Mainland markets used as indicators.

HONOLULU ADVERTISER   November 12, 2006

BY LISA SCONTRAS

Custom Publishing Group

Does bubble trouble on the Mainland worry experts here?

If you live in one of the high-profile real estate markets in the country — like Honolulu —where appreciation has doubled in the last five years, you might worry the recent spike in home values may now lead to significant price declines.

Bubble trouble is plaguing Mainland housing markets from San Diego to Miami following an inundation of new construction and decreasing demand, but how each region fares will depend on the set of circumstances in that area.

Thomas M. Stevens, president of the National Association of Realtors says while home prices and cost-to-income ratios increased to unhealthy levels in some housing markets, there is not a national housing bubble.


“While recent developments raise concern, it is important to remember that the housing market varies significantly across the country,” says Stevens. “One-third of the country (by population) is still seeing rising home prices, including Alaska, New Mexico, Vermont and many states in the South, excluding Florida. States that experienced the greatest increases in home prices in recent years, are experiencing significantly lower sales, such as Arizona, California, Florida, Nevada and Virginia.”

On Oahu, strong prices at a slower sales pace is enough to give some homebuyers a reason to wait for values to come down before they buy. But economist Mike Sklarz head of analytics at New City Corporation, doesn’t recommend doing that. He projects a leveling off period and says, relatively speaking, prices here in Hawaii are not excessive.

“In 1989 to 1996 we were the most expensive market in the country,” says Sklarz. “Now we are number seven behind San Francisco, San Jose, Orange County, Santa Cruz, Santa Rosa and Santa Barbara.”

In fact, Sklarz says the local housing industry will benefit from the markets in California topping the list.

“When homeowners in California do well and have equity, they often use it to buy real estate here,” he says. “In the 1970s and 1980s they were buying investment properties. Today, in this cycle, baby boomers are buying second homes and retirement homes. The upward move in the California market gives them the wherewithal to move their equity here.”

The bubble meter is reading high in cities like Las Vegas, according to Sklarz, because of the surge in new construction and the fact there is still so much land to potentially expand onto. This unlimited supply will make any market more vulnerable to a crash.

In other markets, the reverse is true — regulating constraints on construction controls the supply.

“Some markets like San Francisco have limited available land and a strong anti-development sentiment,” Sklarz says. “We do too. You hear comments like ‘it’s too congested’ or ‘there is too much traffic’ or ‘it’s blocking my views’ ... in these markets there is always going to be a strong demand.”

Scott Higashi, executive vice president of sales at Prudential Locations LLC, agrees that Hawaii is not a bubble market.

“Hawaii has an international appeal,” says Higashi. “It’s a place where the East and the West feel comfortable.

Higashi explains that markets are defined by the number of buyers in that marketplace. When you have a diverse number of buyers and a limited supply then you’ll have relative stability in values.

“Given our unique set of circumstances, we believe that values will remain stable and that the outlook for Hawaii continues to be positive,” he says.

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