Hawaii housing
is ‘booming’

The FDIC says a boom is when
prices have risen at least 30%
from three years earlier

Honolulu is one of 55 U.S. cities with booming housing markets, according to a new study by the Federal Deposit Insurance Corp.

Honolulu housing prices, which last boomed in the late 1980s to early 1990s, rose 35 percent last year, according to the FDIC, which defines a boom year as one in which the inflation-adjusted price rose by at least 30 percent from three years earlier.

Honolulu is near the bottom of the housing boom, the study said. Fresno and San Bernardino, Calif., led the list, rising 58 percent during the past three years.

"I don't see an end in sight," said Harvey Shapiro, a research econo-mist for the Honolulu Board of Realtors. "We are clearly going through a price increase right now and our sales market has expanded for over seven years. As long as there aren't any external shocks, I don't expect to see any sustained declines."

U.S. average home prices rose by almost 11 percent in 2004, up from 7 percent in 2002 and 2003. The number of boom cities is growing, as is the gap between home prices and incomes, the FDIC study said.

Single-family home prices nationwide have been climbing faster than household incomes for a decade, driving the ratio of home prices to household incomes to its highest level in at least the past 30 years, according to Richard DeKaser, chief economist of National City, who published a study earlier this year that examining home prices in the top U.S. real estate markets.

DeKaser concluded in his study that Honolulu is not in danger of a housing bubble, but that homes here are 14 percent overvalued. At the same time, however, falling mortgage rates have made homes more affordable, he said.

According to the FDIC's analysis of 1978 to 1988 housing market boom-and-bust years, more than 80 percent of the time booms were followed by periods of stagnation rather than falling prices. While Honolulu experienced a bust from 1996 to 2001, only 17 percent of the housing booms the FDIC identified led to a subsequent bust and most were preceded by significant distress in the local economy.

"To the extent that local factors continue to determine home price trends, the expectation would be that metro-area home price busts will continue to be relatively rare," the FDIC study said.

This time around, limited housing supply coupled with high demand is likely to keep Honolulu's prices rising and the market strong for at least the next one to two years, said Paul Brewbaker, Bank of Hawaii's chief economist.

According to the most recent figures, Honolulu's single-family home inventory is about three times lower and its condo inventory is about four and a half times lower than it was in the early 1990s, Shapiro said.

"My view on Oahu home prices from this point forward is that they will rise, and then go sideways, contingent on two events of the 1990s -- substantive military downsizing or substantial out-migration and significant state-funded homebuilding volumes -- not repeating themselves," he said.