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

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Effective demand has changed notably since 1992, reflecting the changing condition of Hawaii's housing market. Across the State, effective demand fell continuously from 42 percent in 1992 to 38 percent in 1997, 35 percent in 2003, and 33 percent in 2006. In the City and County of Honolulu, effective demand fell from the highest in the state (42 %) in 1992 to the lowest in the State (31 %) in 2006. Kauai County demand also dropped in the Study years. In Hawaii and Maui Counties, effective demand dropped from 1992 through 2003, and has since risen to nearly 40 percent of 2006 households. Table 10. Effective Demand by County, 2006 There is little doubt that housing prices have affected demand estimates. Nearly 30 percent of all those who expect to be moving out of Hawaii mentioned housing prices as their main reason for leaving. That's up from 12 percent in 1997 and 19 percent in 2003. And two - thirds of those who said they would not be buying a home on their next move said that housing costs were one of the major reasons for that decision. All of this causes some concern about the drop in demand and its implications for Real Estate activity in the next several years. To what extent does low effective demand reflect despair prompted by a market in which the average price of a 2- bedroom house rose from $375,000 to $665,000 in less than three years? The market has also produced steadily increasing home ownership rates, interest rates remain low, and housing production is at an all -time high. With the leveling off of prices and a drop in rents in the last half of 2006, will demand revive? Or will it take some time to work a market adjustment that will change the outlook at the middle of the market? HOUSING PREFERENCES Buyer and renter preferences for certain housing unit characteristics were measured in 2006 as in the past. The objective was to provide information on preferences to support a broad range of housing issue analysis over the next few years. In this section of the report we will briefly describe the most salient of those preferences. See Table A3 in the appendix for details. Among all households that want to move, 63 percent want to own their next unit. This figure has changed little over the last 15 years. This year the preference for ownership was unusually high for Hawaii County (71%), and somewhat lower than usual for Kauai County (55 %). Overall, single family units remain the first choice of the majority of would -be buyers. Hawaii Housing Policy Study, 2006 Page 20 © SMS, Inc. February, 2007 State of Hawaii County of Honolulu County of Hawaii County of Maui County of Kauai 1992 41.6 42.5 39.7 39.1 38.4 1997 37.5 36.4 34.8 42.5 36.0 2003 35.1 35.1 35.3 35.8 33.0 2006 32.6 30.9 37.2 39.6 29.0 There is little doubt that housing prices have affected demand estimates. Nearly 30 percent of all those who expect to be moving out of Hawaii mentioned housing prices as their main reason for leaving. That's up from 12 percent in 1997 and 19 percent in 2003. And two - thirds of those who said they would not be buying a home on their next move said that housing costs were one of the major reasons for that decision. All of this causes some concern about the drop in demand and its implications for Real Estate activity in the next several years. To what extent does low effective demand reflect despair prompted by a market in which the average price of a 2- bedroom house rose from $375,000 to $665,000 in less than three years? The market has also produced steadily increasing home ownership rates, interest rates remain low, and housing production is at an all -time high. With the leveling off of prices and a drop in rents in the last half of 2006, will demand revive? Or will it take some time to work a market adjustment that will change the outlook at the middle of the market? HOUSING PREFERENCES Buyer and renter preferences for certain housing unit characteristics were measured in 2006 as in the past. The objective was to provide information on preferences to support a broad range of housing issue analysis over the next few years. In this section of the report we will briefly describe the most salient of those preferences. See Table A3 in the appendix for details. Among all households that want to move, 63 percent want to own their next unit. This figure has changed little over the last 15 years. This year the preference for ownership was unusually high for Hawaii County (71%), and somewhat lower than usual for Kauai County (55 %). Overall, single family units remain the first choice of the majority of would -be buyers. Hawaii Housing Policy Study, 2006 Page 20 © SMS, Inc. February, 2007