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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THE Affordability crisis
Homes in Hawaii are expensive. Everyone knows this. Recently, they’ve only gotten more expensive. According to the Honolulu Board of Realtors, the current median price for a single-family home in Honolulu is $625,000 (a condo is $335,000). Economist Paul Brewbaker says don’t be surprised if that number morphs into $1 million before the decade is over.
“It will never be cheap,” he says. “This is Honolulu.”
Law professor Randy Roth agrees. “It’s awfully hard for a young person to own a home here,” he says. In fact, three of four of Roth’s adult children live on the Mainland, and while housing certainly isn’t the only reason, that it’s cheaper to own a home in most other states means they’re there, not here.
“Hawaii is paradise … You make sacrifices,” he adds. In the early 1990s, Roth helped write and edit two books, both titled The Price of Paradise, on that exact topic.
Skyrocketing home prices likely mean more sacrifices for those that don’t already own a home. It’s simple economics: Supply and demand. It’s the problem of way too many people wanting homes coupled with stifling restrictions, because of geography—we live on an island, after all—and government bureaucracy.
Brewbaker puts it more bluntly: “Honolulu in the 21st century is not endowing the newborn with the existing per capita housing stock—and that doesn’t even take into account second-home buyers and the manner of absentee owners, the offshore investors,” he says. “Yes, this is a housing capital formation rate that is probably too low unless you intend to drive people out of Hawaii, but my contention is that this is in fact what the ‘Politics of NIMBY’ actually is about. The crunchy granola types, now that they’ve moved to Mililani, do not want anybody else ever to have the ability to do what they did.” But, this also includes their kids, he concludes, adding that new homes being built on Oahu between 2009 and 2012 are lower than in any four-year period since World War II.
What does this mean for future Island homeowners? Or, those that want to retire here? Interest may be low, but prices are only going up and, despite new developments on the West side and in Kakaako, inventory will still be drastically low.
Basically, all that ever-growing numbers of home buyers can do now is try to grab an existing home when someone decides to sell. So far this year, we’ve seen an average of 356 single-family homes and 521 condos come up for sale each month, a drop of 27.2 percent in inventory of single family homes, and 21.4 percent in condo inventory from 10 years ago.
All this while Hawaii’s population has grown 2.4 percent in the past 10 years. Interest rates are crazy low at about 3.5 percent for a 30-year fixed mortgage (Remember when interest rates were 8.5 percent in the year 2000?) And consumer confidence has grown as we start to feel the recession fade.
Kevin Miyama, of Prudential locations, and the president of the Honolulu Board of Realtors, attributes the booming demand for real estate to four factors: military, construction, tourism and the government. “The focus on the military in Hawaii means that public money is coming in from the government, and strengthening our economy, creating construction jobs, both civilian and military. There are at least five or six new development projects being built, as well as the rail project, all indicators of a strong construction sector. Tourism numbers are up, with per person expenditure at a high, all contributing to our economy here in Hawaii. And lastly, the government in Hawaii, one of our largest employers, is once again hiring.”
“Real estate is hot because, first, and most importantly, consumer confidence is back,” agrees Yukiko Sato, a realtor associate with Coldwell Banker Pacific Properties. “Unemployment is also down, so there is a larger pool of eligible buyers in the market. Another wildcard factor is increased demand from overseas investors. In addition, the combination of historically low levels of new construction and the lowest resale inventory since 2005 will push demand past the existing supply.”
Like we said, poised to explode.
Time to Sell?
If you were thinking about selling anyway, consider yourself lucky. You’ll likely get what you want for your place and then some. Currently, single-family homes are consistently receiving 98.5 percent of their listing price, and condos are getting 99.1 percent. That’s already better than just two years ago when, sellers were getting 95 percent of their list price. Twenty-nine percent of listings are receiving multiple offers, the rest, at least one or two. And as we noted at the top of this article, some sellers are even getting offers higher than their asking price.
You will also very likely sell your home or condo quickly. In 2003, the average time a single-family home sat on the market was 29 days. That jumped up to 52 in 2008, and now the average is only 23 days, barely three weeks.
The temptation for you will be to hang on for as long as possible, certain there will be a higher offer down the road.
“If a seller can wait, they definitely should, says realtor Daubenspeck. “Appraisals have still not caught up to the potential, nor to the peak of the market.” He recommends holding on to property for another three to four years.
Of course, what’s a real estate article without a little contradictory advice? As much as some people estimate million-dollar-median home values by the end of the teens, all upswings end. Kaufman warns that, at some point, the seller is going to just have to choose, and hope they’ve maximized their home’s potential. And if you’re on a timetable, say, to leave the Islands, you may have to take what you can get when you can.
The last big seller’s market in Hawaii was back in 2005-2006, when prices skyrocketed 20 percent within the year. Real estate is cyclical. It’s high now, but as Rochelle Lee Gregson, CEO of Honolulu Board of Realtors, points out, “At some point, sellers will see the opportunity and start making the right decisions at the right time. And let’s not forget the new developments that are sitting on the horizon. We’re going to be experiencing at least six new developments over the next five years or so.”