Real Estate: Market Watch

They say you gotta know when to hold ‘em. In this housing market, that time is now.


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$525,000. The median price of a single family home in Honolulu breezed past a cool half mil this January. There’s something weighty about that number, some sense of milestone. In the space of just one year, the median home price jumped 26 percent—more than $100,000—according to the Honolulu Board of Realtors.

It makes you wonder how much longer this drive to the stratosphere could continue. Should people sell their investment properties now, while they still can, or wait for higher prices?

According to local real estate analysts, there’s certainly no rush. Nobody sees prices dropping anytime soon. Scott Bradley, co-managing director of Coldwell Banker Pacific Properties, says, “I think you’ll see strong appreciation throughout this year. There could be another $100,000 added to the median sales price before it starts to slow down at all.”

The continued increase in home prices is being fueled by a number of factors, chief among them a fundamentally solid economy. Thirty-year fixed mortgage rates in Honolulu are still below 6 percent and, while they may increase a bit in the near future—analysts are predicting a .5 percent increase this year, and maybe a .75 percent in 2006—don’t expect them to put much of a damper on the real estate market. Bradley says, “Even if interest rates creep up throughout the year, they’ll still be historically low. Actual home prices are going up at a much faster clip, and will probably have a bigger eventual impact on the market’s pace.”

There is also a demographic aspect to the market’s continued increases. Baby boomers across the nation are in their prime earning years, some of them coming into additional wealth via inheritance, and many are contemplating second homes for vacation or retirement. A National Association of Realtors study released in March found that second homes accounted for more than a third of residential real estate transactions in 2004, nationally.

It’s not only Mainlanders driving the market. While many of the houses on the market seem, at first glance, ridiculously out of reach for local buyers, residents who bought homes early in this cycle have seen a lot of appreciation in the value of their homes, and now have a bundle of equity with which to trade up.

Ricky Cassiday, president and owner of Honolulu-based real estate analysis firm Data@Work, says, “I don’t see us overextended at all, and I don’t think the market is going to go down; we’ll just go flat for a couple of years. Flat is possible, because the supply of housing is ultimately capped by a shortage of land and a shortage of entitlements. There are physical and political limits that just won’t bend.”

Cassiday’s one caveat to this is the coming wave of luxury condominiums, which could entice people from Kahala, Hawaii Kai, Hawaii Loa and other high-end areas into town. “When the big high-rises are completed, there will be some big jumps in the monthly statistics, as people move out of their houses and into these condo units,” Cassiday says. He estimates that 50 homes in each neighborhood could enter the market in a relatively short period of time, which could have a softening effect on home prices.

All in all, though, it seems to be a pretty safe market for owners of investment properties in Honolulu. Sell your house now, and make a profit. Sell your house later, and perhaps make a bigger profit. Just don’t count on being able to buy another house on the cheap. “It’s hard not to jump when you see big increases,” says Cassiday. “But people forget that you don’t own a house as an investment only. You own it because you need it.”


 

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