State housing market remains strong - Local economists contrast this cycle from 1990s

 

HONOLULU ADVERTISER October 30, 2005

BY LISA SCONTRAS

Custom Publishing Group

 

Despite the expected turbulence caused by rising interest rates, the largest affordability gap since 1990 and high fuel prices, local economists are forecasting a soft landing to the incredible five-year real estate ride.

 

“There is enough momentum that we’re not looking at a popping of a bubble,” says Leroy Laney, professor of economics and finance at HPU, who maintains many other economic factors are positive.

 

In fact, Laney believes, given the gains realized in the past five years, that a leveling off would be healthy for the market.

 

“The 29-percent gains this year, following the run in previous years, just can’t be sustained,” he says. “If it goes up much more, we might be headed for some downward correction. The further prices go up, the greater the probability they will eventually come down.”

 

Carl Bonham, University of Hawai‘i-Manoa economist, characterizes the current local economy as “extremely strong” and explains how this cycle is different than previous cycles.   “There was no such thing as 40-year mortgages in 1990,” Bonham says. “Interest-only loans and 40-year mortgages make it possible for Hawaii homebuyers to purchase homes they could not afford, say, in 1990.”

 

And while it’s true the affordability gap is a serious issue, according to Bank of Hawaii’s chief economist Paul Brewbaker, new loan programs have created a greater opportunity for first-time homebuyers.

 

“Homeownership has increased 10 percentage points in the last decade, he says .”

 

Brewbaker sees two distinct differences in the remainder of this decade as compared to the 1990s.

 

‘“In the 1990s, on the supply side, there was a big increase in housing supply when the state got into homebuilding business and began development of Kapolei,” notes Brewbaker. “And at the same time, demand was decreased as the end of the cold war meant a downsizing of the military. Neither of these are anticipated in the next five years.”

 

And though prices have nearly doubled in the past four to five years, the real estate market remains strong.

 

Scott Higashi, executive vice president of sales at Prudential Locations says it’s difficult to make long-term predictions, but expects the short term to continue being positive.

 

“There is still limited inventory in many areas in both the single family and condominium markets.” says Higashi. “The limited inventory combined with sustained buyer demand — even with the very small upward movement in long term rates — helps sustain prices.”

 

“At this stage in a cycle, there are buyers who fear not being able to ever afford to buy in the future — they are expecting prices to rise for the foreseeable future,” Bonham adds. “And don’t forget the aging baby boomer with an inheritance, lots of equity in their first home and looking for a safe vacation home post 9/11.”

 

Analysts say the indicators point to the local economy nearing its peak. Yet there are still some signs that the frenzy is not over yet.

 

“There are some neighborhoods that seem to be leveling off in price growth,” says Higashi. “However, there are more neighborhoods that are not. I don’t think we’ve seen an end to price increases just yet.”

Low interest rates, interest-only financing and 40-year mortgages have given some first-time homeowners the opportunity to afford to buy a home.

 

back to Helpful Articles for About Hawaii