Home prices will decline until they are at a point people can afford. By that, I mean banks are starting to revert to old time trends giving leases that people can afford on 1/3 of their take home pay. If a family makes $52,000 per year their take home will be about $3200 per month, 1/3 of which is $1075. My guess would be that prices will bottom out at about the $1200/month payment level for the average home in such an area. Some areas will, of course, be more expensive than others. But there must be an entry level market for move ups. I do not think Hawaii will be any different although prices may trend lower as other costs are higher and the recession is likely to limit the second home market for folks from outside the state.
"The anti-market timing RealtorsÂ® argument about â€œmissing the bottomâ€ is just a different flavor of the â€œif you donâ€™t buy now, youâ€™ll be priced out foreverâ€ argument. Both are equally worthless.
The market will not skyrocket up when it bottoms out; it will bounce along the bottom for a number of years. If the last downturn is any measure; and the current downturn appears to be much worse, you should note the following. During the 13-year period from 1987 until 1999, real home prices stayed roughly within the range of $125,000 to $150,000 â€“ national average.
â€œSold my homeâ€ said it best â€“ the downturn is accelerating. Pricing will not get better until inventory stabilizes; and weâ€™re a very long way off.
10 years is a long investment horizon. That being said, you can save a lot by waiting another 12 to 18 months. If youâ€™re dying for a home, you should wait until at least September. Many markets will be having their â€œcapitulationâ€ moment come school-opening."
PRICES are going to keeping FALLING
Hawaii Home Prices will have to fall to 2004 levels or below.
Hawaii Sellers still believe in the $100,000 per year value increase. (Bought for $700,000 four years ago, their home is now worth $700k + 400k or $1,100,000).
NOT GOING TO SELL in this market. Realtors continue to take listings at unrealistic prices. STOP ALREADY.
That $100,000 a year rule of the past just does not work any more. How do these realtors explain recent price reductions from $200,000 to $2M?
Yes, prices will go up again in a year or two, but not as was seen in the "Bubble" period.
Real Estate agents with that 6% attitude can say the "medium" price is up, but that does mean that a Sale of $10,000,000 and a Sale of $750,000 have any relationship to what that house down the street will now sell for. Hawaii prices can vary greatly by a block or two.
Prices are going to continue to FALL. If Seller's are looking for Offers, than adjust to today's market.
A buyer's needs and personal situation determines the price a buyer will pay. If you are concerned about making a good, "safe" investment, then there is a formula you can use for yourself which will allow you to invest in real estate at a "good" point in time. Your available cash for downpayment, your other debts, your income, the prevailing interest rates, monthly loan payments. taxes, insurance are all important factors. Then I like to use prevailing rental income for the property you are looking to purchase as one of the key factors in determining it's value as an investment, even if you are not intending to rent it out. The reason I like to use this factor in my equation, is that in a worst case scenario, if you were to lose your source of income, then instead of losing your home by getting foreclosed on by the bank, how close do prevailing rents come to matching your total housing costs? The reason I like to use this factor is that you could always move out and rent a cheaper place for yourself while renting your home, thereby, keeping that home instead of losing it to a bank. I'm not saying that you always need to have a positive cash flow, which is the most desireable situation, but which is often near impossible in places like Maui, and most places in California, but I'm saying,to take a look at how much negative cash flow can you afford. There is also a formula for that based on a person's tax bracket and financial information. It's much more concrete than just saying that the market is bottoming out, so I better buy now or it's the top of the market so I should not buy or letting one's emotions play into their decisions. This way you are able to hold on to a property thru the bad times and benefit in the good times. Eighteen years in the lending business in both California and Hawaii, makes me always look at the financial side of real estate as I've seen alot of people make a ton of money and alot of people lose a ton of money, been through alot of booms and alot of recessions and still learning from each one! So if someone were to ask me when is a good time to buy, my answer is "it depends..." as price is not the only important factor.
"The Housing Crisis Is Over"
Also, listen to this NPR audiocast. An excellent summary!