Home values stabilizing, but at 10-year-ago levels
An expert says that by 2013, property values will increase by 30%
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The long-term outlook for Honolulu's residential real estate market and for most of the country in general is bullish, but consumer confidence is stalling recovery for the short term, according to the National Association of Realtors chief economist.
The subprime problem likely has peaked, and now it's consumer confidence that poses the biggest risk to the real estate market, said Lawrence Yun, NAR chief economist and senior vice president of research, during a forecast to the Honolulu Board of Realtors Brokers Forum yesterday.
By 2013, Honolulu homeowners could see their investment grow by another 30 percent, Lun said. Yet plenty of potential buyers are sitting it out -- either waiting for prices to fall further or the economy to improve, he said.
Across the country, prices will continue to drop in some markets for the short term and foreclosure rates will continue to rise through this year and the beginning of next, but there are signs that the worst of changes may be over, Yun said.
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Although consumer confidence toward residential real estate seems to have stalled, 99 percent of U.S. housing markets, including Honolulu, are likely to have higher values in five years than they do today, according to the National Association of Realtors' chief economist.
In fact, by 2013, Honolulu homeowners are likely to have seen their investment grow another 30 percent, said Lawrence Yun, NAR chief economist and senior vice president of research, during a forecast to the Honolulu Board of Realtors Brokers Forum yesterday.
But while Yun said that he and other economists have bullish long-term outlooks for real estate, U.S. buyers have moved from a period of exuberant optimism to excessive pessimism in the wake of the subprime fallout and rising oil and food prices. Consumer hesitation, more than anything, has the most impact on this market, he said.
"Consumers have a constant daily reminder that something is wrong," Yun said. "Many people have the capacity to buy but they are waiting, waiting, waiting because they think home prices will be lower later."
The wild card in Honolulu's real estate will come from consumer confidence and the economy in Hawaii, said Chason Ishii, president of Coldwell Banker Pacific Properties.
"A lot is being driven by fuel prices and unemployment," Ishii said.
Across the country, prices will continue to drop in some markets for the short term and foreclosure rates will continue to rise through this year and the beginning of next, but there are signs that the worst of changes may be over, Yun said.
Most real estate speculators already have defaulted, new homebuyers who have not been exposed to high-risk loans are entering markets, the resetting burden is dissipating, the use of FHA loans is becoming more prominent and conforming rates on jumbo loans are improving, he said. A housing stimulus package also could spur sales by bringing $8,000 worth of tax credits to qualifying first-time homebuyers as early as August, Yun said.
"The good news is that home sales activity appears to be stabilizing. The bad news is that it appears to be stabilizing to 10-year-ago levels," he said.
Buyers are coming back into fallen real estate markets like Las Vegas, California and Miami. However, since the U.S. has added 25 million more people and 13 million more jobs in the last decade, there should be more residential real estate demand across the country than is evidenced by market activity, Yun said.
"That's why I think that when consumer confidence improves, we'll see plenty of pent-up demand," he said.
It's not all doom and gloom on Oahu, either, according to a midyear residential real estate report released yesterday by Prudential Locations LLC.
"The resiliency of Oahu's real estate market is worthy of note," said Scott Higashi, Prudential Locations' executive vice president of sales. "Following five years of record-breaking home prices, the market is now stabilizing from this unprecedented high and creating tremendous opportunities for buyers and sellers alike."
While Oahu's real estate sales transactions for the first half of 2008 have gone down by 26.4 percent for single-family homes and 29 percent for condominiums, pricing has not fallen as dramatically as many mainland markets.
The median price of single-family homes sold on Oahu from January through June of 2008 was $628,500 -- a mere 2.9 percent dip from the same period in 2007. Many neighborhoods in the single-family homes market saw an increase in median price -- the Pearl City-Aiea area jumped 8.1 percent to $650,000, the Manoa area rose 6.8 percent to $937,000, the Leeward area increased by 6 percent to $395,000 and the Waialae-Kahala area grew 5.4 percent to $1,462,500.
During this same six-month period, condominium median prices held steady at $326,000, a slight increase of 0.3 percent from last year's numbers. The Waikiki area continues to enjoy steady price appreciation -- up 2.0 percent compared to 2007's midyear numbers
When it comes to evaluating real estate performance, Yun said that Honolulu does not necessarily follow other market trends. As a sought-after destination for those with high wealth, Honolulu's median prices are influenced by what people can accumulate over a lifetime in addition to what they can earn in a year, he said.
"As such, the median price here will always be much higher," Yun said.