The Myth of the“Mainland Lag”
Hawaii’s real estate market has unique influences
BY LISA LEE
People often discuss Hawaii’s trends relative to someone else’s. When discussing real estate, we hear mention of “the Mainland lag” or “the California effect.” But does Hawaii’s market really follow the Mainland or California, specifically? Ask the experts who study this, and they will tell you it’s not that simple. Here’s why:
“Hawaii is unique,” says Carl Worthy, sales coach and trainer at Prudential Locations. “If you track our market over time, you will see that we don’t necessarily follow Mainland trends. Recently, we have been a seller’s market, despite what is happening elsewhere, due to our overall low inventory and limited developable land.”
Janet Yellen, president of the Federal Reserve Bank of San Francisco, told an audience in Hawaii, “Hawaii has an economy with a different industrial structure than the rest of the country.”
Hawaii interacts directly with global market dynamics. As Worthy explains, “We have a tourism economy that attracts people from all over the world. Our economy is flexible, responding to and reflecting world markets. We have buyers from Japan, but due to their growing economies, we’re seeing buyers from China and Korea picking up. We’re seeing buyers from Eastern Europe, too.”
From an international perspective, Hawaii has attributes that make it a safe and desirable investment compared to other tropical destinations: a central location, the implicit security of a military presence, and a developed, reliable infrastructure.
Economist Paul Brewbaker of TZ Economics believes that “the myth of the California effect is rooted in historical experience, despite an uneven track record. During the 1990s, Hawaii’s home values were hit by the aftermath of the Japan Bubble and the Islands seemed to miss out on California’s recovery. This made it look as if the Hawaii lag was persistent.
“But the difference in our markets was about underlying economic fundamentals, not about leads or lags. A glut of newly built homes in Hawaii masqueraded as a lag, while California enjoyed the dot.com boom.”
Brewbaker says that with a global economy, no market is truly unique or independent.
“If there ever was a lag, it diminished in the recent housing cycle,” he says.
To understand the real estate market in Hawaii, it’s important to look locally. There is diversity between islands, and there can be significant diversity between neighborhoods.
“There are over 300 unique neighborhoods on Oahu alone, and we follow the specific market trends in each one,” says John Jacobson, real estate analyst at Prudential Locations.
“People who want to buy or sell should look at what’s happening in their neighborhood of interest and their price point. It could be very different than what the national news is reporting – or even what the local news is reporting as a trend.”
Using popular home value estimating tools, like those found on Zillow, Trulia and other websites, is not always accurate for the islands. Jacobson explains why:
“Using public record data can be unreliable, especially when the data is pulled by ZIP code and without knowledge of the local market, which is how these tools work,” he says. “For example, the automated comps for a recent property on Pueo Street, 96816 included a condo, a luxury home on Kahala Avenue, and a partial transaction. As a result, the automated value estimate is way off. Knowing the neighborhoods and how to evaluate the data is the key to understanding island home values.”
Carolina Cristancho, a bilingual buyers and sellers agent at Prudential Locations, puts it this way: “If you’re looking to buy a home, accurate data saves you time. It helps you be more strategic in your house hunting, and helps you put together a simple, successful offer.
“If you are considering selling, you need an accurate analysis of the neighborhood to help you determine the real, current market value of your home. Then you can set the best asking price to draw in the right buyers and close the best deal.”