Investors are wondering where to put their money and Real Estate might be the place right now:
Q. Given what's happening in the stock market and the U.S. credit rating, is buying real estate a good investment? I don't know what to do with my money right now.
A. That depends. Do you need a place to live? Is your job secure? Do you prepared to keep this property for 5-10 years? Do you have sterling credit, and enough money for a 20% down payment? Can you come up with a down payment and closing costs without having to take a major loss on your stock portfolio, or worse, raiding your 401(k)?
If the answer to all of these questions is yes, then yes—I think it would be a good investment.
In fact, this seems like an excellent time to buy in the Hawaii area. Although home prices in most parts of the country are still soft, home prices on Oahu on average are on the upswing. On a month-to-month basis, different areas of the island fluctuate up and down, for example in the Hawaii Kai area in January showed a 4.0% increase in sales prices from Jan. '10 and in June, showed a 6% decrease in sale prices from the previous years.
But, when you look at sales over the past 10 years the sales prices have increased an average of 6.4% per YEAR. So a home that was worth $330,000 in 2001, has a current market value of $631,000.
But don't expect to get too many concessions. Inventory levels have been dropping for the past 6 months, currently down an average 16% from a year ago. When inventory levels range between 5 and 7 months, that's generally considered a sign of a balanced market, with neither sellers nor buyers in charge. Months of inventory are determined by dividing the current number of active listings by the number of sales going back 30 days.
Another plus: As in most parts of the country, single-family permits (new construction) have fallen. In Honolulu, single-family home permits fell almost 8% in the first half of the year from a year earlier. That means less competition from newer homes should you decide to sell down the road.
Meanwhile, mortgage rates remain amazingly low. While the stock market plunged more than 500 points yesterday, fixed rates for 30-year mortgages dropped to their lowest levels in eight months, while 15-year loans fell to record lows, according to Freddie Mac. The declines are directly related to the falling yields of 10-year Treasury notes, which have been slipping lately as concern has grown that our economy is slowing. These low rates may last a while longer in the wake of fears of a double-dip recession—but don't expect them to last forever.
