Analysts see prices of homes topping out

The current phase of Oahu's residential real estate cycle is about pau, and prices -- give or take $100,000 -- are about where economists thought they would end up, says Paul Brewbaker, Bank of Hawaii's chief economist.

"Having doubled, median prices won't double again in the next five years," Brewbaker told members of the Downtown Exchange Club yesterday. "It's going to be a quieter, more tranquil market."

Oahu's residential real estate market is still posting strong year-over-year gains, but from month to month the market is falling, leaving buyers and sellers to interpret the mixed signals.

While the median price paid for a single-family home on Oahu was $613,500 in February, 16.7 percent above the year-earlier $525,500, that was down 0.2 percent from January's $615,000 median, according to statistics released yesterday by the Honolulu Board of Realtors. The record for Oahu's single-family median price, $640,500, was reached in November.

The number of houses sold on Oahu fell 6.8 percent in February from a year earlier as more buyers balked at prices and turned to condominiums.

The median price of Oahu condominiums set another record in February, rising to $315,000, up 34 percent from the year-ago $235,000 and up 6.8 percent from the month-ago $295,000. But the number of condominium transactions dropped 7.2 percent from February 2005.

"Frankly, the market is just not that good," said John Riggins, owner of John Riggins Real Estate. "The economy is doing very well, but the market is taking a rest. The consumer needs time to rethink and adjust to the higher prices and higher interest rates."

Residential real estate professionals on Oahu have said that the market's once frenetic pace, with buyers making multiple offers on tear-downs and paying premiums on properties site unseen, has slowed.

"Overall the Oahu housing market is stabilizing," said Harvey Shapiro, research economist at the Board of Realtors.

"Sales are coming off record levels, prices increases are not as high and inventory continues to return to normal levels."

All indicators point to these trends continuing for the near future, he said.

"We're in the zone," Brewbaker said, forecasting that median home prices on Oahu, Maui and Kauai will soon start to echo those in California's now cooling markets.

Three out of five of California's top markets, including Silicon Valley, San Francisco and Orange County, have gone flat, with median prices staying in the $710,000-to-$730,000 range, he said.

"I always say that Hawaii is the western edge of Orange County," Brewbaker said.

Even wealthy baby boomers, who have boosted Oahu's home prices for much of this housing cycle, are expected to start showing some pause as the gap between Hawaii and California prices continues to close.

"They aren't all looking for a piece of the rock. It's also about investment," Brewbaker said. "When their 30 percent rate of return goes to zero, from a portfolio prospective, real estate starts to fade a little bit."

As prices have risen and sales have decreased, inventory has begun to build on Oahu, and the market advantage has begun to swing toward buyers who are beginning to negotiate concessions for the first time in a long while, Riggins said.

The last time Oahu had this much inventory was in March 2003, Riggins said. There is a 5.3-month supply of single-family homes and a 4.4-month supply of condominiums remaining for sale.

The buildup in inventory and slowdown in the market is "absolutely incredible news" for a buyer, Riggins said.

"But sellers are going to have to adjust their mental outlook, and real estate agents will have to adjust their thinking," he said.