Home costs climb higher
By Mike Leidemann
Advertiser Staff Writer
Hawai'i's housing prices are rocketing and many in the Islands are feeling the effects.
Rebecca Breyer • The Honolulu Advertiser
They are homeowners, like Liane and Royd Liu, who have seen the value of their properties jump an average of 50 percent in four years and wonder whether this is the time to sell.
Robert Barclay and his wife, Stacy, bought a Kane'ohe home with room for a baby on its way.
They are home buyers, like Robert and Stacy Barclay, who couldn't find a house in their price range and had to dig deeper to afford a new place.
They are renters, like Harsha Reddy, who are searching for a place in a market where the average price for an apartment is $1,461 — up 56 percent since 1997.
And they are home investors, including Laura Yamada, who have benefited from increasing values but are faced with the choice of selling now or betting on better future returns.
For the past four years and especially in recent months, the housing market has been in a gravity-free zone.
The median price for a single-family house in O'ahu went from $365,000 a year ago to $445,000 today. Maui topped that with homes selling for a median of $620,000 last month. Condos on Kaua'i soared to $420,000 in February, more than the price of a single-family home on that island.
Still demand continues to outstrip supply. In March, people began lining up more than a week early to buy units in a new condo project on Kapi'olani Boulevard. The builders of homes have resorted to lotteries to avoid the unruly rush of potential buyers. If you put your house on the market at a reasonable price, you can expect multiple offers within days, several above your asking price.
Low mortgage rates, an improving state economy, young couples moving into their own places, Mainland baby boomers buying second homes, and seniors transitioning to assisted living housing have all contributed to the Hawai'i real estate boom. The effect has been a complete reversal of the market in the mid- to late 1990s when a slow economy and the withdrawal of Japanese investors led to five years of declining home prices.
"If you went to sleep in 2001 and you woke up this year, you're going to have a heart attack," says Paul Brewbaker, chief economist for Bank of Hawaii.
Housing prices move in cycles and the rising prices of the last four years cannot continue forever. Mortgage rates are climbing and that could put a damper on demand. This week the Federal Reserve is expected to increase its benchmark interest rate for the first time since May 2000. Will that mark the beginning of the end of Hawai'i's recent housing boom?
In a special business section today, The Honolulu Advertiser examines the way island residents are coping with what's always been one of the most volatile and vexing components of Hawai'i life — its housing market.
Among the reports:
• The degree to which mortgage rates may slow the stunning rise in Hawai'i home prices depends on variables pulling in the opposite direction, such as the state's strong growth in jobs and personal income. "It's kind of a race between the two," said Michael Sklarz, the Honolulu-based chief valuation officer for real estate data provider Fidelity National Information Solutions.
• Homeowners are being motivated to sell because of increasing values, but then face the problem of buying, renting or making some other living arrangement. These are high-stakes decisions that only time will reveal as fortune or folly or something in between.
• Renters are squeezed by the housing boom. Some landlords are selling the homes out from under tenants to capitalize on higher prices. And with fewer rental units around, prices have climbed from an average of $935 for an apartment in 1997 to $1,461 today.
• For investors it's scary to buy in a market where prices are at near-record highs. Still there are opportunities to profit, experts say, as long as you pick a property that provides positive cash flow and are willing to hold it for years.
• Despite the seemingly astronomical prices, costs haven't risen nearly as fast as some people think and rising incomes have made housing more affordable than in the early 1990s.
When it comes to housing in Hawai'i, no one has all the answers. The only certain thing is that the market is self-adjusting constantly and there are sure to be more ups and downs.
Hold on for the bumpy ride.
Reach Mike Leidemann at 525-5460 or mleidemann@honoluluadvertiser.com
