It’s that time of year again, time for the annual Hawaii roundup. For those planning for a permanent or part-time Hawaiian getaway, the past year hasn’t been too bad in the 50th state. Before you read further, pack up your tablet and head to Agu Ramen in Mockingbird Station for the full Hawaiian effect. Just opened the day before Thanksgiving, Agu’s based in Hawaii and was slathered in foodie awards before branching out to Houston and now Dallas (I have no idea why Texas was their first stop). Having checked it out before heading back to Hawaii, I can say the Dallas branch is as good as the original.
Anyway, it’s been an interesting year in Oahu real estate. The big news is in the condo market (the landing place for many second home owners). Several new high-rises have come online and their listings have flooded the market with high-priced units. As of this writing, there are 28 condos listed above $5 million. All but three of them are in new buildings. Like Dallas, all the new high-rises are high-priced. But when any ocean front/view condo hits above $1,000 per square foot, some of the new crop are hitting $3,000 per foot.
Following other markets, the Trump Waikiki, built in 2009, currently has over 10 percent (47) of its units for sale. Compare that with 28 units available in the whole of the Gold Coast area comprising 13 oceanfront buildings and over 750 units. For example, in my 172-unit building there are four units for sale (2.3 percent). Price-wise, while some Trump units command higher cost per square foot than Gold Coast units, most are in the same ballpark.
Here’s the latest update from last year. As you can see, in both single-family and condos, there were healthy rises in numbers of properties sold. The biggest reason for this has been an overall increase in supply as construction returns to normal and more owners either traded up or moved away. Note that in Hawaii, the majority of building is high-rise condos and those condos have all been pretty expensive. So while there is a pretty large increase in the number of units on the market, as I said above, newer units skew heavily towards the nose-bleed section.
Price-wise, things are pretty stable year-over-year in both categories. Average condo prices will set you back just $1,500 more this year. However, it’s important to note that these statistics are for a whole island. Many local areas will have quite different outcomes.
The graphic above shows what’s been happening over the past two years in single-family sales. While there is some see-sawing, homes are selling in a fairly narrow band of around $720,000 to $760,000. The spike in June was repeated in both years and April was one of the cheapest months to buy in both years. That may just be a factor of what was on the market or the tail end of high-season, but both months also showed dips in the number of units sold.
In the condo market, things are more clearly going up as local buyers are priced out of the single-family market and second home buyers continue to buy. Given the preponderance of second home owners who purchase condos, it will be interesting to see if the planned end to those tax deductions will have an impact on sales. Mirroring prior years, June, July, and August were the highest quarter for purchase prices. Like mainland markets, this could be the effect of moving between school years.
Also, note that while true in the single-family home market, the condo market varies hugely in the size of units, which impacts median prices. Nearly every condo in Honolulu under $260,000 began life as a sub-300-square-foot hotel room … and that’s 10 percent of the market.
Let’s look at the broader trends. Above we see single-family price and sales trends from 1996 to 2017. As you can see, what I’ve always said is true … it’s really difficult to lose money in Hawaiian real estate. The recession in 2000-2002 was barely a blip and the capital-R Recession dented single family prices only slightly (compared with the rest of the market). In fact, Hawaii took the pre-Recession bubble, burped a little, and kept going. The only way a buyer lost money in the last 20 years was if you bought in 2007 and had to sell before 2012.
The condo market shows a more pronounced dip in the small-r recession but the same burp during the Recession. The reason for this is because condos are more price sensitive because of the higher proportion of second home buyers who might need fast money if their main life needs an infusion.
Overall, Hawaii weathers recessions better. Going back further in time to other financial events shows this too as the islands have been buffeted by the Japanese boom and bust of the 1980s and 1990s and the Canadian boom/bust of the 1970s and 1980s. Like clockwork, there’s a boom followed by a slight pullback and another boom.
Dallas is The Exception to The Rule
We all know the story about how the Dallas Police and Fire Pension Fund invested (poorly) in Hawaii real estate. Mistake one was buying for the short term and panic selling. Mistake two was to purchase on the outer islands versus Oahu (city of Honolulu). The outer islands are MUCH more susceptible to recessions as they’re up to 50 percent investment properties (toys versus roof-over-head). Toys are optional, primary residences aren’t. For this reason Oahu weathers recessions better than the outer islands. Mistake three was to buy few, hugely expensive properties … almost literally putting all your eggs in one basket.
For those looking for second or retirement homes, Hawaii can be a pretty good investment that pays back in quality of life. Property taxes are laughably low compared to Dallas – about a quarter. And there’s water all the time, not just when your street floods.
Pull up a chair at Agu Ramen in December as SecondShelters.com once again highlights the best and most reasonable options in getting into the Hawaii property game.
Remember: When I’m not stirring up trouble in Dallas, Texas or Honolulu, Hawaii for Candysdirt.com and SecondShelters.com, I’m off scouting interesting locations for a second home. In 2016 and 2017, the National Association of Real Estate Editors has recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards. If you’re a Realtor with second home clients who’d like me to feature their journey, shoot me an email firstname.lastname@example.org