Hawai'i homes still selling

By Andrew Gomes
Advertiser Staff Writer

As Hawaii's housing market enters what looks like a sixth consecutive year of growth, it is buyers like Chris Lee who are helping extend the cycle.

The Legacy homes project in Mililani Mauka should help ease a shortage in inventory in Hawai'i's housing market. Bruce Asato • The Honolulu Advertiser

On Thursday, he completed the purchase of a home in Kahala.

Already the owner of a house in Waialua, he said good prices, low interest rates and a desire to own a place closer to town convinced him to buy a second home.

Lee is not alone. Reid Gushiken, a 26-year-old accountant, had been shopping for a house for about six months. Now he has a 3-bedroom, 2 1/2-bath house in Hawai'i Kai in escrow.

"Interest rates are definitely low and I'm getting married," he said.

Low interest rates appear to be overriding any buyer concerns about Hawai'i's economy. And it is, in part, because of buyers like Lee and Gushiken that Ricky Cassiday, an analyst for Prudential Locations, counts himself among the stunned converts now predicting market growth this year.

"You can't argue with the numbers," he said.

Through February, there were 1,363 new and existing homes sold on O'ahu, compared with 1,060 for the first two months of last year, a 28 percent increase, according to Cassiday.

"The market looks like it is really on the march," he said.

The momentum is being felt on the Neighbor Islands, too. It also is having a positive influence statewide on people such as appraisers, contractors, architects and bankers.

Cassiday is projecting 3 percent to 6 percent growth in homes sold for this year, provided there is not another economic shock like the one that followed Sept. 11.

The forecast is brighter than what is expected nationally, where sales of new and existing homes is projected to decline by 1 percent this year, down from last year's record 6.2 million homes sold, according to the National Association of Realtors.

Driving the current and expected future demand in Hawai'i are low interest rates, increasing consumer confidence and hopes of a rebound in job growth later in the year. If predictions come to pass, there will be more upward pressure on prices that have been rising, and downward pressure on a historically low inventory.

Growth cycle not slowing

Hawai'i's growth cycle started at the last market bottom in 1997, which marked the end of a four-year decline.

Caste & Cooke is continuing construction on its Legacy homes project in Mililani Mauka. Model homes in the project have been completed. Bruce Asato • The Honolulu Advertiser

At the end of last year, total home sales were 20 percent under the 1988 peak, and 60 percent above the 1997 low, according to Prudential.

The recent expansion trend, however, had been waning as year-over-year sales increases slowed from 21 percent in 1998, to 14 percent in 1999, to about 9 percent in 2000 and 2001.

That suggested the end of the cycle was near — and the wave of unemployment claims, bankruptcies, empty beaches and business closures triggered by Sept. 11 only reinforced the belief that the five-year run was over.

"It appeared we were at the end of a cycle," said Jack Leslein, owner of the 80-broker firm East O'ahu Realty Inc. "And yet it's just continued to soar."

Leslein, who considers a normal week one in which his brokers deliver 13 sales into escrow, had 28 two weeks ago. As of last week, he said his firm had 120 deals in escrow, compared with 67 at the same time last year.

One recent house-hunting couple, Leslein mentioned, thought they would be safe bidding just above the asking price on a $350,000 Mililani home, only to find there were six other overbidders.

"That's unusual unless you're in a really strong market," he said.

Interest rates, job growth

Interest rates, brokers say, have been one key to the surprising market strength.

The rate on a 30-year fixed mortgage is about 6.7 percent. By comparison, the average rate has been under 8 percent for the past five years, and was around 10 percent in the late 1980s.

The Federal Reserve, which controls movement of a key interest rate affecting mortgage rates, is not expected to move the current interest level higher when it meets Tuesday, but may do so later this year. The national realtor association projects that the interest rate on a 30-year fixed mortgage will rise to 7.3 percent by the third quarter.

Jones of Schuler Homes, said anything under 8 percent will continue to attract a lot of sales. But brokers also note that if interest rates rise too much, it could accelerate sales as people considering a home purchase rush to beat financing cost increases.

Besides interest rates, industry observers say job growth is the other primary factor in the market's health. Job losses surged in the months following Sept. 11, but experts note that the losses affected only a small part of a huge pool of potential home buyers.

Last month in Hawai'i, about 29,000 people were unemployed, while about 550,000 people had jobs — a roughly 5 percent unemployment rate. The state projects a 0.7 percent decrease in jobs this year, while personal income is forecast to rise by 2 percent.

"There are plenty of potential buyers out there who haven't been affected by job losses," Cassiday said.

Leeward sales strong

Brokers and developers say customers today represent the usual range of first-time buyers, move-up buyers, investors, second-home buyers and people planning to move to Hawai'i for work or retirement.

Herb Conley, co-managing partner at the state's largest residential real estate brokerage, Coldwell Banker Pacific Properties, said one of the strongest areas for sales has been Leeward O'ahu. Sales of existing homes there during January and February were up 40 percent for single-family houses and 51 percent for condos, compared with the same two-month period a year ago.

Higher sales are taking place in other parts of O'ahu, and the Neighbor Islands also are participating in the surge.

Homebuilder Carr said an extraordinary 20 percent of buyers at his single-family and multifamily Peninsula project in Hawai'i Kai have been nonresidents. He said he has also seen strong in-migration by Mainland buyers at his projects on Maui and the Big Island.

Chris Lau, president of Towne Development of Hawai'i, which has two new-home projects on Maui and one on the Big Island, said there has been a big pickup in sales following a terrible downturn on the Big Island and softness on Maui.

Jones said he wishes he had more product in development. The company is finishing projects in Waikele, Salt Lake and Hawai'i Kai, but plans to begin six to seven new projects on O'ahu and the Neighbor Islands in the next six months.

Prices up, inventory low

But with strong demand will come continued pressure on prices that have been slowly rising for a year or so.

O'ahu median prices for resales were $312,000 for single family homes, and $137,000 for condominiums in February. The median price for new homes sold on O'ahu was $331,000 in January, the latest month for which information was available.

Inventory on the Island has been near the roughly 4,000-home historical low reached in 1989. If no new homes were built or put on the market, the supply would last about five months.

The low inventory has led to shorter listing periods for sellers and more pressure for prices to move higher, although not yet high enough to deter buyers.

Affordability at the end of last year was at a five-year high, according to Conley, who said the typical monthly mortgage payment for an existing home in Hawai'i was $375 less than it was in 1996.

Conley, who was among industry experts earlier this year predicting 2002 home prices and sales would remain flat or dip slightly, said he isn't ready to make any new predictions for the year, but he doesn't mind being wrong about the last one.

"If I'm wrong," he said, "this is the way I want to be wrong."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.