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Introduction
The Hawaiian islands are situated at the geographic center of the world's largest, fastest -- growing business market -- the Pacific basin -- where the United States already does more trade then in any other market. Hawaii is becoming a major center of international business. Uniquely positioned as the United States gateway to trade and commerce in the Pacific, Hawaii service as an ideal spring board for other U.S. companies who seek to tap the business potential of the Pacific.
The Hawaiian islands were formed by volcanic activities. Volcanoes on all major islands are dormant except on the island of Hawaii. Therefore, the supply of land is limited with no option to expand.
The total usable land on Oahu is only 375,146 acres allocated as follows:
Residential: 31,098 acres
Industrial: 9,058 acres
Commercial: 4,205 acres
Hotel: 319 acres
Agriculture: 70,066 acres
Vacant: 38,587 acres
Other uses: 212,812 acres.
Local home buyers and investors in Hawaii are competing for the limited supply of real estate with investors from Japan, Taiwan, Korea, Hong Kong, Canada and the mainland USA. In 1991 and 1992, Hawaii attracted more Japanese real estate investors than most of the other states.
In Hawaii, land is sold two different ways --"fee simple" -- which means you own the land under your house, and --" leasehold" -- which means somebody else does. A house in fee simple land costs more because you own the land. Leasehold exists because all of the land once belonged to the King who either sold or gave away big parcels to early settlers, including missionaries.
Seven large organizations today possess 24 percent of Hawaii's privately owned land. The largest owner is Bernice P. Bishop estate with 336,372 acres.
Hawaii real estate enjoyed a steady increase in value over the years. Oahu real estate boomed between 1985 and 1992. Land prices and lease rents increased more quickly during that period than any other periods since statehood. This boom was fueled by Japanese speculative investments and peaked in 1991. Residential real estate sales volume on all Oahu almost doubled between mid 1989 and 1990. This trend was reversed in 1992. By 1995 median single-family resale prices have dropped only by three percent, but the drastic change was in the number of transactions. There were fewer than 3,900 sales in 1995, the lowest number of sales in a decade.
The resale counts posted through the Honolulu Board of Realtors system during the second quarter of 1997 were 471 single-family homes and condominiums. The single-family home resales were essentially unchanged from the same quarter last year and where 29.7% higher than in the first quarter. Condominium sales dropped 12.1% from the level of a year ago, but were up 25.8% from last quarter. Combining both categories of residential properties, total resales of 989 units in the second quarter is a 7.1% decline from the same quarter a year ago. Aided by a shrinking inventory, the overall absorption rate of residential properties rose marginally over the same time period from 17.3% to 17.7%.
Median sales prices continue to soften during the second quarter. Single-family dwellings sold at a median price of $300,000, off 4.4% from last quarter and prices now stand 10.4% below those paid last year. The $155,000 median price paid for a condominium this quarter was up 3.3% from the first quarter but is 13.9% lower than in the same period last year.
Understanding the fundamental economic model of supply and demand can be a big help in making sense of how the market functions. In the housing market, our measure of demand is the number of sales, and the supply is the inventory of residential properties available for sale. When these two measures are in balance, market prices will be stable. However, as these two factors shift around, prices will be affected. Simply stated, when demand for housing out paces the supply, prices are typically forced higher. Upward price pressure can also occur with constant demand in the face of a shrinking inventory.
After the peak of the buying frenzy in 1990, the number of residential sales declined and the inventory built up rapidly, topping out in early 1991 with a total of almost 7,200 single-family homes and condominiums for sale. This figure does not include a large surplus of new homes from developers. From mid- 1991 through early 1994, sales demand was relatively constant and the inventory adjusted slowly down to 5,500 units and this was a period of relatively stable, and even slightly increasing, prices. The market shifted again in 1994 when the short-term interest rate hikes served as the catalyst for reducing the demand for housing. Inventory counts rose to the 6200 level by mid- 1995 and prices began their retreat in earnest.
The generally poor economic climate in Hawaii has fueled the continuation of weak demand for housing, but there have been hopeful signs in the first half of 1997 that the local economy could be at a turning point. Any indications of economic recovery should serve to stabilize, and even increase, real estate sales. On the supply side, inventory is back on the decline, down to the 5,600 level in the second quarter. Compared to a year ago, there are now 6.7% fewer single-family homes available for sale and 10.8% less condominiums. And, also serving to promote demand, asking prices have been adjusting to their lowest point in years and are much closer to today's sales prices. Since many domestic and international real estate markets have recovered in the mid- 90's and have experienced appreciation, our lower residential prices compared more favorably and should serve to attract new, offshore demand. After all, by most measures, Hawaii is still paradise.
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