A Special Report

2009

Some will win & some will lose in 2009
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nowing what surprises the housing market has in store for us in 2009 is anybody’s guess. Will the economy begin to show signs of improvement next year or will sales continue to be sluggish? While it’s true that Hawaii’s sales have slowed and inventory has edged up causing prices to slip, it is equally true that mortgage rates are at historically low levels and the very same increase in inventory that is frustrating sellers has opened the door for many buyers. For some — those who like to flip properties, for example — it is probably wise to sit 2009 out. But if your family is expanding, shrinking or you’re thinking of buying your very first home, you might do well taking advantage of the lower interest rates and low prices 2009 may have to offer. Moving into a large home, downsizing from an empty-nest or trading down to a more affordable home are all realistic goals in this market. If you’re a renter, this is a particularly good time to get out of the “rent rut” and finally make your first purchase. Perhaps you’d like to start investing or, if you already own investment property, maybe you’d like to upgrade it. There are bargains to be found and low-interest mortgages available to finance them. If the time is right for you, 2009 may be exactly the right market for you. Whatever your plans are for the new year, an understanding of what drives the real estate market to its peaks and valleys can empower both buyers and sellers.

stimulate the housing market and lowering interest rates is one way to do that. Such a move would effectively make homes more affordable and could infuse the housing market with buyers. Similar plans to stem the tide of foreclosures could help the market rebound further by helping people to refinance their current loans — possibly avoiding foreclosure — as well as help others buy homes from distressed sellers. Such loan products could have a tremendous impact on the Hawaii market, making forecasted price reductions less drastic.

THE LOSERS Certainly, everyone won’t win in this market. Developers with excess inventory or in areas where housing supply is already abundant, such as parts of Leeward Oahu, will have to adjust their WHERE WE’VE BEEN — 2008 products, pricing and/or terms to According to Bill Chee, president and attract buyers. CEO at Prudential Locations, 2008 will end with 27% fewer sales than a year Those who purchased real estate in ago, with overall median prices for 2008 with hopes of reselling in 2009 will condominiums flat and single-family be disappointed. And anyone who is homes down 3.1%. “Fourth quarter forced to sell, due to divorce or job statistics will end with a record breaking change, and not repurchasing will have decline in the number of sales primarily a more difficult time recovering any caused by the loss of consumer confi- equity. dence triggered by the historic turmoil in the financial markets,” says Chee. THE WINNERS Buyers and investors may have an WHERE WE’RE GOING — 2009 opportunity to take advantage of lower Buyer confidence will be an influential prices and low interest rates. With a factor in 2009 as well, causing prices to knowledgeable Realtor’s helping hand decline an additional 6% to 10% by and suitably armed with information mid-year. Chee also foresees a decline about the neighborhood where you’re in the number of sales, down 25%. shopping, you can make home ownership From neighborhood to neighborhood, a reality or improve your investment the market forces will likely vary, with portfolio this year. some price declines exceeding 15%. “Buyers will be fine in 2009,” says Chee. “The wild card emerging in the credit “Sellers will wish they’d sold in 2008. markets is the impact of lower interest Interest rates could benefit everyone.” rates,” he says. Because of the struggling economy, the Federal government is looking for ways to stabilize and

Roles In Today’s Market ~
First-Time Homebuyers ~

Your circumstances determine your strategy to buy, sell or hold
Are you Credit Challenged? For starters, make a resolution to go on a debt diet. The turmoil in the financing and credit industries has tightened lending standards — meaning lenders are scrutinizing everyone’s credit history like never before. But with interest rates still at historic lows, you can still get more house for your money than you could several years ago, if you can put yourself in a healthy financial position. A poor credit history is not insurmountable, however late payments or too much debt can seriously jeopardize financing options. Building your home-buying foundation starts with reviewing your credit score. Scores range from 500 to 850. The higher your score, the more options you’ll have. If it turns out that you have credit problems, you can work on fixing them now. A good loan officer (if you need a recommendation, ask your Realtor) can offer advice on what can be done to improve your credit score. You may need to have inaccuracies removed, pay down some debt, or go 12 months without being late with a payment. This may take a couple of months or it might take a year.

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ne of the largest growing segments of today’s local market is first-time homebuyers. The current combination of a slow market and low mortgage rates has put homeownership within reach again. With an increase in inventory, less competition from other buyers, and motivated sellers, renters have more buying power in 2009. Interest rates are still at historical lows, and if Hawaii’s real estate market is poised for a rebound anytime soon, single and married renters of all ages are determined not to miss the boat again this time and are motivated to discover what they can buy with the rent check they write every month. Buying a home is a long-term investment. Rents historically go up, but unless you’re the landlord, that rent check is going towards building equity for someone else. Many renters are surprised and empowered to find out how much house they can afford. This market gives them options. Sure, maybe that dream home isn’t in the budget the first time around, but the people living in your dream home probably started out in something smaller too. It’s a smart time to buy. Not only have prices stabilized and interest rates remained low, but for home purchases that close before July 1, 2009, first-time homebuyers may be eligible for a $7,500 federal tax credit.

“We were surprised at how much we pre-qualified for and now, we are shopping for our first home.”
17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5%

30-YEAR

FIXED MORTGAGE RATE

Unless you’re planning to pay with cash, interest rates are a paramount consideration. A one point increase can significantly affect your buying power. A look at where rates have been over the last 30-plus years shows they are at historically low levels.

Are you Cash Challenged? This is not an uncommon problem, especially now when lenders have tightened their policies. Don’t have enough money for a down payment? Get yourself a good old-fashioned piggy bank, make a commitment and save for it.

Cash-strapped buyers can also look into FHA and VA financing options, both with low down-payment requirements. Other options include asking the seller to give you a credit for closing costs, go in on a hui with a friend or relative, or make a rent-to-own offer. Ask your Realtor for other creative options for your down payment.
1975 1979 1983 1987 1991 1995 1999 2003 2008
Source: St. Louis Federal Reserve Board

1971

Moving Up ~
t first glance, it might seem counterproductive to list your home now with headlines 1 clamoring about the market. But if you’re considering finally buying that dream house or are in need of a few more bedrooms or a yard for the kids, now is the time to upgrade. Though you may lose some of the equity in the home you plan to sell, the truth of the matter is move-up buyers will likely recover their equity by buying an upgraded home that has been affected by the same market forces as your current home. A Realtor can give some insight in this regard by providing a comparative market analysis for your home, your neighborhood, as well as for any new location you’d consider moving. By taking an informed look at the sales data, you’ll be able to fully take advantage of the current market conditions. Historically, low interest rates are another reason to move into your dream home this year. Many buyers have tunnel vision when it comes to home prices, but unless you’re a cash buyer, mortgage rates are a paramount consideration. The ideal time to buy is now, when prices are trending down and interest rates are low. Interest rates are one of the biggest reasons why move up buyers are acting now and waiting can prove to be very expensive. If rates rise even 1 point, you lose about $10,000 per $100,000 in buying power. So if you qualified for a $600,000 loan and rates go up 1 point, now you only qualify for $540,000 — and that can happen in less than a day. In 2009, expect to spend a little more time than usual selling your home. That may mean getting started sooner. Remember, the “bottom” is truly defined once the economy begins showing signs of improvement and prices begin to rebound, at that point, it’s too late. Move quickly and get your next home at today’s prices and today’s interest rates.

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“We’d outgrown our townhome and really wanted a yard for the kids. We negotiated such a good deal on our new home, it more than made up for any equity lost in the sale of our townhome.”

Downsizing ~

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ifestyle change is one of the most common reasons for people to consider buying a 1 new home and trading down has become a trend, especially among baby boomers looking for less maintenance, proximity to social town centers, and more amenities. If you anticipate capital gains being a part of your downsize plan, stay abreast of the possible changes in the tax code. President Barack Obama is considering raising the capital gains tax from 15% to at least 20%. While it’s not advisable to make investment/financial decisions strictly for the tax advantage, it might be worth considering if you’re planning to downsize soon anyway.

For many, a big chunk of their net worth is tied up in their home, making it difficult to tap into that lucrative resource. With the slumping economy and tremendous losses in the stock market, homeowners are opting to sell their big 4-bedroom homes to buy something smaller, enabling them to have access to that money for living expenses, for emergencies, to pay for college, or just peace of mind. For home owners who have lived in their home at least two of the last five years, a portion of their profit is tax free ($500,000 for a married couple; $250,000 for single). It’s unclear how long this capital gains benefit will be offered, so many people will take advantage of it while it’s here. If you’re an empty-nester with a low or paid off mortgage and the desire to fully enjoy your retirement, downsizing is a smart option. That equity in your home is yours so unless you have some other plans for it, consider taking advantage of the benefits now. Whatever your lifestyle change may be, downsizing your home doesn’t mean downsizing your quality of life — quite the opposite is true. Many islanders have happily traded in their 3-no-longer-used dusty bedrooms, yard work, or a long drive to work, in exchange for a new condo suited to their equally new carefree lifestyle leaving time to enjoy family and friends.

“When we retire, we really want to spend our money traveling more rather than making repairs to our 50-year-old house.”

For more information on Hawaii real estate market contact Prudential Locations at 808-735-5300 or visit

www.PrudentialLocations.com

Investors ~

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uite simply, this is an investor’s market. Prices are attractive, interest rates are low, there is plenty of inventory and sellers are more willing to negotiate. These conditions offer an opportune time to upgrade your real estate portfolio. Maybe it’s a house in town that is listed significantly under market value, or a rentable condo in Waikiki for under $200,000. The deals are definitely out there if you know what to look for and have the time to search listings regularly - or have a Realtor do the legwork for you. Investors have long understood the value of leveraging your money - how you can put 10 or 20% down on a property, but you get to keep 100% of the appreciation. As always, an investment in real estate needs to be approached with a keen business eye. Potential profit/loss analysis is key and finding an experienced Realtor who specializes in helping investors can prove to be invaluable.

“I had a lot of equity in my investment condo, so with interest rates low, the timing was right to reposition my investment to a neighborhood that had more potential for appreciation.”

Whether you’re thinking of adding real estate to your portfolio or repositioning property to a hotter neighborhood with better potential, 2009 should be a good year for you. Real estate, particularly in Hawaii, is a safer investment than stocks and you can enjoy using property that you own. Vacation homes can provide your family with a place to relax, rental property can produce income during your retirement years, and while prices fluctuate, real estate over the long term always goes up. Buy low, sell high means this is the time to buy.

ANNUAL RESALES & MEDIAN PRICES

OAHU

$700,000 Single Family $600,000 Condominium $625,000
An Independently Owned and Operated Member of Prudential Real Estate Affiliates, Inc. is a registered service mark of the Prudential Insurance Company of America. Equal Housing Opportunity. All information deemed reliable but not guaranteed. Data courtesy of Prudential Locations Real Estate Sales and Research (C) 2008.

While median sales prices are slightly down from a year ago, over the long-term, appreciation in the housing market is constant. Hawaii’s property values typically are less susceptible than the mainland to significant price declines due to the lack of developable land, its national and international appeal, and the continued military presence.

$500,000

$400,000

$300,000

$325,000

$200,000

$100,000

$0

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1981

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1989

1993

1997

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2005

2008

Source: Prudential Locations LLC

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