THE island’s housing industry is now at a crossroad. On one hand, there is the confirmed delay in the military buildup, which has affected the positive outlook initially predicted for the market. On the other hand, interest rates are at historic lows which could be an incentive for first-time homeowners looking at constructing new homes.

According to Siska S. Hutapea, president of Cornerstone Value Guam Inc., the delay in the military buildup, has dampened the outlook for the Guam real estate market.

“Military buildup-related construction is not expected to start until 2016,” Hutapea said.

Initially, real estate development shot up in anticipation of the immediate relocation of military personnel and their families to Guam, resulting in a rise in housing projects. This was evident in the number of construction building permits registered in 2006 (200 permits) and 2007 (353 permits).

But the 2012 annualized figure for building permits logged at the Department of Public Works now indicates a 23 percent decrease when compared to last year’s figures. This year, DPW only received 36 permits during the first quarter of 2012, in comparison to around 57 for last year’s first quarter figure.

Hutapea said prices will be determined by the additional supply to existing inventory, which appears to be slowing down as shown by the number of building permits registered this year.

Slow market

According to Hutapea, the volume of residential sales has significantly decreased over the years. In 2007, the market registered $255 million in residential sales. Over the next five years, the market showed a decrease in sales, with 2012 first quarter figures reflecting only around $31.3 million in sales.

Moreover, the current median price for single family dwellings in 2012 is $223,000 in comparison to 2011’s rate, which was $245,000.

The number of residential transactions also visibly decreased, she said. In 2007, transactions peaked at 1,159. In 2011, the figure went down to 713 units sold and then further decreased to 139 units sold per quarter for 2012, registering a 22 percent decline in residential transactions.

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In addition, the residential market was hit hard with the adoption of the new military housing policy which required lower ranking military personnel to stay on base. The completion of a new 400-unit barracks inside the base, Hutapea said, took out 400 potential tenants out of the Guam rental market.

“That means 400 houses outside of the base will be empty. That’s a lot in our small market,” she stressed.

Condominium rental rates also dropped significantly, from a record high average of $2,049 in 2009 to $1,326 in 2012. In terms of average rental rates for single family dwelling on the island, the figure dropped from $2,304 in 2009 to the current $2,083 average.

“If you see the number for condominium rentals in 2009, this was when lower ranking military personnel were allowed to go off base. Look at the price now – it went down sharply.”

Silver lining

“Considering the slowdown in the military buildup and the real estate market activity in the next year or so, the market will most likely involve local market participants,” Hutapea projected.

She also predicted that various affordable housing projects will continue making progress during the next few years, citing the surge in affordable housing development such as the 400-unit Lada Estates and several developments along Route 9.

Another silver lining, Hutapea said, is the historically low interest rates currently offered in the residential market. Local banks, such as Bank of Hawaii and First Hawaiian Bank, currently offer interest rates ranging from only 3.4 to 3.6 percent for 30 years.

“On the other end of the picture, we have historically low interest rates right now, which could spur local investment,” Hutapea said.

“I’ve seen a lot of local market participants. Those who have been here long are taking advantage of this. They are building their own facilities now and because they are owner-occupied, there’s no risk, no vacancies.”