Island home prices double and triple rest of the country

Hawaii real estate: Keep dreaming
By: Karla Aronson: Inman News
Imagine a home buyer who's all set with a $400,000 budget to purchase a home, logs onto the multiple listing service and realizes there are only seven home listings to choose from in his price range, while hundreds more at double the price are for sale.

That's a reality today for buyers in the state of Hawaii, where median home prices readily top half a million dollars and easily run two to three times above the rest of the nation.

On the island of Kauai, for instance, home buyers looking to stay within a $400,000 budget would have just seven listings in the MLS to choose from at the beginning of May. By contrast, buyers looking to spend at least $900,000 would have 107 homes to browse on the MLS.

"The cheapest is $60,000, but they are only selling the house," said Karen Ono, executive vice president of the Kauai Board of Realtors. "You can't keep it on the land. You have to move it."

Hawaii embodies the ultimate real estate dream for most Americans. The lure of white sandy beaches, active volcanoes and relaxed island life no doubt have contributed to its skyrocketing housing costs.

The median price of a home on Kauai was $540,000 in the first quarter this year, up 27 percent from last year, putting a major squeeze on buyers who don't have a half million to spend.

The island of Maui revealed even greater extremes, with the median single-family home price setting a record of $695,950 in April. The first quarter of 2005 registered a median home price of $640,000, up 24 percent from a year ago.

Similar to Kauai, a search for single family homes on Maui for under $400,000 netted a mere seven active listings at the beginning of May. Buyers with $900,000 or more, however, could choose among 216 listings. (The full market showed another 169 active listings in the plus $400,000 to below $900,000 range.)

"Money is cheap. People can buy. Everything is high," said Terry Tolman, executive vice president of the Realtors Association of Maui. Tolman largely attributed Maui's surging prices to historically low interest rates making it possible for buyers to step in at sellers' ever-escalating asking prices. However, Tolman added, "the market will be cyclical" with rising interest rates.

Hawaii's real estate market is divided into the four major islands of the state: Kauai, Maui, Oahu and the Big Island. While Kauai and Maui represent more of a resort market, Oahu, where most of the state's 1.25 million population live in the vicinity of Honolulu, is regarded as a resident market.

Still, the low-end prices are bumping upward across Oahu, as with Kauai and Maui. At the beginning of May, home listings for Oahu revealed 127 single family residences at or below $400,000 versus 492 properties available at or above $900,000.

Oahu's median home price was $545,000 in May, up 25 percent from last year.

Harvey Shapiro, research economist for the Honolulu Board of Realtors, which represents the island of Oahu, pointed out that though the entire price structure is going up, "affordability is recently much better than it was in the early '90s."

In the early 1990s, 60 percent of residents' median income was required to purchase a median priced home on Oahu. By 2003, median housing costs had dropped to 30 percent of the median income, Shapiro said.

Not surprisingly, inventory is "exceedingly low," Shapiro said, adding that the entire inventory of single-family homes on the market could be depleted in 2.2 months, dividing inventory by sales.

In April, The Honolulu Board of Realtors recorded 814 single-family homes on the market, slightly above its record low of 784 active listings in April 2004. The median number of days a house was on the market came in at just 19 days, from the time of listing until a contract was agreed upon.

The Big Island of Hawaii is the only island where more single-family homes, 510, were listed at or below the $400,000 mark, versus 197 home listings at or above $900,000. In April, the median price of a home on the Big Island was $370,000. Comparing the first four months of 2005 to the prior year period, the median home price jumped 44 percent.

Many investors have looked upon real estate on the Big Island as the best and last buying opportunity at the low end of the market in Hawaii. Still, the overall real estate picture for the island, which is the largest of Hawaii's islands and geographically could fit all the other islands combined into its land area, belies the regional divisions, which indicate similarly stratospheric price levels as its neighboring islands.

Charles Hosley, owner-broker of Hosley Realty and a member of the Kona Board of Realtors noted, in particular, an oversupply of vacant lots in new developments with no water, no roads, and no grocery store within 50 miles. Many are located in areas with lava flow risk.

Alternatively, Hosley said, "You can't buy a home for under $400,000 in Kona." In the area where he specializes, Holualoa above Kailua-Kona, the large acreage estates regularly fetch $1 million.

"That's the biggest problem with Hawaii. People have lost track of the true intrinsic value," Hosley said. Prices have become more based on speculative values, he argued, rather than on use of the property, local infrastructure, schools and government. "People are buying warm air and views of the ocean," he said.

Hawaii's prices have been supported by many buyers who have sold homes on the mainland, have cash on hand and do not need employment. "I'd like to see what happens here in five years," Hosley said, wondering how satisfied some of those relocating will be over time.

Hosley is in the camp that anticipates some price correction as Federal Reserve Board Chairman Alan Greenspan puts the breaks on the real estate market. As well, he foresees, added fallout from the riskier lenders that will face problem loans and become more restrictive to borrowers. "Lenders are the most lenient ever," he observed, "in my 27 years in real estate."

Still, with new housing supply unlikely to meet existing demand, and increasing demand from afar likely to continue, those upward pressures on home prices in Hawaii will likely persist.