O'ahu home prices surging
By Frank Cho
Advertiser Staff Writer
When Marie Gamboa and her husband, Jolly, bid $10,000 more than the asking price for a home in Kapolei earlier this year, Marie Gamboa was sure the sellers would jump at the offer. When someone outbid them, she was disappointed.
When the Gamboas offered $20,000 more than the asking price for another island home and were again outbid, Marie Gamboa was frustrated.
It was when the Gamboas offered more than the asking price on a third home and were outbid yet again that she became angry.
"I don't know what we are going to do," Marie Gamboa said, adding that the couple has been searching nearly a year for a new home. "We were ready to jump into this, but nothing has gone through. Maybe we are going to take a break for a while."
While O'ahu's booming real estate market has been a boon for sellers, the diminishing inventory, increasingly competitive bidding, and rapidly rising prices are putting the pinch on prospective buyers.
While no one is ready to bemoan the state's flourishing home-sales market — one of the few bright spots in Hawai'i's struggling economy — some experts note that if prices continue to rise at their current pace, thousands of potential new homeowners could be priced out of the market.
Fueled by interest rates at a historic low of 6.5 percent and demand for larger and more luxurious homes, the median price for an existing single-family home on O'ahu surged last month to $360,000, up more than 24 percent from a year ago to its highest level in more than six years.
"I am stunned at the increase in prices," said Ricky Cassiday, a real estate consultant for Prudential Locations. "If prices continue to rise, I think we are going to see people buying less house than they would have a year ago."
The monthly home-sales survey released last week by the Honolulu Board of Realtors also showed that the price spike did little to dampen sales, which surged 34 percent over the same time a year ago. Condominium prices and resales also continued to rise, with the median price hitting $145,000, up 8.2 percent over a year ago.
Board officials say the dramatic spike in home resale prices could be a short-term phenomenon, but add that sales of homes in the $500,000 to $700,000 price range accounted for 14.7 percent of all sales in May, up from between 8 percent and 10 percent over the past three months.
Rising prices, along with rising sales, generally indicate a healthy housing market, but some experts say the steady price increases statewide have dropped affordability of homes to the lowest point in nearly three years.
With the current low interest rates, a debt-free prospective buyer putting 10 percent down would have to have an annual income of between $68,000 and $72,000 to qualify for a 30-year fixed-rate mortgage, according to Bank of Hawaii officials.
But according to the most recent state census data released last month, more than half of all households in Hawai'i would not qualify. Census figures estimate Hawai'i's median family income at $56,951 in 1999. In 2000, according to the census data, 43 percent of Island residents had a family income of less than $49,999.
And as more prospective buyers try to take advantage of the current interest rates and lock onto a house before prices might rise even further, many are devoting a larger share of their incomes to keeping a roof over their heads.
Bank of Hawaii, the state's biggest mortgage lender, estimates that the average mortgage loan increased to $213,027 last month, up from $209,900 at the end of last year.
Lenders, who at one time insisted that mortgage borrowers keep monthly housing costs between 28 percent and 36 percent of household income, may be more willing now to allow smaller down payments and larger mortgage loans because of new computerized underwriting programs that analyze individual borrowers' abilities to repay.
"Computers have changed things. We really believe that we are able to get a better handle on how much people can afford than when we did this manually," said Carl Cunningham, vice president for mortgage banking sales at Bank of Hawaii.
While some buyers may find home loans generally more obtainable, the current tight supply of homes will keep sales prices up, said Tom Zimmerman, president of Hawaii Home Loans, a mortgage banking company.
"You may be slightly more likely to get a loan approval today because of the enhance automated underwriting, but I would say the price growth is more of a supply issue," Zimmerman said.
The demand for homes also is straining supply. The Honolulu Board of Realtors estimated the average time on the market for existing single-family homes last month fell to just 32 days, down about 20 percent from a year ago.
"Right now our Realtor clients are telling us that there are buyers standing in line to get into this marketplace," said Cunningham.
But some economists and real estate experts say that while the market pressures may be tightening on Hawai'i's home-sales, there is no impending disaster.
Paul Brewbaker, chief economist for Bank of Hawaii, said Island residents enjoyed rising personal income, falling or level home prices and low interest rates for most of the past decade, allowing many people to afford homes.
"Put the three together and affordability was better than at any time in the last two or three decades," Brewbaker said. "Now, like a light switch turning on, we're all supposed to read stories about how the economy is so hot that home prices are going up, and housing affordability is an imminent crisis."
Still, for many it's getting harder to find houses in their price range.
Derek Stephens said he is looking to sell his house in Wai'anae so he can buy a home closer to his job in Wahiawa.
But Stephens says he can't find anything in his price range that won't take thousands of dollars of renovation work.
Stephens, who is paying $1,700 a month to pay down a $198,000 mortgage, said higher home prices may help people like him sell their homes, but he's not sure he will be able to find another house as affordable in Wahiawa.
"It's hard for the average person in Hawai'i to afford a house without working three or four jobs," said Stephens. "I think we will just rent from now on."
Reach Frank Cho at 525-8088 or at fcho@honoluluadvertiser.com.
