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The Honolulu Advertiser
Posted on: Thursday, January 19, 2006

Home prices drop in high-end areas

By Andrew Gomes
Advertiser Staff Writer

UPS AND DOWNS

Median single-family home price fell in:

Metro O'ahu (Kapahulu to Salt Lake), Windward O'ahu, Hawai'i Kai, North Shore.

And rose in:

Pearl City, Central and Leeward O'ahu, the area from Kuli'ou'ou to Diamond Head.

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O'ahu single-family home prices showed significant declines in nearly all of the island's most expensive neighborhoods during the last quarter of 2005 — another sign the state's blazing housing market is cooling.

The declines came mostly in smaller bedroom communities where there is little land to build more homes and all had median prices near or above $700,000, according to a report released yesterday by the Honolulu Board of Realtors.

In contrast, the six least-expensive markets on O'ahu — where median prices were all under $600,000 — showed price increases in the fourth quarter compared with the third quarter.

The Realtors board said those six markets were Central and Leeward O'ahu, the 'Ewa Plain, Makakilo, Waipahu and Pearl City (see map on A8 for how the board defines each region).

Rising median prices where most people are buying homes are painfully affecting many first-time home buyers.

"I honestly don't see how people starting out can afford to buy," said Christine Graham, a Waikiki resident who moved to Hawai'i with her family five years ago from Maryland.

The typical median price in the high-end areas dropped by about $30,000 in the fourth quarter. The North Shore median was down $160,000, but the small size of that market leads to more dramatic price swings.

The only high-end neighborhood where the median price rose was what the Realtors board calls Diamond Head — the area from Kuli'ou'ou to Diamond Head. Half of all homes in that area sold for more than $977,000 in October, November and December to make it the costliest area on O'ahu.

Bank of Hawaii chief economist Paul Brewbaker said high-end neighborhoods tend to appreciate first when a housing market heats up, and decline first in a slowing market. But overall, he said, O'ahu's median sale price this year should continue to rise because more homes are being sold in lower-end markets with growing inventory.

"Even though a small number of high-end homes are transacting at lower prices, a large number of low-end homes transacting at much higher prices than before could overwhelm the downward pressure at the high end," he said.

Harvey Shapiro, research economist for the Honolulu Board of Realtors, also projected that there will be a modest increase for O'ahu's median home sale price this year, though price gaps between high-end and lower-end neighborhoods should narrow.

"The bottom end of the market is coming up ... and the high end of the market is stalling a bit," Shapiro said.

During the fourth quarter, the median sale price for O'ahu single-family homes was $620,000, up from $615,000 in the third quarter. In the 2004 fourth quarter, the median was $469,000.

In condominium market, the fourth-quarter median sale price was $300,000, up from $280,000 in the third quarter and $220,000 in the 2004 fourth quarter.

By neighborhood, the median condo price declined in only three of 12 communities defined in the Realtor association report.

Drops occurred in Diamond Head, Hawai'i Kai and North Shore markets — the three priciest — where medians ranged from Diamond Head's $425,000 to Hawai'i Kai's $521,500. The median is the point where half the homes sold for more and half for less.

Shapiro said he expects condo prices to appreciate this year at a modest but higher rate than single-family homes as more buyers are forced to buy condos because single-family home prices have risen beyond reach.

Graham, the Waikiki resident, managed to buy a condo early last year and feels fortunate to have purchased when she did. "The prices were really high then, and they kept going up," she said.

Graham, who has three children and runs a Waikiki clinic with her husband, obtained a no-money-down mortgage to buy a leasehold condo for about $350,000 instead of a similar-priced single-family home in a distant suburb congested with rush-hour traffic.

Recently, Graham's unit appraised for $450,000. "I couldn't believe it," she said. "Waiting six months probably would have put it out of our range."

Reach Andrew Gomes at agomes@honoluluadvertiser.com.

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