Not Sure Whether to Buy or Sell? Here’s Your Guide to Honolulu’s Real Estate Trends

Honolulu’s housing market cycle—where are we now?

By Rachel Ross

Image: Courtesy of Berkshire Hathaway HomeServices Hawaii

It’s always hard to predict Hawai‘i’s real estate market. Are things going to keep getting more expensive? Are we in a bubble that’s about to pop? Is it time to buy? Or maybe to sell? We asked two local real estate experts to help explain the quirks of the Island housing market.

Supply and demand drives prices, of course, but buyers and sellers are also motivated by different things, says Herb Conley, a longtime Hawai‘i real estate industry leader and partner at Berkshire Hathaway HomeServices. He recently spoke to a group of Honolulu real estate agents about Hawai‘i’s market cycle, and told them that buyer confidence is based on household income and interest rates. Sellers, on the other hand, are less likely to base their decisions to sell on the current market and more on lifestyle needs and changes.

To determine if it’s a good time to buy or sell, he says, one must understand how the cycle works and use leading indicators to predict what’s next.

“While the stock market moves at the speed of light, the residential marketplace moves like a turtle on a slow day,” says Conley. “From initial increase in the number of sales to reaching the high point in sales prices takes years to play out. To successfully understand and take advantage of the market cycle, watch the signs and follow the roadmap.”

So what should a buyer or seller look for?

There are four main stages in the residential real estate cycle. Each of these is shown on the graph Conley created below.

Stage 1

The number of sales are rising at a double-digit rate and prices are not. In 1997, O‘ahu experienced a 10.3 percent rise, a full five years before prices started rising in the last market cycle.

Stage 2

The number of sales are rising and prices are also rising at double digit rates. Sales increased by 11.7 percent in 2002, and median prices doubled from 2002-2007.

Stage 3

The number of sales are declining and prices are still rising. O‘ahu experienced a double-digit rate drop of 17.3 percent in 2006.

Stage 4

The number of sales are declining and prices are declining. The median single-family home price did not begin to drop until 2008.

So what now?

Local real estate consultant Ricky Cassiday says, “Since the bottom of the residential market in 2011, total sales—meaning resales and developer sales of single family homes and multi-family homes—on O‘ahu are up over 40 percent. And average prices are up over 50 percent. However, since both are below their peak in the last cycle, it’s reasonable to conclude the current market upswing can continue.”

Some have speculated that Honolulu is starting another upward cycle, however, what we’re really seeing is a consistent, single-digit percentage increase in median sales price, and we have yet to see the conditions that would signal entering Stage 1 of a market upswing, Cassiday says. Call it Pre-Stage-1 or call it Stage 5, either way, expect things to continue on up.