Experts say market should be stable and slow, which is good news

  • Paul Brewbaker
  • Matthew Gardner

KAILUA-KONA — Boring can be good. And the next couple of years look exactly that — calm and dull.

Say goodbye to those wild spikes in the housing market that the country has grown used to. In 2019 and 2020, the economic outlook around the national scene is expected to grow at a snail’s pace.

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Home sales should inch up 2 percent by 2020, home prices by around 3.6 percent. The Gross Domestic Product, meanwhile, should plod upward at around 2 percent.

Ho hum. But boring can be good because boring is normal.

“People have forgotten what a balanced housing market is,” said Matthew Gardner, Windermere Real Estate chief economist.

Gardner delivered his forecast Monday during the inaugural Hawaii Island Economic Summit, hosted by Windermere C&H Properties, at the Courtyard King Kamehameha’s Kona Beach Hotel.

With 28 years of experience in the U.S. and United Kingdom, Gardner is a numbers cruncher who’s job is to trying to find bad news before it happens. He told the crowd he couldn’t too much negative in this particular case because his research shows him that the market is returning to a steady state, which he called the “Goldilocks Zone.”

“That’s an economy that’s not too hot, not too cold, it’s just right,” he said.

People shouldn’t expect the boom-and-bust cycle of the last 20 years and data and trends point to reasons why. The FED has kept interest rates static, unemployment will be at 3.7 percent at the end of the year and the GPD, as mentioned, will inch upward over the next few years. Mortgage rates shouldn’t won’t hit 5 percent mark on a 30-year fixed mortgage by 2020, either.

“That’s remarkable,” said Gardner, who also chairs the board of trustees at the Washington Center for Real Estate Research at the University of Washington.

As a comparison, mortgage rates were at 20 percent at one point in 1982.

“I’m trying to find bad stuff,” he said. “I’m having a hard time in the housing market.”

The free event was open to business owners, community leaders and the general public to give them chance to hear about the latest economic trends — from the global scale to the local markets — at what organizers plan to be the first in an annual series of summits.

The outlook wasn’t all roses, however.

Nationally, there are still trends to keep an eye on. A resolution to the Trade War with China needs to happen. As it is, tariffs are hitting products associated with home building from aluminum to lumber. Also, a 4-4.5 percent wage growth is expected next year, which should help potential home buyers, but stagnant wage growth over the last couple of years stunted the market. All that aside, one can expect a small recession — “very minimal,” as Gardner put it — by the end of 2020.

On Hawaii Island, the outlook is a bit murkier.

One wild card yet to play out is what Hawaii County Bill 108 will put on the second home market. The new rule requires regulation of short-term rentals of property where the owner doesn’t live on-site.

Another unknown is whether tourism numbers will rebound to pre-eruption levels. The volcano raged from May 3 to early August, decimating more than 700 homes. Total visitors to the island dropped by 2.5 percent in 2018 from 2017, decreasing by about 50,000 to 1,718,181. Numbers are down in January and February of this year as well.

Will it ever rebound?

It’s starting to appear as the though the volcano’s impact on the market could be game changer, not a small trend, much the way what the Great Recession or the 9/11 attacks did.

“It’s starting to look like it,” said Paul Brewbaker, TZ Economics principal and economist, who spoke about the local trends during the summit. “So far, the jury is still out.”

He echoed Gardner’s opinion that Hawaii’s market, too, will “return to a kind of normal we haven’t seen.”

Valuations can be expected to rise at a 2.4 percent clip. But Hawaii should keep its eyes on other factors. It’s GDP is increasing at 1.8 percent, less than the nations, and migration out of the state continues to be a factor.

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Inventory, for a variety of factors, is too low, as well. Whether that is local permitting issues slowing the building process or restrictive rules already placed upon available land, Hawaii Island could look at what it can do itself to alleviate roadblocks.

“We’re making up the constraints,” he said.

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