For reasons expressed in earlier blog posts, I am a mid to long-term bull on Honolulu real estate as an investment (lack of supply, never met demand, jobs, education, etc). Until the recent financial debacle in the stock market, many people saw it as becoming a foolproof way to invest for the long-term. The closing of Enron and Aloha Airlines highlight that even with market declines the value of real estate in Hawaii has never gone to zero. In other words, the value of your investment in real estate could drop lower than the amount you paid, but could the sales price of that real estate go to zero? I think not.
Here's the rub. Most people don't pay cash for their home, so if property values drop below the amount owed by the owner of the property, and the owner wants to sell, then they have a problem. If the owner that is underwater does not have to sell, then there is a "paper" loss, but no real loss because it takes a sale to make the loss real. In Honolulu, if you are in this sort of negative equity position, and are not selling, your balance sheet and ego are taking a hit. But I am willing to bet that your home will be worth significantly more 10 years from now than it is today. I will make an even larger bet that your home will be worth a major fortune (in comparison to what you paid today) 20 years from now.
In summary, short-term, real estate values can go down and if you need short-term appreciation you could be a very unhappy investor in any market. However, over the long haul, in Honolulu, real estate values have risen. Do you wish you purchased more real estate in 1999, how about 1989 or 1979? Another way to fashion the same thought, if you invested in a property today, do you think it will be worth more in 2019 or 2029…get the point?
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