2006 Housing Policy Study by SMS Research & Marketing Services, Inc.

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Two sharp price run -ups, one in the late eighties, and a more recent one between 1999 and 2006 dominates the picture. The rent data show an earlier run -up between 1982 and 1985. Since we are near or at the end of the current run -up, our attention is drawn to "what happens next ". The recovery after the early 80s run -up was short, only two or three years. It ended when interest rates began to drop in 1987. The nineties recovery took nearly a decade and seems to have occurred in two steps — a no- growth period between 1991 and 1996, followed by a notable drop in prices that ended in 1999. The current dollar data show that housing prices stayed relatively stable, and even increased a bit about 1994 and 1995. The inflation- adjusted data, on the other hand, show a relatively constant decline in housing values and rents that began to turn around by the end of the decade. This suggests a true "adjustment" in economic terms, in which housing values dropped from their run -up peak but did not fall below their pre - run-up levels. The next run -up drives housing value well above values at the previous peak. We might expect a similar adjustment following the current run -up. Finally, we note that in purely graphic terms, rents seem to lead housing sales prices. That makes recent trends very interesting. Oahu average monthly advertised rents actually began to fall in 2005 and have continued to fall throughout 2006. This and other factors noted throughout this report suggest that the recent increase in Hawaii housing costs may be at an end. Sales Prices Sales prices for housing units across the State rose rapidly in the last three years. Sales prices for single - family units topped out at over $610,000 in late 2006. Condominium sales followed suit, rising from $195,000 in 2003 to $330,000 in late 2006. News stories in the last quarter of 2006 noted that prices had leveled off, and sales volumes had begun to drop. Rents Rental price data in Housing Policy Studies come from two different sources. The Housing Demand Survey measures average monthly rent for all renters in current dollars. The rental price study measures average monthly advertised rent, the price renters will have to pay as they move to new units. Table 6 identifies the difference between the two. Hawaii Housing Policy Study, 2006 Page 13 © SMS, Inc. February, 2007