Isle home market soft but steady, experts say

The market expects a healthy 2007

The slight increase in Honolulu's single-family home and condominium prices in December has not changed any minds about the softening market here.

Median prices for single-family homes increased a scant 0.6 percent to $613,500 last month from December 2005, according to data released yesterday by the Honolulu Board of Realtors. More than half of condominium sales changed hands above $315,500, a 1.8 percent rise from November 2006 and a 3.4 percent increase from December 2005.

HOME SALES The number of homes sold on Oahu in December with the median price and percentage change from the same month last year: HOUSES SALES December 2006 - 346 December 2005 - 315 Change - +9.8% MEDIAN PRICE December 2006 - $613,500 December 2005 - $610,000 Change - +0.6% CONDOS SALES December 2006 - 458 December 2005 - 545 Change - - 16.0% MEDIAN PRICE December 2006 - $315,500 December 2005 - $305,000 Change - +3.4% Source: Honolulu Board of Realtors

The December single-family median price increase represented a reversal, albeit small, from November, when the median came in 4.8 percent below the year-earlier figure.

Bank of Hawaii Chief Economist Paul Brewbaker said yesterday that December's price change was not statistically meaningful given that the overall market has been flat for the past 15 or so months. However, Brewbaker said that last month's market rally could be the result of lower interest rates.

"It may reflect that interest rates were a lot lower in December than they were in much of 2006 and before," Brewbaker said. "Interest rates since then have drifted back, and we expect them to be range-bound in 2007."

Oahu's housing market is stabilizing, with prices rising slightly but homes taking longer to sell, said Berton Hamamoto, the newly elected president of the Honolulu Board of Realtors. "We expect that the market will maintain this trend into 2007," he said.

For the full year 2006, both single-family home and condominium prices increased from 2005. The median price for a single-family home rose by 6.8 percent to $630,000, and the median price paid for a condominium increased to $310,000, a 15.2 percent gain.

The median price paid for a single-family home hit its peak in May at $668,300. The 2006 peak for condominium median prices was $329,000, recorded in July.

For December, in a surprising twist, the total number of single-family homes sold rose 9.8 percent, while the pace of condominium sales fell by 16 percent. These sales figures left the full-year sales volume down 12.5 percent for single-family homes and down 20.2 percent for condominiums.

The increase in single-family home sales in December could be the result of stabilizing in the market, Brewbaker said.

"The market has been declining on a year-to-year basis. The drop could very well represent more of a stabilization than we've seen in the trend," Brewbaker said.

Inventory also tightened last month by 10 percent for single-family homes and by 8.6 percent for condominiums, said Harvey Shapiro, research economist at the Honolulu Board of Realtors.

"The fact that inventory tightened last month isn't good news for buyers, but it isn't a trend," Shapiro said.

The combination of slowing sales and rising prices brought the total dollar sales volume for 2006 down to $5.47 billion, a decrease of 8.8 percent from $6 billion in 2005.

A total of 4,041 single-family homes and 6,380 condominiums sold in 2006, according to preliminary figures, an overall decline of about 17 percent from the record number of sales in 2005, Shapiro said.

While Honolulu's real estate community expects to see a healthy housing market in the coming year, the big question will be what the Federal Reserve will do with interest rates, he said.

"The experts are undecided about which way that the Fed may move," Shapiro said. "It's even possible that rates could go down rather than up."

The Federal Open Market Committee did not change the target Fed funds rate during its last monetary policy meeting on Dec. 12 from its current 5.25 percent. The next meeting is set for Jan. 31.

Brewbaker said the Fed likely will lower the rate to 4.5 percent or 4.75 percent by the second quarter of 2007. "We probably won't see any improvement in the housing market since they aren't dealing with long-term rates," he said.

The Fed rate affects short-term interest rates, which influence borrowing costs across the economy. Increases or decreases are felt most by those with variable-rate loans, credit cards or adjustable-rate mortgages. Rates for fixed 30-year mortgages would be less likely to rise or fall.

But the rate of inflation will influence movement, Brewbaker said.

"If economic weakness in housing and autos proves more severe in 2007 than anticipated, the Fed might come in sooner, and you might see lowered interest rates combined with a weaker national economy," Brewbaker said.