Median price of a home could hit $1 million by 2022

Single-family houses on Oahu soared to a median price of nearly $800,000 last month, prompting local real estate experts to forecast that the $1 million threshold could be breached within the next five years.

With strong demand and low inventory, the price for previously owned houses climbed 4.6 percent to a record $795,000 in June, according to data released Thursday by the Honolulu Board of Realtors. That was $35,000 higher than the previous record of $760,000 exactly a year earlier.

“We see no end in sight,” John Jacobson, a real estate analyst for Honolulu-based Locations, said in a phone interview. “There is no immediate or near-term solution to the lack of inventory. Demand continues to be strong. We’ve had this condition for the last several years and expect next year to be the same.”

Sales for previously owned single-family houses jumped 14.2 percent to 370 from 324 in the year- earlier period, while days on the market for those homes set a record low with sales closing at a median of 12 days, down from 14 days in June 2016.

“It is amazing to see record sales prices and also the speed at which homes are selling this summer,” Sue Ann Lee, president of the Honolulu Board of Realtors, said in a statement. “Lack of inventory for single-family houses below $500,000 has pushed the median price higher. However, even with the higher median prices, homeownership is clearly still a top priority of consumers, as pending sales for single-family houses are up by 38.7 percent and we anticipate those to be reflected in closed sales in the upcoming months.”

If the current pace of sales continues and no new inventory is added to the market, the existing inventory of single-family houses would be exhausted in 2.7 months, and the inventory of condominiums would be depleted in 2.8 months, the report said.

“The main thing is there is very little inventory for sales, especially at the lower price ranges, so what’s available is in higher price ranges and it’s driving prices up,” Jacobson said. “Another factor important to the lack of inventory is there’s a competitive market environment. A lot of homes are being bid up right now. One in every 3 single-family homes is being bid up over asking price in a competitive bidding situation.”

Inventory lacking

Paul Brewbaker, principal of TZ Economics, forecast in 2010 that the median price of single-family houses could hit $1 million between 2018 and 2020 conditioned on a bubblelike price appreciation. He revised that prediction in subsequent years, and said Thursday that homes should reach that threshold in 2022.

“At the recent annualized pace of appreciation (4.5 percent from mid-2011 through mid-2017), it would take five years to reach $1 million,” Brewbaker said in an email. “The risk is that new City and HCDA (Hawaii Community Development Authority) ‘affordable’ housing policies will impede new Oahu homebuilding, which needs to be much higher (one entire Koa Ridge per year just to stay even with new housing demand), causing demand growth to outstrip that of supply, accelerating home price appreciation and undermining affordability.”

Koa Ridge has been permitted to build 3,500 new units in Central Oahu between Mililani and Waipio, while developer D.R. Horton’s 11,750-home Ho‘opili community on Oahu’s Ewa plain already has broken ground and is selling homes.

In the meantime, demand is outstripping supply.

At midyear the median price for a single-family home was $750,000, up 3.2 percent over the $727,000 it was at during the same point a year ago. The median price is a point at which half the homes sold for a higher price and half for a lower price.

“If we’re looking at an annual basis with $750,000 for the median for 2017, at that rate we’re going to hit $1 million in about four or five years at a growth rate of about 6 percent a year,” Jacobson said.

Condominiums also are near historical highs.

Condos moving fast, too

Previously owned condos sold for a median $400,000 last month after declining 1.4 percent from $405,500 in June 2016. The record median price for condos was $415,500 in April. Condos have been at $400,000 or above for four straight months. Sales dipped 2.2 percent in June to 536 from 548 in the year-earlier period.

Condos also are spending little time on the market, with sales in June closing at a median 13 days to tie the previous record of 13 days on the market, set in July 2005.

John Riggins, owner of John Riggins Real Estate, said rising home prices should be expected given the strength of Hawaii’s economy.

“I don’t think anyone should be surprised because our unemployment rate is under 3 percent, and the housing market follows the economy,” he said. “If the unemployment rate is low, people are positive and are buying. That’s what’s happening with housing. People are buying houses, buying cars, buying furniture, taking trips, that sort of thing.

“A lot of people also held off buying because in the 2008-to-2014 time frame, the economy was really struggling and people were being foreclosed upon and people were doing short sales (selling a home for less than the amount owed on the property), and that impacted their credit. Now they’ve had a chance to repair their credit, and they’re buying as well. So it’s not surprising that the prices are at record highs.”

Riggins said the median price for single-family homes could reach $1 million in 2020.

“As the economy moves along, it could be faster than that,” he said. “But there are some other factors impacting the housing market that a lot of people have no control of, and that is the maximum loan amount.”

That amount can vary in Hawaii from $636,150 to $721,050 depending on the type of loan. Jumbo loans start at over $721,050 and carry higher interest rates.

Prospective homebuyers are increasingly having a harder time affording housing, according to Mark James, a board member of the Mortgage Bankers Association of Hawaii.

“It’s usually their budget situation and the down payments that are the problem,” he said.