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Thinking of Trading Up? Why Now is the Right Time


By Lisa Lee

You’ve been waiting to save up more money, or maybe you’ve been waiting for home prices to rise even higher. Maybe you’ve set a target date for the future, such as when the kids reach a certain age. If you’ve been planning to move into a bigger or better home “someday,” now just might be the right time.

Consider the great opportunity today’s real estate market holds: Many people are getting into a nicer home without having to pay more for their mortgage, because today’s interest rates buy 20 percent more home than they did a few years ago.

Other people are moving to a more valuable home while they still can, knowing that home prices, interest rates and the cost of equivalent housing are rising and they soon may be priced out of the market.

Scott Higashi, vice president of sales at Prudential Locations, explains why today’s market in particular benefits people who want to move up. He says low inventory increases competition among buyers, so homes sell faster and for more money. “More buyers are qualifying for home loans, but the number of homes for sale remains near record lows. The competition among buyers is resulting in multiple offers and sales above the asking price. It’s amazing: 25 percent of Oahu homes are selling for more than the asking price,” says Higashi, adding that a shift in inventory levels or the number of buyers could change this market dynamic.

Low interest rates stretch your buying power. When you’re looking to move up, interest rates can make a big difference in what you can afford to own. Today’s rates of around 4.25 percent make home loan payments 20 percent cheaper than they were two years ago. “You can look at this one of two ways: You can buy 20 percent more home, or you can buy a home ‘on sale’ for 20 percent off,” Higashi explains. “Either way, you are able to own more home for your dollar.” Interest rates have risen since last year’s historic lows and many experts expect the rise to continue in 2015.

When prices are increasing, waiting to move up will cost you. “If you want to move up, it’s important to realize that price increases affect both the home you’re buying and the home you’re selling,” says Higashi. “Say you want to sell a $500,000 home and move up to a $700,000 home. If prices move just 10 percent per year, the home you sell will increase $50,000 in a year’s time and the home you buy will increase $70,000. That’s a $20,000 difference. In waiting a year to sell, you end up losing $20,000.”

Higashi notes that once a price run starts, the percentage of price increases is fairly equal across price ranges. “That’s when a low cost of money — low interest rates — can help you. In the past 30 years, interest rates have averaged 7.6 percent, almost double what they are today (4.25 percent). People forget that in the 1980s they were as high as 18 percent.”

The more valuable your home, the more wealth it builds over time. Historically, homes on Oahu have appreciated, or grown in value, at an average rate of about 6 percent annually. “At a rate of 6 percent per year, in 10 years’ time a $500,000 home would be worth an additional $300,000 — but a $700,000 home would be worth an additional $420,000,” Higashi says.

If you’re thinking that now might be the right time to sell, Prudential Locations agents offer free, no-obligation home value assessments. Call (808) 377-4646 to speak with an agent.

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