AKAMAI MONEY
Housing deals exist for young buyers who do their homework
By Deborah Adamson
Q: I'm 23 years old and I graduated from college in December. I work as an assistant in the marketing department of a local company and I live at home with my parents. My question is, for people who just finished college, how should we save to own a home? I look at the value of my parents' home and I can't afford that. — Lisa Chang, Manoa
A: When you read reports on the housing market, it's easy to be intimidated: In March, the median price for a single-family home in Honolulu rose to $550,000 while condos topped $230,000. These prices do seem out of reach for a young graduate starting out on his or her career.
But median means just that; half of the homes are priced below it and half above it. Moreover, different parts of Honolulu have varying median prices. For instance, single-family homes in the Leeward Coast cost a median of $268,500 while condos are priced at $108,000. In contrast, Kailua's median price is $700,000 for single-family homes and $350,000 for condos.
"Do your research," said Ron Wall, extension specialist in family economics at the University of Hawai'i-Manoa. "There are plenty of condos in the $200,000 range."
Even if your budget is more modest — say you can swing only $100,000 to $150,000 — you'll still find properties available.
A search of condos on the Web site of the Honolulu Board of Realtors (www.hicentral.com) yielded 23 one-bedroom, one-bath O'ahu units priced at under $100,000 fee-simple. If you bump up your maximum price to $150,000, you'll get 66 choices.
While many properties are on the Leeward side, there are several in central and metro O'ahu.
There was an 896-square-foot, two-bedroom, one-bath Mililani condo for sale at $150,000 fee simple. In the same area, two others were priced at $117,000 and $125,000 for one-bedroom, one-bath units fee simple. The size of each is 704 square feet.
At the Century Park Plaza towers in Pearl City, there were two one-bedroom, one-bath units being sold for around $150,000. They are tiny — 515 square feet — but they're fee simple. Several Waipahu properties also fall within your budget.
If you don't mind leasehold properties, you'll get a much wider array of choices in town.
While you're searching for a property, ramp up your savings.
Since you live with your parents, "this is a tremendous opportunity to accumulate the money for a down payment," said Greg McBride, senior financial analyst at Bankrate.com in North Palm Beach, Fla.
Also, you could ask your parents to help you with the down payment on your starter home, said Bill Chee, president of Prudential Locations in Honolulu.
If you're not in a hurry to buy your first property, you can park your money in a Roth IRA, Wall said. After five years, you can withdraw up to $10,000 for a down payment on your first home free of taxes and penalties. The maximum you can put into a Roth IRA is $4,000 for 2005, since you're under 50 years old. What's great about the Roth versus a regular bank account? In a Roth, any gains are not taxed.
It may be exciting to be in the real estate market right now, but you might wish to reconsider.
"Buying may not be the best move for her right now," McBride said. "Having flexibility in her early years may go a lot further than stretching herself too thin buying a house in what could be an overheated market."
You're just starting off in your career and you're single. What if you move to the Mainland for a job? What if you decide to pursue graduate studies outside of Hawai'i? As for renting out your condo, "right now rent doesn't cover the cost," Chee said.
You might have to take a loss every month on your investment, which could be acceptable to experienced real estate investors with multiple properties and looking for tax breaks, but it's not a good idea for young graduates living on a small income whose life paths might suddenly change, McBride said.
Even if you took the plunge and saw prices rise by $10,000 next year, your profit would be diminished or erased by closing costs and broker fees, which can be considerable, he said.
A better move is to start saving for retirement now by contributing as much as you can to your 401(k) and IRA, McBride said. With the power of compounding, saving even small amounts early on can amount to a fortune over time.
"The ability to do that at age 23 is more important than buying a condo in a high-cost housing market that may be overheated," he said. "It's easy to be lured into that (the home-buying frenzy) when you see other people making money. But the easy money has been made."
Got a consumer or personal finance question? Contact Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
