I just returned after sixteen days on Maui chasing wind and looking at real estate.  The wind by the way was awesome, as always, and I even got my back-loops wired on my foilboard.  For those of you who have not read my profile I’m big into wind and ocean sports, mainly kitesurfing and foilboarding.  Maui is a mecca for wind and ocean sports and if I could, I’d call it home.  Our plan when we sold our Belmont Shore home in October of ‘06 was to reinvest some of our gain in income property (we bought seven rentals in Texas) and potentially buy a place on Maui where we could eventually spend a good part of the year chasing wind and waves.  I knew at the time Maui was overpriced as were most major US housing markets.  Our realtor over there has kept me abreast of the market for the last two years.  Periodically I would look at a closed sale by pulling public records to see what kind of financing the buyer’s had utilized.  As I expected, most of the properties were being purchased with little or no money down and were showing ARM’s as the main financing instruments.  I also noticed that the days on market (DOM) were extraordinarily high ranging from 180 to over 420 in quite a few cases.  The norm seemed to be between 320 and 390. 

Back to the trip.  We arrived on May 17th and began looking at properties the very next morning.  I also began talking to some of the local business proprietors who actually shared some compelling information regarding an upcoming retraction in consumer spending.  One woman in particular was a psychologist who noted quite specifically that her business was off over 30%.  Her take on the down-turn was simple - therapy is a luxury, not a necessity, and her clientele’s spending habits are now less luxurious.  The same held true with other sectors of the local economy.  I spoke with a couple of ‘activities’ brokers - you know, the guys who book you on a dive boat to Molokini, or on a sunset cruise, or on a helicopter tour.  Their consensus was identical to the psychologist’s.  Business was off at least one quarter versus the prior year.  Kitesurf lessons, equipment rentals, and many other extras that typically thrive on the island are now feeling the pinch.  I know and talked to these business owners about their feelings on the economic outlook and none were rosy.  Flights were full though - I just think people are not spending as much when they get there.

Another interesting fact was the absolute lack of land sales in the Haiku area where Jeanine and I are interested.  One development in particular Peahi Farms was subdivided a few years ago and made available for sale approximately two years ago.  There are 16 lots total, most of them about 2 acres with unbelievable ocean views and technicolor surroundings that put postcards to shame.  The price tags range from $1.3 to $2.995 million.  Only one lot has sold - a very telling fact.  The entire project was actually taken off the market and ‘repackaged’ recently as an environmentally friendly project - which I don’t understand because their market are people who will build absolute monstrosities and could care less about ‘wind farms’ or ‘composting’ or any other ‘green’  twist they put on these lots.  These are estate lots, plain and simple.

Up the hill from Peahi Farms is another five lot subdivision that went on the market in late November ‘06.  These lots are all about 3.25 acres with one lot at 6.17 acres.  The prices range from $590k to $749k.  Not one lot has sold.  I can go on and on.  I’m looking at a list of land sales (over 2 acres) in Haiku - which is a large market on Maui.  In the last six months there have been only seven sales - three of them were non-arms-length transactions and should not be counted.  The closing prices of the four ‘real sales’ were anywhere between 35% and 50% below the asking prices of currently listed comparable properties.  In other words current sellers are chasing a market (price-wise) that virtually does not exist.

Now you have to remember that over the last five or so years Maui, like many other markets was as hot as my wife’s body - which is smokin’.  Condos over there went so fast you could hardly count the days on market.  Prices were whatever seller’s wanted.  Buyer’s could qualify for anything - literally.  Building fueled labor and spending.  Tourism had rebounded from 9/11.  Home equity loans supported or at least supplemented entire lifestyles.  High credit scores circumvented sound underwriting.  Entire populations were manipulated into believing it would never end.

Well guess what, it has ended.  Maui land sales screached to a dead halt.  A trickle of existing homes in affordable price ranges are making it through escrow.  The ones that do are well below asking price.  It seems only the truly wealthy are pulling the trigger at full pop.  With a high percentage of second home speculation on the island, which I believe will be the final nail in the coffin, it is now just a matter of time.  Maui, like all other markets will suffer similar foreclosure rates and their economy is highly susceptible to recession.

Of course, I could be wrong.  The Fed could potentially manipulate us out of this impending slump - but I don’t think so.  I think they can forestall it, but they can’t undo it.  Free markets have a funny way of working themselves out.  I’m counting on it.  Come visit me in 2009 when I buy my lot and put up a slick looking modular home.  Until then - Aloha…

Note: The reason I focus on land sales over 2 acres is that there is a tax incentive to buy ‘agricultural’ lots on Maui - which are very popular on the windward side of the island.