In late August, the National Association of Realtors (NAR) released median home price information that showed gains of 4.9 percent in July 2014 home prices compared to July 2013. This gain was slightly higher than the 3.7 percent seen in June and notably slower than double-digit price growth in summer/fall 2013. Overall, the NAR is forecasting an increase in the median sales price at a sustainable single digit rate. Locally, Hawaii is one of three states where the median sales price change is expected to grow greater than 5 percent in the next 12 months.
Below is a hypothetical example, using an OwnAmerica.com investor decision aid, of what a 5 percent average growth rate equates to after 20 years.
BY THE NUMBERS…Waikiki Home Purchase Price of $425,000.
The home is purchased with a 5 percent down payment of $21,250 and a closing costs of 1 percent or $4,250 which results in a mortgage amount of $403,750. With a 4 percent mortgage rate and a 5 percent appreciation rate after 20 years the principal on the mortgage would be reduced to $319,938 while the properties value would rise to $692,280 leaving you with $372,342 in equity.
Use the investor decision aid to experiment with different scenarios and talk to your local Realtor to learn more about real estate investment opportunities in your area.