Oahu Housing Market for Sellers

It seems as though almost every day brings a new yearly stock market low and/or an all time high for a barrel of oil. Depressed economies coupled with subprime lending woes have resulted in struggling housing markets from Coast to Coast. There would be no reason to expect that Hawaii would miss out on all of this, particularly when our tourist industry just got hit with several major whammies, as two major airlines (Aloha and ATA) with some 15-20% of the transpacific lifts to Hawaii went belly-up and two of the three cruise ships that once plowed Hawaiian waters have departed.

In June, the University of Hawaii Economic Research Organization issued their June quarterly forecast update that portrayed a grim economic outlook for the rest of this year as well as for next year with drastic reduced visitor growth, net job losses, lower real income growth and higher inflation. The negative report caught most all of us by surprise; however, in retrospect, we should have expected it with our oil dependent economy. The UH forecast assumed high oil prices will not be sustained and will fall below $100 a barrel by the end of the year. If that doesn’t occur, the state economy may well be headed for deep kim chee.

Here is a link to a front-page newspaper article in the June 13th issue of the Honolulu Star Bulletin titled: “Deep isle slump forecast. UH report grim on isles’ economy.” A similar front-page article appeared in the June 13th issue of Pacific Business News titled: “Outlook for Hawaii’s economy worsens.” If it is truly important to the Hawaiian economy to get oil prices under $100 a barrel by the end of the year, at least it is something that we can easily track. One thing to keep in mind . . . the last time the Hawaii economy tanked was in the 1990’s, which was the only decade since statehood that did not have a period of soaring housing prices on Oahu. The next report by the UH economists should be out in mid-September.

Island wide sales on Oahu were down 26.8% comparing the first six months of 2008 to the same period in 2007 with houses down 25.7% and condos (high-rises and townhouses) down 27.5%. The median sales price for houses for the six-month period was $629,000 in 2008 compared to $645,000 in 2007. The median sales price for condos for the six-month period increased in 2008 to $330,000 compared to $325,000 in 2007. The use of a median sales price for comparison purposes, though, can be misleading, particularly in view of the subprime lending problems over the past year. Median Sales Price Pros & Cons is a link to an article I wrote in the April – June newsletter that discusses why median sales prices today compared to a year ago are biased high. The median sales price for houses was $600,000 in January of both 2008 and 2007. However, a buyer that purchased a house for $600,000 in January 2007 would be unlikely to have been able to sell it for $600,000 a year later even though the median sales price was the same in both months.

Historically, the Oahu Housing Market has experienced soaring appreciation for a period of about two years once each decade since 1959 statehood with the exception of the 1990’s when the state economy tanked. The 1960’s, 1970’s, 1980’s and 2000’s all saw marvelous appreciation on Oahu. For about two years, the Chief Economist for the Bank of Hawaii has been saying that the next period of soaring appreciation would be sometime in the twenty-teens; i.e., sometime between 2013 and 2019. Arbitrarily, we have been using the middle of this range or 2016 as a start date. We have been advising our clients that if they plan to hold on to their Oahu properties, they should plan on holding for ten years . . . 2008 to 2016 plus two years of rising prices. If holding for ten years is impractical, they should sell as soon as possible, as prices will likely decline for another couple of years and then stabilize for a number of years before they rise again. Therefore, most properties would command a higher price today than what the owner is likely to be able to sell for until prices once more soar on Oahu.

We believed this was sound advice providing the national economy didn’t tank and providing interest rates remained reasonably stable. If oil prices decline back below $100 a barrel by the end of the year, it may remain sound advice. However, if oil prices remain high, it will really impact upon our tourist-driven local economy. Then, all bets are off.

This section of the website gets rewritten when I believe there have been some significant changes.

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