Unique market forces that affect Hawaii
BY LISA LEE
As we continue to hear about record low interest rates and whether or not there’s recovery on the Mainland, the big question in Hawaii these days is, “What’s happening in our housing market?”
Something very exciting, if you ask Carl Worthy, a sales coach and trainer at Prudential Locations, who has been in real estate in Hawaii since 1972. Worthy has witnessed the big price runs of the 1970s, 1980s and 2000s first-hand. Each of these price runs lasted four to six years and ended with home values at around double the prices at which they began.
Could the performance of the past few months be signaling the beginning of another price run? Worthy, like many people who are closely watching key indicators, thinks it does.
Here are a few of the signs:
NUMBER OF SALES
The market activity in April and May shows that sales of residential real estate are heating up in Hawaii. In general, sales of single-family homes and condominiums have been rising month-over-month, as well as rising over the same time period last year.
Not only is the number of sales increasing, but sales prices are climbing too. The median price for single-family homes in May 2012 was $657,000 – which is $57,000 above April’s median price ($600,000) and $62,000 above May 2011′s median price ($595,000). May’s median price for single-family homes was the highest median price for May – ever.
While most of the media cover the number of sold properties, Worthy points out that a more insightful figure to look at is pending sales.
“These tell us how many properties have entered escrow,” he says. “They give us a good look ahead at what sales figures will be 45 to 90 days out. If you look at 2012′s sales figures and the current pending sales, we’re moving at a robust pace.”
DAYS ON MARKET
This refers to how fast a property sells after it comes on the market. The days on market (or DOM) on Oahu has been dropping: Properties are selling very quickly once they hit the market. The current single family home DOM of 28 days is well below April’s 32 days, and May 2011′s 32 days. The DOM for condos is 32 days, down slightly from April’s 33 days, and well below May 2011′s 37 days.
“Low days on market show strong buyer interest – and we haven’t seen DOM this low since May of 2010,” Worthy says.
“May’s inventory for single-family homes is the lowest it’s been all year,” says Worthy, “and only two-thirds of what it was in May 2011. We haven’t had inventory levels this low since 2005. The combination of lower inventory and a growing demand for homes inevitably creates pressure on prices, driving them upwards.”
PERCENTAGE OF SALES OVER ASKING
“The most direct mechanism that pushes up prices is when properties sell for more than asking price, called bid-ups,” explains Worthy. “It works like this: When there’s low inventory and strong buyer demand, there are multiple offers on a property, and the home sells for more than the asking price. The price is bid-up. As new homes in the same neighborhood come on the market, they get priced at the higher amount of the latest bid-up sales.”
The chart below, “Competition Moves Prices,” shows how each time there has been a sustained growth in the percentage of sales over asking, it has been followed by an increase in median sales price.
So whose market is it these days? “It’s clearly a seller’s market,” Worthy confirms. “But in the buyer’s favor, however, we’ve been enjoying unbelievably low interest rates. We haven’t seen rates this low in over 40 years.”
For the week ending June 14, the 30-year fixed-rate mortgage averaged 3.71 percent. By comparison, rates at this time last year averaged 4.5 percent.
These historically low interest rates may hold for a time, and Worthy notes, “If you match low interest rates and climbing prices, you have a recipe for success – if you get into the market. However, that same recipe is one for disaster if you wait too long.”