“For Sale” signs keep popping up across Hawaii neighborhoods like a kids’ game where players hammer down one peg only to have three more rise in succession. As prices also continued to post double-digit gains through the first quarter of the year, though, the vaunted Hawaii real estate market showed signs of faltering. A drop in sales volume signaled to many a turning of the tide.

The rocket rise in real estate prices in one of the priciest markets in the nation seems to have left the Hawaii market spinning, though not in a tailspin, most experts agree. As prices escalate beyond the dreams of even wealth-laden baby boomers who make up a substantial part of the market, those shopping around have time to pause. The fear of buying at the top weighs against the countervailing fear of being priced out of paradise. So far, Hawaii’s market has evidenced ongoing price gains in the midst of rising inventory and a dent in sales volume.

On the primarily residential island of Oahu, the first-quarter median price for single-family homes jumped 18 percent, to $625,000, in the year-over-year three-month period. Condominium values soared 35 percent, to $309,000.

On Maui, more of a resort market, the median single-family home price in the first quarter soared 14 percent, to $699,000, compared to 2005, while the median condominium price rose 15 percent to $460,000.

At the same time, the number of sales backed up. Oahu single-family home sales dipped approximately 3.5 percent and condominium sales declined about 4.8 percent, according to the Honolulu Board of Realtors. Maui numbers showed more extremes as the number of home sales plummeted 18 percent and condominium sales fell 11 percent from a year ago, the Realtors Association of Maui reported.

As one industry veteran posited, the market has finally turned from an “insane” sellers’ market to a more normal market. A cooling off is exactly what top officials of the National Association of Realtors have been promulgating nationwide; in recent news reports chief economist David Lereah projected a stabilization of the market and appreciation declining to single-digit rates while president Thomas Stevens saw buyers regaining equal footing with the end of the seller’s market.

“We do know the market is turning down in volume, but prices continue to rise,” noted Dr. Leroy Laney, professor of economics and finance at Hawaii Pacific University in Honolulu. Laney foresees a plateauing in prices at some point in Hawaii. “There is no reason to think it will go down, or if it does, substantially.”

Few would argue that the accelerated rate of price increases is sustainable. Single-family home prices on Oahu gained 28 percent in 2005 and 21 percent in 2004, according to Laney. “It can’t continue to go up. Nobody could afford to buy a house,” he said. “It is not good for the economy.”

That does not mean that prices will lose much ground. There are checks against the occurrence of steep price declines in Hawaii. At this juncture, interest rates are still historically low; days on the market have not proven unusual, yet; the region faces long-term housing supply constraints; and housing demand continues to grow from mainland baby boomers and from local residents with the state registering the lowest unemployment rate in the union.

Still, some expressed concern over first-quarter activity. Steve Parker, a Maui-based appraiser and broker, focused on a worrying drop in the inventory absorption rate in February from January, its first occurrence in the January to March season in 15 years. In his view, this indicated a softening of the market “big time,” he said.

Six months ago if an interested buyer didn’t make an offer on the same day, the house would be sold the next day, he said. “Buyers are fully aware. It’s a psychological game.”

Nonetheless, Parker is also in the camp that sees prices leveling off, heading sideways, but not taking a major drop. “We are still seeing a lot of action,” he said. “Prices are just so high. The market is burning out. Inventory has doubled in about a year, but it is pricier.”

Bob Chickering, a specialist in resorts and leisure markets for economics consulting firm, ERA, Economics Research Associates, in San Francisco, agreed: “You do have to watch prices. The Hawaii market has been appreciating since the mid ’90s.” Just how high prices can get is something people have been scratching their heads at in Hawaii for some time.

Median resale prices began to appreciate on the island of Kauai in 1997, according to Hawaii Information Service. Although, Oahu did not post an annual market gain until 2000 following five to six years of overall declines, according to the Honolulu Board of Realtors.


Chickering referred to the start of new sales activity at Hualalai on the Big Island in 1997 as a watershed event in the resort sector.

Chickering said his firm is bullish about the ongoing growth of pre-retiree, second-home buyers in Hawaii. “The key buying population is the 40- to 60-year-olds,” he said, “mostly California is where they are coming from.”

The baby boomer set is not a uniform buyer base in Hawaii. Chickering distinguished among the tremendously wealthy who can afford the coastal resort properties and those who do not have a lot of money and who may have assets to sell, to purchase properties in the middle to upper middle housing sector of less than a million dollars.

Indeed, the ranks of well-off people in the United States continue to escalate. In 2005, according to the Spectrem Group, the number of U.S. households with $5 million or more investable assets, excluding their family home, expanded 26 percent to a record 930,000, while the number of millionaires increased 11 percent to a record 8.3 million.

Of course those with available funds to purchase a second home, and possible retirement home, are also spreading out to Central America, the Caribbean and Mexico, Chickering noted. Hawaii has a lot of advantages as part of the United States, he said, but when you compare high-end markets everywhere, Hawaii prices crest near the top.

The cost of real estate has long been a serious issue for local Hawaii residents, but at current levels it may be mainland baby boomers who jump the gun on fear of being priced out of the market. Yale economics professor Richard Shiller, in an interview on public television show WealthTrack, remarked that “people are more in the mode of worrying about being priced out of a home than they were decades ago, so I think we are more of a speculative attitude now.” That fear may support the run-up in valuations awhile. But with the rising price hurdles, the important baby boomer segment of Hawaii’s market is likely what is softening first in the slowing volume numbers.

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