The Dilemma of Renting versus Buying a House

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.

Over the last year, more rentals have come available in central Oahu and many are renting for 10% less than last year.  Like many places in the U.S. right now, the current cost of a home in Oahu plus the additional expenses of owning is more expensive than renting. Our plan is to keep track of the cost of renting versus buying and watch for changes that may result in inflation or deflation. Right now, we believe the risk of a collapse in the housing market is too high to buy. 

2016 Year of the Fire Monkey Predictions

It is time for our annual predictions based on the Chinese lunar calendar for 2016, the Year of the Fire Monkey.  As we predicted, the current 2015 Wood Sheep year has seen some financial improvement of the economy and more jobs. Unfortunately, the strength of the hostility star overshadowed the normal calm and diplomacy that Sheep years can bring.

The Chinese Monkey New Year starts Feb 8, 2016. In contrast to the Sheep Year, the Monkey Year will be wild, crazy, and disorderly. Organizations and groups will find it hard to make progress during the constantly fluctuating Monkey Year; accomplishments and financial success will be through your individual efforts. This year will bring the 2016 summer Olympics in Rio de Janeiro and a contentious U.S. presidential election in November.

During the last Fire Monkey Year, 60 years ago (1956), Eisenhower was reelected as the U.S. president and the Olympics were in Melbourne.  The Soviets invaded Hungary, Britain and France bombed Egypt to reopen the Suez Canal, Israel captured the Straits of Tiran, and there was a military coup in Sumatra. Racial tensions were high in the U.S. and the Supreme Court ruled that race separation on buses was unconstitutional. Morocco and Tunisia gained independence from France, Sudan became independent from Egypt, an Islamic republic was formed in Pakistan, and the last French troops left Vietnam.

The 2016 Monkey Year will go by at a fast pace with lots of communication, humor and wit. This is the year for new thinking, new ideas, and inventions. It is a time for taking risks and wild ideas, but watch out for monkey schemes and deception.

Unfortunately, the year will be dominated by the star of illness, so you should guard your health and energy. Extreme views and lawlessness will pervade the year and it will be more difficult for world leaders to keep control.  The Monkey Year will be a great  for money opportunities, but make sure to keep safe, healthy, and secure.

Life on Oahu versus the Big Island

We recently moved to Central Oahu from South Kohala on the Big Island. Though we are still in Hawaii with its great weather and aloha spirit, the differences between the two islands are dramatic. It is a lot like the difference between living in one stop-light town in the Midwest versus an apartment overlooking Central Park in Manhattan, NY.

Crowds

Oahu is very crowded. On a recent Saturday night at Ala Moana Mall there were so many people we struggled to walk through the mall.  Less than half of them were speaking English. It felt more like being in Hong Kong or Tokyo than the US or anywhere else in Hawaii. Everywhere you look on Oahu there are houses, cars, and people which is a major contrast from the miles of desolate lava fields, acres of pastures, and empty beaches we are accustomed to on the Big Island. At our condo complex in central Oahu, cars come and go at all hours of the day and night,  a big change for us after years of living in a mostly empty (except around Christmas) condo complex in South Kohala.  All the people on Oahu keep things very lively and there are endless activities and events, but unlike the Big Island it is surprisingly more difficult to make friends.

Distances and Traffic

Everything on Oahu is only a short distance and if you are lucky and there is not much traffic, you can get anywhere quickly. On the Big Island, everything was a long drive.  It was a long drive for us to get to COSTCO and potlucks with friends in Kona from Kohala.   On Oahu we can drive to three grocery stores, Walmart, our bank, and 20 or more restaurants in our neighborhood in less than 5 minutes.  However, it recently took us 30 minutes to drive a little over a mile on a Saturday morning near Ala Moana mall when dropping someone off at the Convention Center. We rarely ran into traffic on the Big Island.  Occasionally, the traffic from the airport into Kona would jam up a bit and it was frustrating to get behind a slow moving truck, but Oahu has epic traffic jams which we just have to surrender to sitting in the car for a very long time.

Driving Style

Folks drive slower on Oahu than on the Big Island and the speed limits are lower. Honolulu police are out in force giving tickets to speeders, a rare sight on the Big Island. In our seven and half years on the Big Island we saw maybe a dozen people getting tickets, whereas, we see one or more cars getting pulled over every day on Oahu.  Driving in Oahu requires threading your car through tiny parking lots with tiny parking spaces. The freeways are massive in Oahu compared to the two lane roads throughout most of the Big Island, but the lanes are narrower and it feels like the cars are going to scratch the paint off your car as they pass.  Freeway driving takes a great deal of concentration on Oahu. There is just more room for cars and parking lots on the Big Island.

Shopping

Shopping on Oahu is amazing. There are so many stores and malls it feels more like New York or Paris than Hawaii. On Oahu every neighborhood has a wide selection of stores and there are numerous malls.  The Big Island is just not the place to be if you like shopping, whereas Oahu has an amazing selection of things to buy and great prices.

Food

Food shopping on Oahu is easy compared to the Big Island. There are numerous grocery stores with greater selection and lower prices than the Big Island stores. But Oahu does not compare to the Big Island for fruits and vegetables.  There are fewer Farmer’s markets on Oahu with limited selection compared to we had on the Big Island.  On Oahu, there is no place like Suisan or the Kona harbor with fresh fish and the amazing Big Island Beef is hard to find. Restaurants are abundant, excellent ,and affordable on Oahu, a very unfortunate thing for our waist lines. We never found a place on the Big Island that had consistently excellent food and service at an affordable price whereas on Oahu we have trouble deciding where to go among all the choices.

Weather and Vog

The weather on Oahu depends on where you live, just like the Big Island. We live in central Oahu where it is very rainy, similar to Hilo.  When we drive to west Oahu the weather is usually hot, dry and sunny, similar to Kohala. A bad Vog day on Oahu is like a no Vog day on the Big Island. We are happy to not have to deal with the Vog.

Rent and Jobs

Rents are substantially higher on Oahu than the Big Island.  We are paying $600 more a month in rent for a much smaller condo than we had on the Big Island. The same size and quality of rental on Oahu is about double the cost on the Big Island.  The driving factors for Oahu’s high rents seem to be the large number of soldiers who get a substantial housing allowance and the job market.  Getting a job on Oahu is fairly easy and although they pay better than Big Island jobs, the pay is still very low compared to the cost of housing.  The competition for housing can make it a challenge to even find a rental.

Beaches and Parks

The gorgeous white sand and black sand beaches on the Big Island are in a league of their own.  The famous North Shore beaches on Oahu are tiny with only a few places to  park along the road.  It is a big contrast to the Big Island’s long stretches of beach with large parking lots near many of them.  On Oahu, the malls are more accessible than the parks and trails and beaches.  We miss counting the turtles, talking to the eels, and enjoying the gorgeous scenery on our daily beach walks in Kohala.

We are enjoying our new life in central Oahu but we are missing the incredible outdoor lifestyle we had on the Big Island.