O'ahu homes sell at highest pace on record

By Sean Hao
Advertiser Staff Writer

Sales of existing single-family homes on O'ahu rose nearly 21 percent in June, topping the 400-level for the first time since officials at the Honolulu Board of Realtors started tracking the statistic in 1987.

A total of 410 existing single-family homes were sold last month, compared with 339 in June 2002. The median sales price increased 17.7 percent to $388,500, versus $330,000 a year ago.

Harvey Shapiro, research economist for the board, said record low mortgage rates in June continued to spur buyers despite rising home prices. "The price increases have been offset by declines in mortgage rates," Shapiro said.

Even though prices have risen almost 18 percent in the past year, the drop in interest rates means the monthly payment on a median-priced home is up only 2 percent.

A typical monthly payment on a $388,500 home, with 20 percent down payment, is about $1,714 at today's interest rates of 5.24 percent. The typical payment on a $330,000 home, with 20 percent down, would be $1,677 a month at last year's interest rate of 6.55 percent.

The number of single-family homes sold has risen steadily since 1999, while prices have been climbing since 2000, Shapiro said.

"The last time we were at these levels was during the Japanese bubble" in the late 1980s and early 1990s, when home values rose sharply only to fall back as the Japanese economy faltered.

This time though, "Prices have been going up much more gradually, so I'm not expecting there will be a bubble effect," Shapiro said. "I think these prices can be sustained."

June's median price of $388,500 compares with a peak of $392,000 hit in August 1990. However, when adjusted for inflation, home prices in June were well below the peak. The 1990 median of $392,000 is the equivalent of $502,000 today.

Shapiro said the median home sales figure for June also maybe somewhat skewed by a disproportionately greater mix of sales of higher priced homes last month.

Another factor likely driving up home prices was a drop in inventory to 1,046 homes in June — the lowest amount since the Honolulu Board of Realtors started tracking the statistic in 1986.

On the Neighbor Islands, where housing sales are more directly affected by tourism activity, home resales were mixed in May, the most recent month for which data is available. Activity rose on Maui but fell on the Big Island and remained stable Kaua'i.

The median Maui single-family home resale price in May rose to $375,000 from $369,000 in May 2002. Median prices on the Big Island rose significantly in the past year: to $245,000 in May from $174,500.

Unlike during a real estate bubble, when many homes sell on speculation that values will climb, today's market is being driven by fundamental factors such as a recent steady increase in personal income, job growth and low interest rates, said University of Hawai'i economist Carl Bonham.

"Those factors set up the condition for price appreciation," he said.

Likewise, Bill Chee, chief executive for The Prudential Locations LLC in Honolulu, said today's market doesn't compare with previous booms, which at times were driven by external factors such as the strength of the Japanese economy.

He pointed to demographic trends that are fueling home sales, including the baby-boom generation. This generation, which now is inheriting wealth from its parents, is more free-spending than its Depression-era predecessor.

"It's not something that just bubbles up," Chee said. "Those baby boomers expect to be around awhile. That helps the market as much as the interest rates."

Condominium resales also rose in June to 537 units — up 30 percent from June 2002. That's down slightly from a 12-month high of 564 in May. Meanwhile, the median price of condominiums resold in June rose 13.6 percent since the same time last year to $179,500.

Through June the total value of homes and condominiums resold was up 32 percent to $1.52 billion, compared with $1.15 billion during the first six months of 2002.

Staff reporter John Duchemin contributed to this report. Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.