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The Business Cycle and Buying a Home

* Recession and Expansion
* Supply and Demand
* Should You Try to “Time the Market”?

Recession and Expansion

The economy can have an impact on the price of Hawaii real estate. Since about 1997 the real estate market in Hawaii has gone straight up as the state’s and country’s economy have been strong. With low interest rates and low unemployment, prices more than doubled in many areas. However, in times of economic recession, when unemployment has been high, Oahu real estate has had it’s hard times, seeing slow markets with price drops.

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Supply and Demand

The supply of homes in Hawaii seems to be near its maximum, with available residential land running out and more people moving to Oahu all the time. The demand is increasing as more mainland boomers look to retire in a tropical paradise. Unfortunately for many, this means that prices have to go up because of competition.

An alternative could be building new homes, but in Hawaii there just isn’t much room to build. In Ewa Beach, there are many new homes being built in a small area, creating more traffic and overuse of infrastructure. Most people in Hawaii are against more building, due to the extreme congestion of certain roads, poor quality of utilities, lack of sufficient stores, and even the beaches get overused. Therefore building more houses is unfeasible in many areas. It’s not just the houses, but what it would take to support all those people.

Hawaii is different than every other state in America in that it’s an island state with very limited buildable land. Much of our topography is extremely sloped hillsides that can’t be used, and 95% of the land in Hawaii is zoned as conservation land or agriculture.

Much of Hawaii’s infrastructure has reached a critical mass. With power outages, sewage overflows, and school overpopulation, the bottom line is, unless there is a mass exodus by Hawaii residents, the demand should outpace supply in Hawaii from now on.

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Should You Try to “Time the Market”?
We all know there is no way to know where the Hawaii Kai real estate market will go, but I am asked at least weekly to make predictions about the market’s future. “Will Hawaii Kai real estate drop?” “Is it a good time to buy a house in Honolulu?” “Should I sell my house in Manoa right now?”

These are questions I can only answer with regard to the timing in an individual buyer’s life. It often is more important to consider your life events than the market. You can know what your plans are, but you can’t know what the market will do.

The market goes up, it goes down, but in the long run, do you think homes will be worth more in 10 yrs than they are now? It seems most likely that over time Oahu homes will be worth more and more. With more people moving to Hawaii all the time, and less land available for building, the prices of properties in Oahu should appreciate as supply and demand forces change.

More important than timing the market may be to ask, “Is it a good time in my life to buy a house?” And, “Can I afford this house right now?”

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