Where is the Real Estate Market and Will I Ever Fit in?

Wow, I don’t mean to be heavy or anything, but have you ever asked yourself questions like, “Where is the Real Estate market?” and “Will I ever fit in?”

These two questions are actually related…at least they were for me. When I was in my early 20’s, a real estate career was never on my mind. I, however, always felt that I wanted to live a comfortable life but I didn’t quite know how to get there. I suppose the phrase, “the universe will provide,” proved accurate for me. Everyone has their own meaning of “provide,” so ours may not be the same, but here are a few thoughts about both questions.

First, let’s talk about the real estate market and where it is. Well, it depends on who you talk to. I would first like to mention that sometimes I write a blog and then let it “season” for a while. I change things, add things, and sometime don’t even publish it. I have been working on this one for a couple of weeks and I’m glad that I waited because there was a recent article in The Maui News that proved my point.  It said, “Through midyear, Maui residential real estate sales activity have zoomed upward, although prices have not.” For the first 6 months of 2010, 422 single family homes have sold, up 42.6% from 2009 (296 sold in ’09) and 666 condominium units have sold, up 63.6% (407 sold in ’09). Single family prices have actually edged up 2% since ’09, however, condominium prices have dropped 11%.

I have always maintained that single family homes are a better investment in terms of the amount of value lost and the time they take to rebound when the market is in decline. Many people flock to buy condos in an appreciating market because it is the only affordable alternative, however, condo values fall the fastest and furthest. Now this theory pertains if you are viewing your “home” as an investment. If you are viewing your home as shelter, then you should purchase what you can afford with the notion that the real estate market is cyclical. It goes up, it goes down and it is only bad for you if you have to sell in a down market. In general, over the past, real estate has always proved to be an appreciating asset in the long run.

Now, listen to this fact. Interest rates are at it’s lowest in decades (e.g., First Hawaiian Bank offers 15-year simple interest mortgages at 3.6%); this to me signals that we are in bottom territory… or have we passed the bottom? That is another good question as it is never answered in the present because we only realize the bottom when it has past. So predicting the bottom will never happen. I have experienced 3 real estate cycle adjustments and never has anyone said “We have hit bottom today.” We see it in the rear view mirror like someone rear ending you. The smart, savvy and lucky people benefit from not having the mindset of waiting till the bottom comes! Property values may decrease another 5% but it has already decreased 30% so you’d still ahead of the game.

Now comes the real question: Is buying really for me? It may not. You may be better off renting. Everyone’s situation is different. That takes a lot of soul searching. Home ownership is a responsibility. You are married to your home…period. You have to budget for maintenance issues. There will be maintenance issues. For some, owning a condo vs a home is easier and less of a financial risk. For others, a condo is nothing more than living in an apartment building. Again, it is what you are comfortable with.

Home ownership can be very rewarding emotionally (if you can comfortably afford it) and financially (if your timing is good and you don’t expect your home to perform as a constantly appreciating asset.) Investing is stocks is not my thing. I know nothing about it so I try to stay away (I’m comfortable with index funds though). I most definitely stay away from the race track (unless it’s a wiener dog race). Real estate is what I know so investing in it is a no brainer for me. I actually should spend more time in Vegas because my luck and timing are pretty good. What are you more comfortable investing in? Find it and stick with it.

Here is where I interject about the Maui News article. Economist Paul Brewbaker said in a meeting with Maui real estate agents, “If Maui real estate prices haven’t hit rock bottom, they’re not going to get much lower. It’s not worth looking for that last five dollars.” He also goes on, “The uptick in housing prices in California foretells an uptick here, since, Maui is the western edge of Orange County.” Thanks Paul, for proving me right!

It’s time for you to do a bit of soul searching. Is it time to take the plunge? Is it time to add to your investment inventory? Is it time to treat yourself to the special place in Hawaii that you’ve been dreaming about for so long? Timing could never be better. Contact me to discuss, or if you know you’re to take the plunge.

Aloha!