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The Honolulu Advertiser
Posted on: Sunday, January 1, 2006

O'ahu housing boom could flatten in 2006

By Rick Daysog
Advertiser Staff Writer

Dan Roth took some time before finding a home with a price tag he could live with recently in Hawai'i Kai. With him In front of the new home on Koko Kai Place are, from left, son, Jack, 2, his wife, Elizabeth, daughter, Emily, 6, and son, Adam, 8.

REBECCA BREYER | The Honolulu Advertiser

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When Dan Roth began house hunting on O'ahu last summer, he was frustrated by how small the houses were, even with price tags over a million dollars.

The 47-year-old California native decided to camp out in a rented condo until the market became a bit more rational. That moment has come, according to Roth, and he is now in the process of closing on a 2,000-square-foot home in Hawai'i Kai's Koko Kai Villas for about $950,000.

"It's a better situation than it was in the summer," said Roth, who moved here with his wife and three kids to be regional manager for the Islands Restaurants chain. "Buyers have some inventory to chose from, and there is some sense that you can negotiate with the sellers."

Roth's experience underscores what many real-estate executives and economists have been saying for the past several months: Hawai'i's housing boom, after hitting record highs last year, will begin to flatten out in 2006.

The changing market means sellers will have to work harder this year to get the prices they want.

"It's not like you can throw a sign out on the door and expect to get an over-asking price" offer, said Cherie Tsukamoto, broker in charge at East Oahu Realty Inc. "These days, you have to be prepared to market a property well and stage it properly."

For the first time in a long while, those shopping for a home in Hawai'i may have something to cheer about.

"Buyers can now look at a property for a second or third time and know that (it) is not going to disappear in 24 hours," said Leilani Cunningham, an agent with Coldwell Banker Pacific Properties, who is representing Roth. "We're actually seeing negotiations taking place where both buyers and sellers are sitting down to make a deal, whereas in the past it was one-sided in favor of the seller."

The change has prompted real-estate firms to shift their marketing strategies and change their client mix.

Some are targeting new Mainland buyers while boutique firms like Marcus & Associates Inc., which spent more time on the sale side during the past housing boom, will be spending more time on the buy side in 2006.

Paul Brewbaker, chief economist at the Bank of Hawaii, says that the number of single-family home sales will slip next year, making it the first time in nearly a decade that sales volume declined on an annual basis.

Home buyers got a peek at that trend in November, as the number of single-family homes sold dropped 2.4 percent to 366 from November 2004's 375.

Brewbaker noted that the Hilo area on the Big Island and west O'ahu, particularly the new developments in Ko Olina, will be the exceptions. He said that sales volume and prices in those areas are likely to see strong growth next year.

The median price for a single-family home, meanwhile, will increase by more than 10 percent this year while prices and sales volumes for condos will continue to rise, reflecting the strong demand, he said.

Brewbaker's forecast carries a lot of weight in local real-estate circles, given his accurate forecast in mid-2003 that single-family home prices could rise more than 50 percent in several years to $600,000.

Brewbaker says the local housing market is following patterns set on the Mainland, particularly in California, where home prices began to soften in 2004.

"It looks pretty clear that sales volume will decline from record level but will still be high while prices will continue to go up," added Harvey Shapiro, real-estate economist for the Honolulu Board of Realtors.

On the condo front, Hawai'i's growing population base and its expanding economy will continue to fuel demand for condominiums, especially in Honolulu's urban core, said Hugh Howell, owner of the local real-estate appraisal firm Howell & Associates.

Many would-be home buyers have been priced out of the single-family home market in recent years and can only afford to buy a condo, he said.

Under conventional lending assumptions, a home buyer would need to earn about $90,000 a year to qualify for a $640,000 home, which was the median price on O'ahu in November. Under those guidelines, only 25 percent of Hawai'i's households would qualify for a median priced home.

"There's still a huge amount of demand for anything between $400,000 to $700,000," Howell said.

Dale Nishikawa, CEO of local real-estate firm Marcus & Associates Inc., says rising interest rates are a factor in the slowing housing market.

In the past year, the interest rate on 30-year fixed-rate mortgages have risen about half a percentage point to about 5.87 percent, increasing the typical home buyers' monthly mortgage payments by about $100.

Nishikawa said the changes in the marketplace are prompting his 30-agent company to shift its client base.

A majority of the firm's customers during the past boom were sellers, said Nishikawa. Over the coming year, the company will represent more and more home buyers who are in a better position in today's market.

"It's not like it's going to be a strong buyers' market, but it's not going to be a strong sellers' market, either," Nishikawa said.

East Oahu Realty's Tsukamoto says the market fundamentals remain strong, despite predictions of a slowdown.

Unemployment remains at near-record lows, personal incomes continue to rise, the housing inventory remains tight and interest rates are still near historic lows in spite of the recent rises, she said.

But she conceded that the market is much less hectic. In the past several years, the typical seller would expect to receive above-asking-price offers.

John Harris, president and and principal broker of RE/MAX Honolulu, shares that outlook.

Harris says Mainland investors who helped fuel the run-up in single-family home prices in recent years will buy fewer single-family homes. But he says those same Mainland buyers will continue to be attracted to Hawai'i's condominium market.

Not only do local condo prices compare well with West Coast cities such as San Francisco, Los Angeles and San Diego, buyers will have a wide range of choices given the large number of new projects coming on stream in the next several years.

They include the 40-story Hokua at 1288 Ala Moana project in Kaka'ako, Alexander & Baldwin Inc.'s 352-unit Keola Lai complex at Queen and South streets, the 372-unit Koolani complex in Kaka'ako, the 29-story 909 Kapiolani tower at Ward and Kapi'olani, the 700-unit Moana Pacific complex on Kapi'olani Boulevard and the Capitol Plaza tower at the former Block J site downtown.

While most of these new projects are sold out or nearly sold out, some owners will be looking to unload their units to take advantage of the recent run-up in prices.

To target condo buyers, Harris said, his 41-employee company will increase its advertisements of local condos and luxury homes in trade publications, the Wall Street Journal and RE/MAX's in-house magazine.

"I think were looking at a different type of year," said Harris.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.

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