Since moving to Oahu nine months ago, we have been perplexed about whether to buy a home or keep renting. Since we plan to move back to the Big Island at some point, our decision has to take into consideration the economy and inflation. We could get financially crushed by buying a home if there is significant de-inflation on Oahu in the next 3 years.
The problem is we have conflicting views about whether there will be inflation or deflation in Hawaii. We have a list of things that will cause housing prices to go up in Hawaii and another list of things that will cause housing prices to go down.
Here is our list of some things we think could cause inflation in Hawaii:
1. If the U.S.’s military and defense infrastructure in the Asia - Pacific region expands, there will be strong demand for housing in Oahu. Currently, the U.S. military presence in Oahu is down about 7% from 2012.
2. If the U.S. economy continues to improve and more jobs become available, Americans will have more money to spend on vacations and to visit Hawaii. Furthermore, Hawaii’s vacation appeal will increase if unrest spreads in vacation spots elsewhere in the world. Tourism on Oahu was up 4% this year. More tourism means more jobs and higher wages for residents which would increase the demand for housing.
3. If the Federal Reserve keeps interest rates low that will help keep the cost of a mortgages lower and the demand for houses higher.
4. The 76 million baby boomers are retiring in large numbers (some estimate over 10,000 a day). If even 1/10th of one percent of them move to Hawaii that would add 760,000 new residents to Hawaii which would increase the demand and prices for housing.
5. Affluent buyers from China and India may continue to buy homes in Hawaii which is already a positive factor in Hawaii real estate prices.
Here is our list of some things we think might cause de-inflation:
1. The military presence in the Asia – Pacific region could be decreased by the next U.S. president and congress which would reduce the housing demand in Hawaii. Even cuts in military housing allowances for soldiers stationed in Oahu would have a negative effect on housing prices in Oahu.
2. If the U.S. economy suddenly stalls, which some people think it might, Oahu could see a sudden drop in the number of visitors. There are numerous things that could tamper with the U.S. economic recovery. Robots and automation, for instance, are replacing workers in the U.S. in manufacturing plants, warehouses, and retail jobs. The rising U.S. dollar makes a vacation more expensive for visitors from Japan, China, and Canada. A shrinking tourist industry would result in job cuts that would ultimately effect the demand for houses on Oahu.
3. Although the 76 million baby boomers are starting to retire in large numbers, they may not have enough income to move or even visit Hawaii.
4. Although lower oil prices have reduced the cost of airfares to Hawaii, they have also lowered the cost of driving vacations on the mainland which may reduce the number of visitors to Hawaii.
5. If the Federal Reserve raises the interest rates it will make buying a house in Hawaii much more expensive which could damper demand. An interest rate increase from 4% to 8% would increase a mortgage payment 54% percent.