Posted on: Wednesday, March 2, 2005

New home sales up 7% on O'ahu

By Andrew Gomes
Advertiser Staff Writer

Low inventory and construction limitations held new home sales growth on O'ahu to 7 percent last year, keeping demand and prices high for what is expected to be another developer's market this year.

There were 3,136 sales of new homes last year, compared with 2,927 in 2003, according to data compiled by market researcher Ricky Cassiday for Hawaii HomeLoans.

Prices rose 21 percent to an average of $502,524 last year, compared with $414,790 a year earlier.

The price increase was similar to appreciation in the resale market, but new home sales volume growth was half that of the resale market, which posted a 14 percent gain in volume last year with a record 12,950 sales of previously owned homes.

Cassiday said last year's volume of new home sales almost certainly wasn't a record compared with the boom of Honolulu high-rise condo sales and burgeoning single-family and townhome communities of Waikele and Kapolei during the early 1990s.

"We're not there yet," he said.

Last year's modest sales increase was constrained by construction of new single-family homes, which decreased by 32 percent. Developers sold 1,194 single-family homes last year, compared with 1,764 a year earlier.

Cassiday said the slowdown was due in part to limited availability of construction labor and materials, plus a hesitation to sell more homes than can be built and delivered in a year.

Last year's 7 percent increase in new home sales compared with a 29 percent rise in 2003.

"Two years ago, it was walk on in and we have a house waiting for you, or one will be available in two or three months," Cassiday said. "If you're going in today and are lucky enough to win the (sales) lottery, your prize is to wait a year for them to build it."

Richard Pafundi, a local attorney, said he waited 18 months for a townhouse on the Hawai'i Kai marina to be completed after he committed to buy it.

"It was a leap of faith," Pafundi said.

The upside, he said, was that similar units to the one he purchased for $545,000 and finally moved into in October are now selling for almost $1 million.

"Lucky me," he said.

Price appreciation is also benefiting developers.

Cassiday explained that many would like to build more homes faster, but selling smaller portions of a subdivision or condo in increments has allowed developers to price each subsequent release higher in conjunction with appreciating values in the resale market.

Because of the slowdown in construction and strong sales demand, inventory of new single-family homes on the market dropped to 244 at the end of last year, compared with 519 in 2003 and 716 in 2002.

The slowdown in single-family home sales was offset by a dramatic rise in new multi-family home sales, which rose 67 percent.

Developers sold 1,942 multi-family homes last year, compared with 1,163 a year earlier.

The increase was primarily driven by high-rise condo sales — where a few hundred units can be sold over a relatively short period at a single project. For example, in mid-December, Moana Pacific released the last 100 units in its 700-unit, twin-tower condo on Kapi'olani Boulevard, and reported 50 sales for the month.

By comparison, the highest single-family home sales for a project in December was Castle & Cooke's Island Classics property in Mililani with 11 sales.

Inventory of new multi-family homes at the end of last year was 352 units, compared with 370 in 2003 and 494 in 2002.

Cassiday said developers are building more townhouse product to help boost inventory and sales this year, though high-rise condo projects are expected to be the main component driving O'ahu's new home market this year.

In the development pipeline and poised for sales this year are two or three towers in Kaka'ako, two downtown and maybe a couple in Waikiki.

Cassiday also expects developers will try to take advantage of government incentives like tax credits to build homes for more low and middle-income buyers.

"Producers will be looking for ways to tap into the growing demand for basic housing," he said.

But developers also are likely to face supply constraints as they did last year.

Shortages in labor, certain materials and other areas will hold down supply," Cassiday said.

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