Economist unpacks disruptions to Kauai, Hawaii Island real estate

Paul Brewbaker shares his COVID-19 analysis and forecast with a joint meeting of three boards of REALTORS®.

News Release from Hawaii Island REALTORS®

HONOLULU (APRIL 13, 2020) -- In a historic joint presentation to three REALTOR® associations on two islands, prominent Hawaii economist Paul Brewbaker provided his insights on the impact of COVID-19 on the Hawaii economy, the real estate market, and prospects for Kauai and Hawaii Island specifically.

Brewbaker gave a wide-ranging hour-long live presentation to over 500 members of the Kauai Board of Realtors®, the Hawaii Island REALTORS® and the West Hawaii Association of Realtors®. All three are customer boards of Hawaii Information Service, their Multiple Listing Service (MLS) and a statewide real estate tech and data firm.

“As you know everything was fine until four weeks ago, and then we went off a cliff together,” Brewbaker said. “But for the contagion, really nothing was fundamentally wrong with the economy.”

Brewbaker was working with home sales and active listing data through March 30, 2020, provided by HIS, to prepare his “Hawaii Real Estate 2020” report.

He discussed the COVID-19 pandemic as a “Black Swan” event -- rare, unpredictable, and impactful, like the Sept. 11 terrorist attacks in 2011, the collapse of Lehman Brothers in 2008, and the global equity market meltdown in late 2018 as the result of the U.S.-China trade war.

“These events are worth remembering,” Brewbaker said. “They’ve never been as big as the one we’re experiencing right now, but when things go back to normal, normal will still have these shocks.”

He noted that Hawaii had just had its own “Black Swan” event with the 2018 eruption of Kilauea’s east rift zone in Puna.

“The East rift zone eruption was a speed bump in increasing valuations,” Brewbaker said. “If you’re willing to bet that whatever made the neighbor islands attractive will continue to be factors influencing investor decisions going out into the 2020s, there’s no reason to believe a path like this couldn’t be restored.”

In terms of the distribution of home prices, he said Hawaii Island has lower numbers because the East Side of the island has the state’s most affordable properties. The Kona side is more similar to Kauai in terms of pricing, and the Hilo side is more similar to Kauai in terms of transaction volumes.

The key question put to Brewbaker was what the future would look like for Hawaii real estate.

“If you say you’re doing forecasting right now, you’re not,” he said, noting that the current situation is of a scale never before observed. “But I would expect a pull back in sale volumes and some compression in valuations.”

He was also optimistic about some of the changes seen across the industry, such as transaction acceleration through paperless, all-digital tools, and the adoption of virtual tools for property showings and other work. We might also see shift toward less dense, less urban communities, he said.

When asked when things would stabilize in a “new normal,” Brewbaker said a lot depends on what Hawaii does right now.

“If we get the daily case counts down, we implement contact tracing, isolation, and quarantine, maybe in a year -- maybe in 18 months -- we’ll reach the day when a version of herd immunity or a vaccine becomes available,” he said. “But my own impression is that the state is not leading as much as following, and not following fast enough.”

Following Brewbaker’s presentation, he answered questions from REALTORS® during the video conference, then provided written answers to the remaining questions. Recorded video of his presentation, his presentation slides, and written answers are now available to MLS members.

Hawaii Real Estate 2020 Takeaways

Brewbaker provided the following five key takeaways:

1.  Hawaii COVID-19 case counts are responding to social distancing and sheltering-in-place protocols, "bending the curve" in successful mitigation, leading to a possible stabilization by May, at which time risks of revived pandemic infection will have to be managed (contained).

2.  The sudden emergence of Hawaii's coronavirus infectious threat precipitously decreased new home listings for sale, international and domestic travel, and interest rates, and has also disrupted supply chains and clouded the investment outlook, even for ongoing construction and development.

3.  Big Island regional and Kauai housing markets were in a relatively stable, extended trajectory of modest, single-digit annual price appreciation and sales volume growth. This trajectory will be disrupted by the sudden stop associated with the novel coronavirus, but it can still serve as a reasonable longer-term benchmark for housing market returns on investment during the inevitable recovery.

4.  Among the lessons from the global influenza pandemic from one century ago (1918-’19) are the facts that recession can be sharp but comparatively brief, that risk of second or subsequent infection waves must be taken seriously, and that it's easy to forget how the risks of Black Swan events are ever-present.

5.  With tourism as Hawaii's principle export, and primary channel of transmission of the pandemic's economic effects abroad (although not infection, 80 percent of which in Hawaii was introduced by returning residents), prior experience does not compare in magnitude of economic impacts, but does offer insights into the V- and U-shaped nature of these experiences.

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