Home prices likely to drop slightly
The global credit crisis will hit the mainland worse, say UH experts
STORY SUMMARY »
Oahu home buyers will likely see some price declines this year, according to a new report, but the downturn will be far less than most mainland markets.
The island's home prices are expected to drop a little more than 3 percent this year, according to a revised construction forecast released today by the University of Hawaii Economic Research Organization. The group foresees a further 2 percent decline in 2009.
UHERO had predicted 2008 isle home prices would remain flat in its previous report, out in September, before the broader effects of the mainland subprime mortgage meltdown had become apparent.
By comparison, nationwide home prices on average are expected to decrease between 10 percent and 20 percent during the next two years, said Bank of Hawaii economist Paul Brewbaker, a co-author of the report.
Meanwhile, the months-long global credit crunch is expected to significantly cut into isle home-building permits, which are forecast to decline 12 percent this year and 10 percent in 2009.
Economists also predict a decline of 4 percent this year in nonresidential building permits and a nearly 2 percent drop in 2009.
Outlook from UH
The University of Hawaii Economic Research Organization has reined in its forecast:
» Oahu's median home price is now expected to slide by 3 percent this year and 2 percent in 2009. Previous forecasts had called for prices to remain flat this year.
» UHERO expects the value of building permits to total $4.3 billion this year, measured in 2007 dollars, down nearly 4 percent from last year. In 2009 that figure is predicted to drop nearly 5 percent.
» Total construction spending is expected to drop by nearly 2 percent in 2008 and by 4 percent in 2009 and 2010.
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Oahu home prices are expected to drop a little more than 3 percent this year, according to a revised outlook by the University of Hawaii Economic Research Organization.
The median single-family home price on Oahu is expected to fall to $619,000 for this year -- versus $639,000 for 2007 -- and by a further 2 percent to $605,000 in 2009, according to an UHERO construction forecast released today.
In February, the median price for an Oahu single-family home hit a three-year low of $599,000.
UHERO had predicted 2008 home prices would remain flat in its previous report, issued in September, before the effects of the mainland subprime mortgage meltdown had showed signs of spreading to the broader economy.
"Hawaii has already shown our prices aren't dropping as dramatically as the U.S. as a whole," said UHERO economist Carl Bonham, co-author of the report.
Nationwide, home prices on average are expected to decrease between 10 percent and 20 percent over the next two years, said co-author Paul Brewbaker, a Bank of Hawaii economist. The latest Standard & Poor's/Case-Shiller index showed U.S. home prices fell 8.9 percent last year.
However, the Hawaii market has seen sharp declines on the neighbor islands, where Maui's median single-family home price dropped nearly 10 percent last year, while prices on the Big Island and Kauai fell by slightly more than 5 percent, according to the forecast.
Neighbor island home prices are not likely to drop as much this year, Brewbaker said.
The broad effects of a months-long global credit crunch are expected to significantly affect Hawaii home-building permits, the total value of which is forecast to decline 12 percent this year and 10 percent in 2009, adjusted for inflation.
Home-building permits have fallen in total value by 29 percent from the peak in 2005, with larger losses on Maui and the Big Island, which has seen a withdrawal of offshore investment, according to the report.
"Persistent unaffordability, slowing aggregate employment growth, rising construction costs, and the increased costs of financing will act as a brake on residential construction," the report said.
Meanwhile, economists predict a decline of 4 percent this year in statewide total nonresidential permits and a nearly 2 percent drop in 2009. Over the next five years, nonresidential permits are expected to settle in the $1.6 billion range, roughly 5 percent lower than UHERO's forecast six months ago.
"People are really in a sense afraid of what could be coming down the pike in our economy," said Harvey Shapiro, Honolulu Board of Realtors research economist. "The uncertainty is, I feel, causing them to sit on the sidelines a bit longer than they planned to."
Since its last report in September, UHERO changed its forecast lower for all areas of construction except for jobs and government contracts, which are expected to rise from $870 million in 2007 to near $1 billion for the next several years, not including the $300 million to $400 million per year in military housing privatization contracts.
"Credit conditions have become much less favorable for both buyers as well as builders of new commercial capacity," Brewbaker said. "The 900-pound gorilla in the room is the credit crunch -- we really don't know how much more adverse an impact we'll have."