After reading months of doom and gloom articles in the local and national newspapers about how bad the real estate market is locally and nationally, I feel it is time to truly dissect the local (Oahu) real estate market. 

I have heard numerous times from people (everyday people on the streets), how they are concerned because the market is so bad according to the newspapers, but when I look at the data, it just doesn’t look as bad as the picture that is painted by the local newspapers.  The focus by the newspapers is consistently on the number of sales only.  So, lets take a moment to break things down and see if I am off base and if the newspapers are truly accurate in their reporting of the news. 

Lets look back at the last “Bad Market” (1991-1995) on Oahu and compare 1991, 1995, 2005 (best market) and 2008.
For comparison we will look at unemployment figures, inventory levels for SFH’s, number of sales for SFH’s, and affordability for SFH’s.

In 1991:
Unemployment for Oahu was 2.0% (incredibly good at this point.)
The number of SFH’s that sold on Oahu was 1,912.
The number of homes that were on the market at the time were about 4,750.
That equals out to 2.4 years of inventory or 28 months of inventory.  Florida, right now, has similar numbers. (A balanced market is 6 to 7 months of inventory according to the NAR)
In 1991, 55% of a households income in Hawaii went towards their mortgage payment (based on median household income at the time)

In 1995:
Unemployment for Oahu was 4.6% (still pretty darn good.)
The number of SFH’s that sold on Oahu was 1,642.
The number of homes that were on the market at the time were about 4,000.
That equals out to 2.4 years of inventory or 28 months of inventory.  Florida, right now, has similar numbers.
In 1995, 45% of a households income in Hawaii went towards their mortgage payment (based on median household income at the time)

In 2005:
Unemployment for Oahu was 2.7%  (anyone who wanted a job had a job.)
The number of SFH’s that sold on Oahu was 4,617.
The number of homes that were on the market at the time were about 960.
That equals out to .18 years of inventory or 2.2 months of inventory.  Clearly a heavy sellers market and an inverted ratio of number of homes sold to inventory available.  This inverted ratio indicated a time when we couldn’t find enough homes to sell for the number of buyers that were in the market.
In 2005, 50% of a households income in Hawaii went towards their mortgage payment (based on median household income at the time)

In 2008:
The latest figures for unemployment on Oahu was 3.8% (still pretty darn good.)
The number of SFH’s that have sold on Oahu this year is 2,547. (we still have one month to go)
The highest number of homes that have been on the market during one month this year is 2,119 .  (this would be the worst monthly inventory reading for 2008)
That equaled to .7 years of inventory or 8.4 months of inventory.  The current inventory remaining is .71 years of inventory, or 8.6 months of inventory.  
I only have figures for affordability up to 2006 (height of past market).  At that time it took 52.5% of a households income to pay a homes mortgage.  Incomes have increased and prices have dropped 3% this year, so that number should be down, probably below 50%.

When you look at these figures side by side, the two big glaring items are the number of sales and inventory.  The number of sales in 2008 are down from our highs in 2005, but looking back, 2005 was way out of line and we have only had a slight decrease in the sales price for Oahu.  We are still above the number of sales in 1991 by 33% with one months sales to go and above 1995 by 55% with one month to go. 

The inventory levels are really an even bigger tell of our current market.  Not only were there a ton more homes on the market in 1991 and 1995 than in 2008, but there were also a lot fewer homes that existed on Oahu at the time.  Most of Ewa and Kapolei, Mililani Mauka, Makakilo wasn’t significantly developed.  In 1991, there was 124% more homes on the market at that time than there are now.  In 1995, there was 88.7% more homes on the market then than there are now, and that was in a time when fewer homes existed on the island!  Now there are 120% more homes on the market than there were in 2005.

I think this clearly shows the middle of the road.  It isn’t a bad market. It isn’t a hot market.  It is more of a balanced market. This is why Paul Brewbaker and Harvey Shapiro feel Oahu/Hawaii will NOT have a real estate market that follows the mainland.  Hawaii has traditionally had a stair-step approach to prices (prices go up, then flatten, prices go up, then flatten), and this current market appears to be a middle of the road market for Oahu, and add to it, the fact that the Treasury wants mortgage interest rates to be at 4.5% (WOW!) then things don’t look too bad.  What an opportunity!

In 1995, it took 5 years of increased sales to erase all that inventory before prices shot up, that won’t happen this time, as inventory levels are nearly half what they were and the number of sales are higher than in 1991 and 1995.  In 2002, when people realized it was time to get into the real estate market prices went up 11% that year.  

What are your thoughts?