Honolulu Real Estate Trends: What's Next?
What you need to know to get in, get out, or sit tight in the latest local real estate spike.
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Trying to Buy?
If prices are consistently on the rise, and seller is king, where does that leave you if you’re trying to buy? Not in a bad place, actually, if you act quickly. “This is actually a good time for buyers as well,” Gregson says. “The inventory may be low, which is nudging prices upward, but interest rates are also low, which works in the buyer’s interest.”
Just 20 years ago, the average mortgage interest rate was 16.04 percent. In 2012, the average mortgage interest rate was 3.6 percent. Yes—real estate paradox alert—low interest rates means you have more competitors as you chase your dream home. As Ed Pei, executive director of the Hawaii Bankers Association. explains, “Low interest rates have helped more home owners qualify for mortgage loans, and so the demand has been strong, and has helped to drive up prices.”
“People are going to have to wrap their heads around the idea of a median single-family home price on Oahu of $1 million before the 20-teens are over. It’s conceivable home prices could double … within the 20-teens.”
—Economist Paul Brewbaker
Don’t lose sight of the first half of his observation: You can at least get in the game more easily. You can qualify for a larger mortgage, with a smaller down or income, in a low-interest environment than you could in a high-interest environment.
“Things aren’t going to get more affordable in Hawaii,” says Miyama who advises getting a foot in the door. “Start somewhere and build a financial foundation, build equity.”
As the realtors we interviewed related, be prepared to meet or exceed asking price. Be prepared to jostle for the attention of the sellers if there are multiple offers. Don’t be surprised if your realtor suggests writing a letter to the seller, essentially selling yourself to be their buyer. According to online industry trade journal rismedia.com, this is a thing now.
Try desperately hard not to fall in love with a place. This is a business deal, especially if you’re trying to ride this price rocket for a few years and hop off.
Expect to look at many, many old homes or condos that barely seem worth the rapidly rising asking price, then be prepared to move aggressively on one you think will work for you. “Buyers will need to move quickly and confidently in order to get the property they have targeted,” says Sato. “Buyers should have a clear picture of their financing, and getting pre-approved before shopping will help a great deal. Buyers can also be proactive by working with a realtor who can negotiate and act quickly in a hot, fast market.”
HIGH-HOME EQUITY = HIGHER PROPERTY TAXES
The past couple of have been good to Hawaii homeowners: Their equity has mushroomed. But no one escapes The Taxman.
Real property taxes are calculated based on the assessed value of the home multiplied by the tax rate set by the City Council. Currently the Honolulu rate is $3.50 per $1,000 of net taxable property—one of the lowest in the nation. So, if your home is assessed at $600,000, your property taxes for the year are $2,100.
Many homeowners can expect to pay more taxes simply because values are increasing. As far as the tax rate itself, that’s up to the Council. Currently, the Council’s operating budget has a $40 million budget shortfall, says Lowell Kalapa, president of the Tax Foundation of Hawaii. This may spur it to raise the rate.
“One of the things they’re going to have to do is look at the property-tax rates,” he says. “The valuations may in and of themselves be able to generate the $40 million shortfall and make it up by just the fact that assessments are going up.”
But, Council member Ann Kobayashi says, the Council isn’t going to raise property taxes. “Our sewer rates are going up, our water rates are going up, auto registration is going up,” says the chair of the budget committee. “We’re talking about people’s homes and we hate to tax someone out of their home. Bottom line, we don’t want to hurt the homeowner.”
Kobayashi acknowledges that city costs are increasing, so they’re “constantly looking for new ways to raise money.” She adds that funds will come from property taxes on new developments. That won’t be immediate, though.
Hawaii’s property-tax rates are low simply because they don’t go toward education and health—big-ticket items that are funded by the state’s other taxes: the general excise, income and corporate taxes. Homeowners in New Jersey often pay between $8,000 to $10,000 on property taxes, says Kalapa, even though their homes are valued at less than homes here in Hawaii. “When people say housing is so expensive in Hawaii, it’s not so much because of the property tax, as much as it is the lack of land that’s zoned urban,” he adds. That’s a whole other issue for the Council to tackle (or not).
Looking for an Upgrade?
Individual situations may vary widely for those intending to sell one property to buy another in this rising market. How much bigger or more expensive is your target home versus the one you’re selling? How much equity do you have in your current home, leaving you how much to finance on your target home? Are you trying to transition from an apartment to a house? The main thing to remember, according to Miyama, is that all boats are rising in this tide. You may get more for your current home if you wait a while to sell, but your next home is only getting more expensive too. It could be a wash, financially.
Unless you plan to sell here and jump into another market, that is. Imagine if projections hold true and the average Honolulu home sells for $815,000 in 2015. Imagine also that Las Vegas, our favorite escape hatch, continues to crawl out of the wreck of its burst housing bubble with depressed prices, as seems likely. Why, you’d be able to buy 5.3 homes in Sin City, incorporate as a small town, name it after yourself and appoint yourself mayor. New Ewa, 89129, here we come!