 All right, welcome back. I'm Jay Fidel. This is Think Tech. More specifically, this is the life of the land is in its real estate. We're talking about real estate today with Keena Nisley. Hi, Keena. Say hi. Hi. How are you? Pretty good. I'm healthy anyway, you know, one day at a time, right? Let's stay that way. We live in a time where you worry about it all day long. That's one of the reasons we do these shows, so we don't have to think about it during the show. We can just talk about it during the show. Yes. Anyway, so what we have is a very peculiar real estate market right now. We haven't discussed the details in the past, but I'll just make a wild guess and say it's as flat as it can possibly be. Am I right? We're still seeing a little bit of movement with those that were already shopping, already pre-approved in the process of looking. So Eskos are still getting opened, but now we're going to deal with the backlash of the interest rates. The interest rates have raised drastically over the past two days. Let's talk about that. What has happened with interest rates in the past few days? They've gone up, up, up. So right today, a conventional loan is at 5.1 and a VA is at 4.3. So we were seeing the twos for about a day. And so what happened is when we saw the twos and the very low interest rates were the lowest in years, we had a rush on refis and purchases. So the banks became overwhelmed with all these notes, all these loans. What a bank does essentially is they sell off their loans to third parties. Well, the third parties didn't want to buy the loans because there were so many. So imagine you sell t-shirts and somebody, your t-shirts are $20 each. One person comes up and says, I want to buy 50 t-shirts, but I'm only going to pay you $10 each. So you do it, right? Because you're going to sell 50 t-shirts. Well, then one person comes up and you need to make up some money because you just sold 50 t-shirts for $10 less than you expected to each. One person comes up to buy one t-shirt and you say, they're $25 because you're trying to recoup some money. So that's what's happening right now with the market. The banks are not getting the value of what they need to make up the cost of these loans they've already approved. So they're trying to make up the money from the ones they use t-shirt buyers. How has that happened and how has that connected with coronavirus? I mean, we knew the Fed was dropping rates to an amazing low degree, like zero or very near zero. So the zero rate was not for a mortgage. We will never see a 0% mortgage. The bank has got to make money. The zero rate was for short-term loans. It was costing lenders and companies less money to 0% to borrow money. They weren't passing that on to the mortgage to the home buyers. So we'll never see a 0% mortgage rate just because a lender is always going to need to make money. But because it did low, we did expect that it would go up a bit but it would even back out quickly. But now because the mortgage interest rates dropped and the lenders had the rush, now we're seeing a very high spike and it is definitely not going to come down as quickly as it went up. Okay, so what does this mean to me? Let's say I'm in the market. I doubt I would be at this time because nobody knows what's going to happen with the virus. But is this a good time or maybe not a good time to buy a house? Right now, I think it is a good time for a buyer. You may be able to get a great deal because sellers are becoming scared thinking they're not going to be able to sell their house. But with that, because the sellers are getting a little more apprehensive to put their house on the market. Now what we're going to see is even we've always had low inventory in Hawaii. That's always been a problem. So we may see even lower inventory because the sellers are afraid they're going to get low ball offers. So they're holding back. So now our inventory is even going to dip further which is then going to make it harder for a buyer to find a home. Interesting. Let's look at it this way though. Tourism is down by an extraordinary percent in the way for at least a few weeks and that's optimistic. And the economy in general in terms of people with jobs and income, that's way down. It's going to stay that way for at least a few weeks. I'm not sure that bailout money from the government or unemployment insurance type payments are going to help to excite the market. So I think what we're going to have, what we are having is a recession and because Hawaii is a mono economy and tourism that's going to be a serious recession. There's going to be nobody around who has the, I shouldn't say nobody, but very few people who are going to have the impetus or the cash to do a real estate deal. And if they don't know it yet, they're going to know it soon. In days or even hours they're going to know it. So isn't that going to depress any transactions? So we are seeing some of our transactions now because of this virus and because of the layoffs, the fewer flights going in and out, people who are in a transaction now before they can close a mortgage, the lender asks for your proof of income and your proof of employment. So even if they were approved for a loan 40 days ago, the typical escrow is 45 days. So even if they were approved 40 days ago, when they go to produce that proof, they could have been laid off. Their hours could have been cut. I myself have had a buyer had to pull out because she's a Hawaiian Airlines flight attendant and her flights were cut in half. She could no longer close a loan. So we are going to see the impact from that and sellers are looking at, they want to know what does this person do for a job because they know that's coming, that even though we'll get so close to the finish line of closing and recording, but maybe they've lost their job. Well, if I was looking, I would ask them not only what do they do for a job, but are they working? Yes. And they've been sidelined. And furthermore, whether the company is really doing business now or whether it's been sidelined or whether it might go bankrupt. So there's all kinds of new risks and the old assumptions that you might have made before, that is that the company would continue in business, that the job would continue at least for a foreseeable future. You can't make those assumptions anymore. And it's nothing you, the broker or the salesperson in real estate can do about that. You have to be candid with them. They have to be candid with you. I think there's going to be a lot of deals that don't happen because of that. And if they, assuming I'm right about this, assuming those deals don't happen for one reason or another, the real estate industry, which is huge, the real estate industry which makes its money on transactions is going to be another casualty in this epidemic, isn't it? Yeah, we could be. I think we will see a dip in the Hawaii market. So when there was the big crash, I was not in real estate when the first real estate crash happened. We did not see the impact in Hawaii that the mainland saw because we are limited in the amount of real estate that we have on island. So that, and we do have military constantly coming in and out. Right now, they can't PCS. I'm not sure if orders will be cut in May. So we're going to probably see a later time that the PCSs will happen. Sure, the transactions happen with the PCSs. If everybody's locked in place, then nobody's coming or going. Therefore, no transactions. No listings, no sales. Very interesting. Yeah, but we're not at the point we were when the housing crashed the last time. So the last time you had to figure it was hard not to get a mortgage. They were giving everybody mortgages and then those people got in trouble with their mortgages, which then put a bunch of inventory on the market. And so we will not get to, I can predict we'll never get to the point where we have, you know, a year's worth of inventory. We had an average, I believe I read, eight months of inventory at that time, which means buyers have their pick of everything. But the inventory was so overpriced because the buyers, the sellers had paid so much for their property they were trying to get a lot for their property and the value wasn't there. So then we saw the drop in the real estate market. But Hawaii saw a bit of a drop. We did not drop as significantly as we did on the mainland. The areas like Kapolei, Eva, Makakilo they weren't impacted at all because, again, that's where most of the military will, when we had the VA caps in place, would purchase. The other thing I want to mention is when I was practicing here and although I was admitted in New York City I really hadn't practiced there. So I took a trip back to New York and I was sitting in on a closing and in New York City in Manhattan. What was it, Brooklyn? Whatever. And around the table there were like 10 people and this was a residence. I said, well, that's really interesting. That's not at all like Hawaii. They were all physically present. And you never knew whether the deal would close until all the points and tricks and surprises were ironed out at that table. It was like amazing what people would come up with. A closing was really an experience. It was almost like litigation. People making demands at the last minute, whatnot. But here it's all lined up in advance. There's an escrow officer who you may never meet, right? And all the recordings are all automated and the escrow officer will never meet the people who take the recordings. And the brokers, they may or may not meet. Maybe they will never meet in the course of the whole transaction. Because it's all paper. It's all email. And it's like, you don't really have to have a lot of meetings. It's all offer and acceptance and application and submission and whatnot. And I think it's more the case now than it was even in the days of my trip to Brooklyn. So that actually militates in favor of doing deals here instead of doing them elsewhere. Because we have learned, we are a real estate savvy community and economy. We have learned to do this all by remote. And it's not hard to make that completely remote in the face of the virus, don't you think? It is. So there are negotiations that do go on between the agents. So I've spent my morning negotiating a closing that we're supposed to have next week. Negotiations all take place prior to closing. And the agents negotiate that out. Usually over the phone, via email. You build some strong relationships doing that as long as you're nice about your negotiations. So that is all done prior. And then the sellers will go sign documents. They can sign with a mobile notary. Everything needs to be nice. They don't even have to meet the escrow officer. They don't even have to meet the escrow officer. Buyers can do the same thing. So they don't actually necessarily meet. I never actually physically meet the buyers of most of my listings. I don't meet the sellers of most of the transactions where I represent the buyer. On the escrow note and on the Bureau of Conveyance note, there is a fear that the Bureau of Conveyance will close. Now without the Bureau of Conveyance, you cannot record a deed. You can't close a transaction. And without closing, you can't pass the keys. The agents don't get paid. So some title companies have reached out and let me know that they will be issuing title insurance so we can still close our transactions. They will issue the insurance that yes, if the Bureau of Conveyance, it's not closed yet. If it shuts down, the title companies will issue the insurance to assure that everybody will be paid. So we're not seeing that, wow, we can't close anything. We can't sell any real estate depending on how long this goes on. Yeah, I can see that happening. The money is in the bank. It's easy enough to verify that, that it's really there. The escrow officer can do that. All the documents have been signed probably remotely and in a notary's office somewhere else, not even in downtown. And the escrow officer has those documents in her hands or his hands. And so they can verify that. They can make sure that all the documents are in order. Everything is finished, signed and sealed as it needs to be. And then they can, gee, they can say, oh, this is ready to close. This is a matter of just sending it down with a messenger to the Bureau of Conveyance and handing it to a clerk. And it's like 100% certain if the escrow officer knows as much as the clerk does or more that the escrow officer will be able to say with a certain guarantee that yes, this will be accepted for recording and it will close. And then of course you have title people within the escrow company or associate with the escrow company who are actually like working for the title insurance company. And they can say, yeah, this will work. It will close, no problem. So even if, as you say, the government closes down on this, which is really too bad. I'm not sure that it has to happen. The government closes down on this. We can be assured that when the government reopens, it will in fact do illegal recordation and closing. In that case, the title insurance company, which is motivated to try to close the deal and get paid the title insurance premium, would be willing to say yes. Okay, we'll go on the basis of representations from our title agent in Honolulu, our escrow agent, escrow company in Honolulu. And we're satisfied that all the conditions have been met for closing. We will close. We'll treat it as closed. And we'll guarantee that it'll close. So yes, you can pass the keys. That's really interesting. Good for them for thinking of that. Yeah, I really thought that was a good thing for them to do. I did have, I worked with a lot of investors, and I actually had a couple investors reach out, concerned, well, what happens if the Bureau of Conveyance closes? So I was happy to see that title stepped up and was like, we got you. Well, we have to, you know, that's the thing. Everybody treats this crisis as a crisis in which they're doing their public civic duty by staying out of crowds and staying out of circulation. But that doesn't mean we have to stop doing things. I mean, people who work remotely can continue to work, should continue to work. That's their contribution to the economy, not just take a nap all day. I worry about the fact that a lot of people will see it that way. Just take a nap, not do anything rush. Watch the television, see all the programs about coronavirus. But in fact, we can have an economy. We can have a real estate economy. All we got to do is attract sellers and buyers. Which takes me to the question of, you know, we have a lot of, you know, Asian buyers these days who buy very expensive condos. You know, I mean, two million. It sounds like the low end already these days. It was one that went in cacaac over 95 million. And I'm sure, and I may be behind the, you know, behind the curve on that. There may be ones that went from more than that. Really, really fabulous condos that are not necessarily going to be occupied by very fabulously wealthy Asian buyers. So how is that market being affected? How do they see Hawaii these days as a place to have their retreat condo for multi-multimillions of dollars? So if they are buying at that price point, and you are correct, most of them sit unoccupied, it's an investment. It's not a place to live. So if they are at that price point, I believe they will still buy. But the Senate just passed the Senate. It's not a law yet that they are going to outlaw foreign buyers from purchasing any properties in Hawaii over five years old. That means they can still purchase the brand new bills in cacaaco, but they can't come in and buy some of these luxury homes on Diamondhead if it passes. Right now, it's only gone through the Senate. So that is going to impact. If that law passes, it's definitely going to impact the rest of the market. Okay, well, I want to take a short break because I'm reeling to hear about that. And I would like to discuss with you the public policy considerations and the real estate industry considerations and the market considerations of a law like that. We'll be right back with Keena and Isley right after this break. Yeah, this is so interesting, Keena. We need to discuss this on a regular basis. That's why we're considering this an ongoing show. The life of the land is in real estate, and it is in Hawaii in real estate. Although tourism is the number one contributor to the economy, real estate is right behind it, and we have a huge juggernaut industry of real estate brokers and agents and lenders and lender agents and escrow companies and title companies and lawyers and inspectors, right? Yeah, it's a big market here in Hawaii. A lot of people earn their living from it. So we can't forget about it, and we certainly don't want to see it shrink and go away because it has been responsible for substantial contributions over the years to our economy. On the other hand, there are people who feel that gee whiz, we don't want foreign buyers coming to our shores because they escalate the values and the appraisals, and it makes it harder for local buyers. So I guess somebody thought up this hard money bill. Can you talk about it? It was in the legislature until the legislature stopped the session. Yes, so that was the foreign buyers, limiting them from buying any properties that are older than five years old. They don't want the foreign money coming in from buying the luxury properties, the kailuas, the diamond heads. But being that they only have to be five years older, older, they can still buy the new builds in Kakako. Any new builds, the law states right now that they can still purchase. If it passes, it has not gone into law, it's only passed the Senate. But that will definitely impact our luxury market if you take out luxury buyers from foreign countries because they are the ones that are buying up those $16 million beach rents, the $36 million condos. They're the ones purchasing those. So we'll definitely see an impact if that law does pass. I think it's constitutional. I mean, there's a... When you say foreign buyers, how do you define that? I try to stay very non-political and I will represent anyone, foreign or not foreign. We also see foreign buyers and sellers, they started to try to live with them by having them play the harp, the 7% withholding tax. And that didn't deter them. So now they're trying, it's not me, trying to keep them from being able to purchase. I think the constitution is a limiting factor on anything that separates local people, local buyers or sellers from... I try to stay neutral. I work with them. I work from tax, you know, in the same way. So, you know, that's actually, the bill is troubling it at the one hand and on the other hand it sounds like a legitimate attempt to hold values down so that, you know, people, local people can buy. Because right now we have a market, particularly in Kakaako, which is way beyond, as I say right now, I mean, up till the virus, we have had a market that is way beyond the means of the average person. I mean, who do you know could afford a $95 million condo? You know, the rule of 1%, you know, $951% of the total price every month. So that would be, let me get that right. 1% of $95 million is $950,000. You know, imagine getting your, you know, your bill for the common area maintenance and the mortgage and what have you, amounting to $950 every month. They say $950,000 every month. So, you know, isn't it good for public policy to try to limit the values as they are inflated by these foreign transactions? It is. It would keep the property in the hands of the people here. Which, yes, I do think is important. I'm not against foreign buyers, but I would like to see nothing breaks my heart more than to have a local person not be able to live in Hawaii. And I've had that happen many times where I've had to sell properties because they just can't afford to stay here. I recently had one that moved here nine months ago, bought a property and it's now an escrow because she couldn't afford to stay here. She's making money on it. We got it at a great deal. The market is still strong enough that we got her offer over asking and she's actually going to leave after nine months with money in her pocket, but even in the market she would have lost money. But I would like something like that. I think it might be a little extreme. I'm trying to stay neutral, so I don't offend anyone. If I had my brothers, I would much prefer that local people and people who live here and contribute to our economy and are here on a full-time basis shopping, going to the movies, giving money back to our economy. If they live here. That's always a valid distinction whether you're a resident owner or you don't live here and don't reside in the property. So many properties are coming up where nobody ever lives there. It's not feeding our economy. They're not participating. They're not contributing in any way to the average ebb and flow of our economy. You've been involved in this for a few years and I wonder how it's changed in your time. Because I think that the people, the wave of brokers and salesmen, the wave of escrow officers and agents and what have you, changes as the Hawaii economy changes and as the practice of real estate changes. How has it changed for you? You sound like an old timer. Well, I've been in real estate for four years. I have seen a lot more new agents come on to our brokerage, to all brokerages. It pops up. Oh, so-and-so has a real estate license. I got my real estate license. They come in thinking this is easy money. It's an easy job. This is not. I was a seventh grade math and science teacher. This job is harder. But if you can believe it, I love this job because I love helping people. I love explaining things. I'm very patient. I love people, but this is not. They come in and they're going to make some money because the market is so hot, but those are the same agents that as the market dips, they're going to drop. They can't sustain themselves. A lot more mortgage brokers because again, as the interest rates dropped, more people were getting loans. So it was an opportunity for them to make some quick money. But again, as these interest rates stay in the fives, we're going to see a lot less people. We're going to show as we examine the effects of the coronavirus on the real estate market and thus the real estate industry, your profession, so to say. And the question is, looking down the pike here, looking for three or six or nine months or a year or 18 months, as they say for the development of a virus vaccine, it's going to change things. I mean, our whole world is going to change, Kena. But more specifically, the real estate industry and specifically the sales part of the real estate industry, changing in Hawaii under the stress of a down economy for an indeterminate period of time and people who are in the real estate industry having to change their ways over that period of time, how is it going to change for you and your friends going forward? We're going to see, I think, some prices drop just to be safe. Again, I work with investors. We're going to have to repair values. So we are going to see, I think, a dip in prices. They really honestly couldn't continue to go up. We needed to maybe bring them back down a little bit. You think we'll lose a lot of brokers and sales people? I think we'll lose a lot of agents that don't have the one year savings. So I plan for one year out. Make sure I have one year to sustain ourselves. Last question. How is it going to resurrect itself? Let's assume it hits a low point when we know the herd has been culled in terms of the real estate community. How will we know that it's turned around? How will that present itself to you and others in the community? The sales will increase. The demand more buyers than sellers. Then you can convince sellers to put their properties on the market. But as the market does increase, we start doing better. All those that have their real estate license will come back. Give it a try. We'll go get their license and they'll become mortgage brokers, real estate agents. They'll jump back in when it's good. How about right now? Is it time for an opportunistic buyer to step in and make a killing on a deal? Would you recommend that? I will tell you I had some buyers get some amazing deals this week. I've opened four escrows and a couple of them were amazing deals. One of them was also an offer over asking on a condo. So it's going both ways right now. It's hard to tell. Very interesting. We have to follow this with you, Kena. Thanks so much for coming on the show. I want to see you do other discussions with other people in this show going forward so we can follow what's happening in a market that's really exciting. Not necessarily good exciting, but exciting. Thank you. Thank you.