Central Oahu homes in demand
Hot markets such as Kahala and Kailua are cooling down
Oahu's residential real estate cycle has hit the point where it just might pay to own property on the "wrong end" of the H-1.
While there's no sign of an impending bubble burst in Oahu's housing market, air is slowly seeping out of yesterday's hottest markets such as Kahala, Hawaii Kai and Kailua. And sales activity is blowing west toward Pearl City and Aiea, where buyers are finding plenty of housing choices with prices relatively more affordable and the drive not as far as Mililani or Ewa.
In other words, while the median single-family price in Waialae-Kahala was hitting $1.5 million last summer, many of those with a taste for luxury were concluding that they had better live it farther from Oahu's inner sanctum.
"We're seeing downward price adjustments in some of the markets that led this cycle's acceleration," said Scott Higashi, vice president of sales for Prudential Locations. "Markets that were slower to accelerate have shown that they still have room for growth."
The median price paid for a single-family home in Waialae-Kahala dropped 12.5 percent in the three months that ended Aug. 31 from the same period a year earlier, according to data released yesterday from Prudential Locations.
Oahu's other most-popular neighborhoods also showed significant declines in prices, with Kailua experiencing a 6.8 percent downturn, Hawaii Kai falling 4.6 percent and the North Shore beginning to flatten, Higashi said.
However, people who bought in Pearl City or Aiea have seen a 15 percent rise in their investment during the same period, he said.
Those differing price movements are a sign that Oahu's market is heading back to normal, which is characterized by a balance of buyers and sellers and sufficient inventory to give buyers a choice of properties with minimal price pressure, said Harvey Shapiro, research economist at the Honolulu Board of Realtors.
The pace of home sales on Oahu declined dramatically in August, while prices just held their ground, indicating that an eight-year run of explosive market conditions could be coming in for a soft landing.
More than half of single-family home buyers paid more than $635,000 for an Oahu house in August, a scant 1.6 percent rise from the year-earlier $625,000, according to figures released yesterday by the Honolulu Board of Realtors. The median condo price increased 8.2 percent to $305,000.
As prices continued to rise, the number of sales of both single-family homes and condominiums dropped. The number of houses sold fell 22.8 percent to 351 in August from the year-earlier 455. Condominium sales declined 30.2 percent to 580 last month from the 831 in August 2005.
For the quarter ended Aug. 31, Oahu's residential real estate market fared better, with single-family home prices up 4.9 percent and condominiums up 14.2 percent, Higashi said. However, market performance ebbed and flowed across the various neighborhoods, he said.
"The housing market on Oahu is currently in a state of transition, still adjusting to lesser sales as demand returns to a more normal pace," Shapiro said. "We had an exceptionally long period of expansion -- more than eight years starting from the second quarter of 1997 through the third quarter of last year."
Historically, "up" phases in Oahu real estate cycles lasted no longer than five years before things returned to normal, Shapiro said.
"We haven't yet reached this point, but this is where our real estate market is headed as we await the next upswing," he said. "If historical trends are any indicator, the upswing could begin again in the next few years."
In the year to date, Oahu prices increased compared with last year, with single-family home prices up 10.4 percent for the first eight months of the year and condominium prices up 22 percent. However, sales volume was down 10.7 percent for single-family homes and 15.6 percent for condominiums.
The decline in sales brought the total residential volume for the first eight months down to $3.8 billion, a decrease of 2.4 percent from the same period in 2005.
Nationwide, second-quarter home prices grew at their slowest pace in six and a half years, and sales experienced their sharpest decline since 1975, according to a report released yesterday from the Office of Federal Housing Enterprise Oversight.
"These data are a strong indication that the housing market is cooling in a very significant way," said James Lockhart, the federal agency's director.
Higher interest rates, a drop in speculative activity and rising inventory have led to deceleration in almost every region of the country, Lockhart said.