Honolulu homes are underpriced, academic study claims

A new academic study contends that Honolulu is the best place among major U.S. metropolitan housing markets to buy a home at a “discount.”

Researchers at Florida Atlantic University published a report recently pronouncing the City and County of Honolulu as the most underpriced metro housing market out of 100 major cities in September, even as the median sale price for single-family houses on Oahu stayed at a record $1.05 million, reflecting a 19% surge from a year earlier.

The report said 96 of the 100 markets were overpriced with homes selling at premiums.

“Honolulu remains the best place to find a deal, with homes selling for an average discount of 2.6%,” the report said.

Ken Johnson, a Florida Atlantic economist who co-authored the study, said he was surprised by the ranking of Honolulu’s housing market, which local real estate experts describe as being tilted strongly in favor of sellers who are often receiving multiple bids above asking prices from buyers.

“I was really shocked where you turned out in this,” he said.

The university’s study aims to break new ground in housing market valuations, but may not be presenting a good assessment of home values in Honolulu given the study’s methodology.

This is because home values in the report are based on a calculation, the Zillow Home Value Index, that combines estimated values for two very different types of housing — single-family homes and condominiums.

Local economist Paul Brewbaker of TZ Economics noted that condo and single-­family home markets on Oahu have been behaving quite differently this year, with amped-up sale prices for single-family homes and a more modest increase for condos.

“The ‘bargains’ about which their calculation refers could be suppressing this important distinction between market segments,” Brewbaker said.

Nearly two-thirds of all homes sold on Oahu this year have been condos, which include townhomes and high-rise units.

In September, Oahu condos sold for a median $478,000. This was up 7% from a year earlier, according to the Honolulu Board of Realtors.

Zillow’s value index for Honolulu covers all of Oahu, and in September was $841,037. The Florida Atlantic study said an “expected” average value for the market in September was $863,450 based on a historical trend of Zillow’s index, representing a 2.6% difference.

What’s more is that the researchers contend that Hono­lulu home prices have been discounted since mid-2011, with the peak undervaluation being 12.4% in September 2020.

Zillow’s value index is an average that excludes homes priced at the lower and higher ends of the market. Only home prices between a 35th and 65th percentile are used to calculate the index figure.

By comparison, the Honolulu Board of Realtors reports a median price for all previously owned homes sold on Oahu each month. This measure is a point at which half the homes sold at a higher price and half at a lower price.

Johnson said the point of the study was to provide the public with more information about real estate markets. He acknowledged that results are limited to what Zillow uses to produce its estimates.

Florida Atlantic plans to publish a monthly report and produced its first one in August.

According to the most recent report, Virginia Beach, Va., was the next best place after Honolulu to find homes selling at a discount in September. In this market, a $292,029 average estimated price was 1.2% below an expected $295,624 price based on historical trends. The only other two “undervalued” markets were New York City and Baltimore, Md.

Boise City, Idaho, was the most overpriced market out of the 100 metro areas in the study, with an average estimated price of $502,580 in September that represented an 81.3% premium over an expected $277,234.