carpet, flooring, paint and minor renovations will return the most value per $ spent). Whether you are a buyer or seller please do not hesitate to contact me, Damon Rhys, and I would be more than happy to customize the best strategy that meets your real estate goals! Call Me!

Knowledge is Wealth!

Aloha!

Damon

*Disclaimer: Any opinions expressed in this newsletter are that of Damon Rhys only and do not necessarily reflect the views of his brokerage firm, Sachi Hawaii Pacific Century Properties. Though knowledgeable including Management Science / Quantitative Economic Decision Science & Master (MPIA) Degrees from the University of California, Damon Rhys is a licensed Realtor in the state of Hawaii. He is not a licensed Financial Advisor. For any specific investment decisions, it is advised that one consults with a licensed financial advisor.

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