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Thursday, December 31, 2009

2010 Outlook

Outlook 2010

Well…It’s crystal ball time!  Last year I wrote a very long dissertation on my thoughts for 2009 and the feedback was that it was great information but simply too long.  So, here’s the synopsis for 2010 in my humble opinion:

The Bad News.
Inventory
I get the Lis Pendens and the foreclosure reports and there is still a substantial amount of distressed properties forthcoming.  In particular the neighbor islands and West Oahu seem like they will be negatively impacted by increased foreclosures and short sales.

Employment
Additionally, the employment numbers don’t look good and they also don’t take into account that in Hawaii, many people work multiple jobs.  We are still going through furloughs for the State employees and cutbacks in the private sector.

Tourism
Local experts are anticipating that tourism will continue to be slow in Hawaii for 2010 while our mainland visitors put off their Hawaii vacations to stay closer to home this year.  In addition, the Japanese are still coming but spending less…even with the Yen’s strength over the Dollar, overall spending is substantially down when compared to the last time the Yen was sub-100 against the Dollar.  Everyone has a wait-and-see approach towards the anticipation of a Chinese tourism boom.  So far the boom has not come.  It’s still very expensive to come here relative to their vacation alternatives but, as I was recently reminded, with the sheer numbers of potential visitors from China we only need a very small percentage for a very big impact!  Sign up for your Mandarin lessons now!

Taxes
I think we will see higher taxes in 2010 both State and Federal and less allowable deductions.  This will take more money out of consumer’s pockets and lead to less consumption.  After all…someone has to pay for all this stimulus spending right?


The Good News.


Interest Rates
The good news is we have really really low interest rates!  Historically these rates are exceptional…and they are artificially low due to the government buying mortgage-backed securities via Fannie and Freddie.  The risk, however, is that when they discontinue their buying spree, rates will likely move upward as the open market requires a higher yield on those mortgage bonds.

Inflation
Why else should you buy now?  Well… inflation.  I have been preaching this for all of 2009, but if you believe that inflation is the end result of the government printing a trillion dollars and the currency being devalued against every other major currency, then you should buy real estate.  Get a fixed mortgage at these rates and pay it back with 60-cent dollars in the future.  In other words…the price of milk may fluctuate but your mortgage stays at a fixed payment, regardless of inflation.

Government Spending
Government spending on “shovel-ready” projects should spur the construction sector which will help the economy by offsetting some of the employment weakness.  Whether you believe in the long term benefits of development/mass transit or not, the short term benefits are likely to be jobs. 

Neighborhoods
Certain neighborhoods are hot right now!  Remember that the real estate market is made up of neighborhoods and not all of them rise and fall together.  Look at Hawaii Kai during the Japanese Bubble burst…hardly a noticeable dip.  My call… markets like Aina Haina, Mililani Mauka, Pacific Palisades are showing strength, might be a good bet if that’s an area that works for your budget and lifestyle. 

Tax Credit
The First-Time Home Buyer tax credit has been extended through April 2010.  A genuine credit of up to $8,000 against what you owe Uncle Sam.  Even if you owned before or bought last year you may be entitled to some credits so check it out: Home Buyer Tax Credit Information


Who is buying right now?
This is a largely organic market where the Buyers are locals who live and work in the Hawaii.  Right now they are living with their family members and are looking to have a place of their own.  The investors are dipping their toe in the market for certain types of properties but financing for commercial, multi-family and condo-hotel properties is still difficult.


Conclusion
I think that real estate prices will drop another 6-8% in 2010, but interest rates might trend upward in the second half of the year so, if you are a Buyer, it becomes a decision between a low fixed rate or a small pricing discount (which ultimately boils down to the question of “how long are you going to own the property?”).  I generally think it’s a good time to buy but I would be looking to buy properties with all the same attributes that we look for in all our purchases…mainly a good value in a good neighborhood.  If you are a Seller this year…sell sooner, not later. 

Posted by Trevor Benn on December 31, 2009 at 09:45 AM
Real Estate News • (2) CommentsPermalink
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