CRAIG T. KOJIMA / CKOJIMA@STARBULLETIN.COM
The Hawaii real estate market is unique according to University of Hawaii professor and author Nicholas Ordway.
Real estate professor
shares tipsQuestion: We often hear that the Hawaii real estate market cannot be compared to other real estate markets on the mainland. Do you agree?
Nicholas Ordway
>> Job: Professor at the University of Hawaii at Manoa College of Business Administration.
>> New book: "The Absolute Beginners Guide to Buying a House."
Answer: There are a number of unique characteristics about the Hawaii real estate market. First of all, the most obvious is that we are a set of islands. Because we are an island state our economies are very sensitive due to the isolation of our various neighborhoods. For example, if there is a slight increase in demand, prices skyrocket whereas on the mainland if there is an increase in demand, supply adjusts very quickly. Here is takes a longer time to adjust to shifts in demand.
Q: We've seen real estate cycles come and go here over the years. What do you think about the current cycle we are in and what's your best guess on how long this cycle could last?
A: We are now in an upturn in the real estate cycle. We had a downturn since approximately 1990 as we absorbed the impact of the Japanese bubble economy. It took us quite a number of years to absorb the price effects of what happened, but because we had not been building much new supply of housing in the last two years we then started seeing an acceleration of prices. We have upturns that usually last for three to four years followed by a downturn of around seven years. However, because we have a real shortage of correctly located houses, what we are more likely to see is a sporadic market with certain parts of the market showing strong demand and other parts being ignored. As for the market softening, it could be a very significant softening if this war continues for a long period.
Q: What could be the war's impact on Hawaii's real estate market and the economy.
A: The first thing that happens is where our military personnel are deployed out of Hawaii, it opens up large numbers of rental units. Many of those units then become available for sale. We've also seen the price of petroleum go up which means an increase in the cost of aviation fuel. With fewer people coming to Hawaii, flights get canceled. We've seen this already, so that can have a devastating effect on Hawaii's economy. But remember this is all short term. All our long-term indicators show that our real estate economy is going to be very positive for the next several years.
Q: But what about interest rates. Where do you see them going?
A: They're wonderful -- as low as they've been in 40 or 50 years. You can buy a house now that costs almost twice as much as it did two years ago. Monthly payments have got very affordable. But here's the problem: Wars cost money and they require an increase in debt. As the demand for debt increases on the part of the federal government, that is going to create inflationary pressures. Two or three years from now, if we've had a fairly long war, those inflationary pressures could cause our interest rates to jump up again to 12, 14 or 15 percent. Remember during the Jimmy Carter years after Vietnam, interest rates for houses were up to 18 and 20 percent. Inflation takes several years to kick in but when it kicks in, it's hard to remove. Inflation does two things: It causes interest rates to go up and in order to fight inflation, the Fed usually raises interest rates. So five years from now, if interest rates are below 10 percent, I'd be very surprised. But one of the problems with war is that it's usually not predictable.
Q: What do you think is the biggest mistake the average buyer makes when shopping for a house?
A: Not being serious enough about the home purchase. Some spend people less time buying a house than buying a stereo system. If they were more serious they would find the type of neighborhood they want to move into to, find out what the proper price level is. They'd also realize they need to save more for a down payment. The second mistake is not using a properly professional Realtor. Usually what happens is that if you are a buyer with a good real estate agent, you will buy a house for a lesser price that if you had tried to buy it directly from a seller. If you are a seller, perhaps it's not as important, but you should first decide whether the market is a buyers' or a sellers' market. People put a lot of thought into buying a house, but not enough knowledgeable thought. So do your homework, select a professional Realtor to help you, know your market, use a home inspection service -- someone who knows what they are doing and knows what to look for.
Inside Hawaii Inc. is a conversation with a member of the Hawaii business community who has changed jobs, been elected to a board or been recognized for accomplishments. Send questions and comments to: business@starbulletin.com.
