As 2017 draws to a close, Locations experts are calling the current market cycle the “new normal” for Oahu real estate. The median price for single-family homes on the island reached $760,000 in 2017, hitting a record high for the fifth year in a row. Condominium median prices rose to $410,000, also a record high for the fifth consecutive year. Yet, while prices are rising year after year, Hawaii isn’t headed for a bubble, but rather a new normal.
Previous market cycles were characterized by five to seven years of lower sales and flat prices followed by three to five years of a sharp run on sales and prices. The current cycle, however, has been marked by a steady but moderate increase in sales and prices for the past six years.
Also unlike previous cycles, which had “boom years” of double-digit growth in sales and prices, we’ve seen moderate growth of about 5 percent to 6 percent a year for both sales and prices instead.
Typically, sales — an indicator of demand — drive prices one to two years ahead. This new pattern has been different, with steadily increasing sales and prices since 2011. In other words, if you view Oahu market cycles as a staircase, the island is continuing to climb — but it’s more of a ramp than a steep step up.
More of the same expected for 2018
According to Locations president and CEO Scott Higashi, this “new normal” will continue throughout 2018. Sales and median prices will rise steadily, as low inventory — a perennial challenge — will prevent sales and prices from skyrocketing. This is good news, Higashi says, because it indicates stability.
Pent-up demand, coupled with few available homes for sale — particularly in low to moderate price ranges — means that homes will continue to sell very quickly next year. In 2017, Days on Market (or DOM, the measure of days from listing to offer acceptance) fell by 5 percent to just 18 days for single-family homes. And despite a bump in available condo inventory, it was quickly absorbed and DOM for condos fell by 10 percent to 18 days.
Another interesting deviation from past cycles is that DOM has remained low through the close of 2017, bucking the usual cyclical “buying season” of spring and summer.
Competition will remain stiff
With fewer available homes, especially in price ranges that are affordable for most first-time homeowners, the market is very competitive. One way to measure competitiveness is by the ratio of sales that were bid up over the asking price. In 2017, one in every three single-family homes and one in every four condos were sold over asking price. Another way to gauge competition is to look at the Sold-to-List Price ratio. Half of all single-family homes and condos sold at or above the asking price in 2017 — a record high for single-family homes. The last time half of all condos sold at or above asking price was in 2005, the peak of the last sales cycle.
Every neighborhood is different
Finally, it’s important to remember that each of Oahu’s 365 neighborhoods has its own market dynamics and behavior. Because each neighborhood is unique, consult your Locations REALTOR® for information on your specific market area.