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®.
HONOLULU (APRIL 13, 2020) — In an 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
ofKilauea’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
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.
Released by Hawaii Information Services