Most investors know the basic premise for success: “Buy Low and Sell High.” Seems simple, but in practice it is not. In real estate, we really don’t know the best time to buy until years past the purchase, when see if purchase prices have gone up or down.
Savvy investors look at certain market indicators to help increase their investment success. However, we are in an extremely unusual market. Even though prices are high, it actually may be a good time to buy. Here’s why.
This economic downturn is different
Unlike previous recessions, the source of the current recession is not financial. The last recession, from December 2007 until June 2009, was created by the financial and real estate industries. The crisis was fueled by mass approvals of subprime mortgages coupled with lax lending standards. Cause of the Regan-era recession, from July 1981 until November 1982, is pointed at the Federal Reserve’s monetary policy, which raised interest rates to curb high inflation.
The current recession was caused by a public health crisis. As a side note, the Fed has committed to keeping interest rates low.
There are some sectors of the economy that were not impacted by the pandemic, or are even seeing growth.
Regardless, Covid-19 shut down the U.S. economy very quickly. It is uncertain how rapidly things will rebound. “This is not a typical economic crisis,” says Cecilia Rouse, an economist and the dean of the Woodrow Wilson School of Public and International Affairs at Princeton University. Most economists believe the economy is fundamentally strong. However, Rouse added the longer the coronavirus pandemic affects daily life and the longer the U.S. is not able to bring the virus under control, the more damage it will do to the economy.
High demand for housing will keep prices stable on Maui.
Interest rates are low
Even though home prices have risen, the low cost of borrowing means there are still some good deals out there.
For example, a home that previously sold for $700,000 at 4% interest would cost $1,203,087 over the life of a 30 year loan.
That same home in today’s market with a list price of $900,000 at 2% interest would cost essentially the same– $1,197,567 over the life of the loans.
For those that qualify, low interest mortgage loans mean all the difference when evaluating an investment.
Specific value for Maui County investors
There is a new benefit for investors that put their property into long-term residential rental. Intended to ease the housing crisis on Maui, Bill 129, enables owners of real property to apply for a long-term rental exemption, and if qualified, will receive a $200,000 reduction to the property’s tax assessment and be moved from the non-owner occupied classification to the new long-term rental classification. Those owners that are already getting an owner-occupant exemption will receive a reduction of $100,000, on top of their resident reduction, for a total of $300,000.
There may be more foreclosures
We are still waiting to see the volume foreclosures that may come about once mortgage default moratorium and forbearance programs come to an end. Though the programs have been working so far—helping homeowners keep their property after leaving programs—the ones still receiving help into 2021 may be more vulnerable. This could cause a rise in distressed properties or bank-owned sales.
Now with the current world events, it seems like a set up to find a good deal on a property here. You are right! There are some deals to be had out there, but when will be the ‘perfect’ time to buy in order to maximize your investment? That will only be known in 2-3 years when we look back and point to a historic graph and say, ‘there it was!’
After the 2008 recession, we can now look back and say that for most of the United States early 2012 would have been the perfect time to buy. While history can help us predict when the next perfect time to buy will be, it can also cause blind spots. The fact is that
The current pandemic-inspired recession is much different than the 2008 recession. which was partly caused by a massive housing bubble. Another HUGE, and I mean huge, factor is that around the country and especially here in Hawaii the available housing on the market is extremely low. Due to this extreme housing shortage, it won’t take a massive amount of demand to keep housing prices stable.
Higher than normal rental prices
Some homeowners sought to cover increased expenses by raising rental prices, some just followed the market with their increases. No matter the reason, higher than normal rental prices coupled with high demand create a good ROI opportunity for investors.
However, just like selling a home, overpricing your rental or showing it in poor condition could mean it sits on the market. Investors are wise to hire qualified help to assess the market and advise and complete repairs and maintenance. Please contact our office if you need assistance managing your rental.
Is Now a Good Time to Buy an Investment Property in Hawaii?
Investing always involves risk, but there are certainly some promising indications that it is a good time to purchase real estate on Maui.