Honolulu Real Estate Trends: What's Next?
What you need to know to get in, get out, or sit tight in the latest local real estate spike.
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Unless you’ve been living under a rock, instead of on the rock, you’ve heard that home prices are rising—fast. It’s as if someone lit a fuse on the market. Just how hot has the real estate market become? Sellers are consistently receiving multiple bids on a property, and buyers are outbid left and right, as low inventory and high demand cause the market to surge even further.
Vincent Daubenspeck of Re/Max Honolulu has seen this firsthand. One of his clients was moving off the island and wanted to sell his single-level home in Mililani Mauka. Before the listing was even officially on the market, they had received an offer for full asking price. The appraisal came back at full value as well, previously an anomaly in the market—historically in Hawaii, appraisals fall short of asking price. Once the listing was official, Daubenspeck was inundated with calls about the property. They quickly received two other backup offers—both above asking price, one by $30,000.
Buyers’ agents are feeling the heat, too. Mark Kumamoto of Prudential Locations had a recent client who was looking for a townhouse in Aiea. He put in two offers only to get turned down. What finally worked, for a condo the client really loved, was putting in a bid above asking price within the first week of the unit being offered.
These stories have become the norm in a market that has consistently stayed strong despite nationwide economic ups and downs.
Bryn Kaufman, one of the top real estate producers in Hawaii, finds this type of demand and limited supply all too common. “We go up against multiple offers most of the time now. The one that stands out was a home in the $1 million-plus range. I advised going in 8 percent over asking price, which the clients did. To my surprise and theirs, they still were too low, and their offer was rejected.”
Source: Associations and Board of Relators of respective cities featured
Infographic: Amy Lenoir
Mililani Millionaires by 2020?
Where is it all going? In our real estate blog in April, we reported on a forecast by the University of Hawaii Economic Research Organization (UHERO)—its prediction was that the median home price in Honolulu would climb to $650,100 through 2013, then to $724,000 in 2014, hitting $815,000 by 2015.
Economist Paul Brewbaker tells us, “People are going to have to wrap their heads around the idea of a median single-family home price on Oahu of $1 million before the 20-teens are over. It’s conceivable home prices could double … within the 20-teens.”
How you feel about that depends on where you sit in the real estate food chain, and where you want to be in the near future. Own a paid-off home? Lucky you—though you may find your houseless children or grandchildren moving back in with you. Are you in the market now, either buying, selling or trying to trade up? Stick with us, we have some advice for you in just a few paragraphs.
Why the rise?
Price increases like that can chill as much as thrill. Is this for real? Is it a bubble? Is outside money pumping up local home values, as in the 1985-1990 Japanese investment bubble, when the median price of a Honolulu home doubled in four years?
The short answers, in order: Yes. No. Not so much.
What’s happening is entirely consistent with a historic pattern in Hawaii real estate, where home prices surge for a few years, then plateau. It happened between ’77 and ’81, as average home prices shot from $94,028 to $191,597. Many of you remember the ’85-’90 explosion: average home prices went from $188,900 to $498,511.
That last one was indeed a local bubble, as Hawaii home values slumped immediately after the confluence of Japanese investment money drying up, the first Gulf War kicking off and Iniki barreling in. And then there was the long 1990s Hawaii recession that kept everything flat, from our home prices to our joie de vivre. If you’d bought a house in 1989 at the then average price of about $347,000, and sold it in 1999 at that year’s average price, well, you made a staggering $3,500.
Not so today. This time, the housing bubble burst all over Mainland cities that tried to cash in on the inflated housing boom. Hawaii sat out their orgy of speculative construction, which headed off an oversupply of homes on the market, while local lenders stayed conservative, rather than throw money at any homebuyer with a pulse, if not a credit history, the way some Mainland banks did.
In fact, Hawaii homeowners barely saw a dent in their investment. The median price of single-family homes dropped just 3 percent in 2008 and 7.9 percent in 2009. Prices started going back up in 2010 and now, as of April 2013, the median sales price on a single-family home is up to $625,000, and, for condos, $335,000. In the past year alone, the median sales price has gone up 4.2 percent for single family homes and 5 percent for condos. Not a bad investment strategy, especially when the economy as a whole has seen its share of ups and downs. Taking the long view, Hawaii real estate has typically paid off: from 1985 to 2011, the price of single-family homes increased 262.5 percent, or just over 5 percent annually on average.
Simple supply and demand is fueling the current rise. Brewbaker notes that housing starts over the past four years are the lowest Hawaii has seen for any four-year period since the end of World War II. (See sidebar on the next page for more on this.)