Hawaii Real Estate Reporter

On Sept 5, 2008 the Honolulu Advertiser published this article about University of Hawai’i Economic Research Organization’s housing prediction.

This article is an act of futility and of no value that I can see. Why predict? What is the point exactly? Especially if you are this group from UH who have rarely gotten anything right yet. Notice that this prediction is already a modification of their earlier prediction. They thought they were right before.

Of course, the media will love it – the people who are hoping that prices fall will love it, and those planning on buying a house who want an excuse to wait will love it. In my first open house in Manoa in 1972, almost every guest told me, with great conviction and belief, that prices were definitely going to drop – as we stood in that $65,000 Manoa house. Without going into the specifics of why my opinion is that this prediction is less than useful, let’s pretend that it is absolutely correct. Perfectly accurate.

OK, these guys are geniuses and over the next three years prices fall by 11% – so what. What do you think interest rates are going to do over the next three years? Anyone want to guess that they may be 1 or even 2 points higher than today? That is a much more likely prediction. And if that likelihood happens, what will be the cost of buying a house 3 years from now? Answer, more than if you bought it today, even if prices drop 11% or 12% or 13%!

Please remember, if mortgage interest rates increase 1 point, property prices have to fall 10% for the cost (payments) to remain the same. When you view this prediction as a reason to wait, it may be a huge mistake. What is more likely to occur, prices dropping 11% over the next 3 years or interest rates going up more than 1 point? Anything over a 1 point increase in mortgage interest more than wipes out an 11% drop in prices.