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

Home

Figure 4. Affordability Curve for State of Hawaii, 1980 to 2030 Figure 4 shows the affordability curve for the State of Hawaii. Actual ratios have been calculated from existing data up to 2006. Ratios have been estimated by SMS for 2007 through 2030. Periods of greater affordability occur when household income increases at a higher rate than housing prices increase (assuming interest rates remain relatively stable). Low points in the affordability cycle occur when prices have risen faster than income. In Hawaii, the low points on the affordability curve occur in 1982, 1991, and 2006, corresponding to the endpoints of the last three housing price run -ups. Peaks in Hawaii's affordability curve occurred between 1985 and 1989, and from 1998 to 2002, corresponding to downturns and slow periods in Hawaii's real estate market. The affordability forecast predicts housing prices will be relatively flat for about 6 to 7 years, at which time they will start to increase at a modest rate. The model is currently based on a growth rate of 4.6 percent per year for household income, which is an aggressive rate and assumes that Hawaii's real GSP will continue to grow at rates near two percent per annum though 2013. The forecast suggests that the next price run -up can be expected sometime between 2018 and 2022. Hawaii has had a few large price run -ups in the past and recovery patterns were very different for the last two. The model is not designed to predict exactly what will happen and when, but it shows a rough approximation of how supply and demand functions in the housing market. The Housing Model develops independent forecasts for each of Hawaii's four counties. Table 12 shows affordability ratios for each county. Lower affordability ratios indicate housing markets in greater stress. Affordability is highest on Oahu and in Hawaii County. Ratios are very low for Maui and Kauai Counties, two counties with the longest price run -ups. Hawaii Housing Policy Study, 2006 Page 24 © SMS, Inc. February. 2007 1.20 AFFORDABILITY 0 1.10 - U d 1.00 -------- - - - - -- (6 7 � 0.90 - - - - -- -- -- - - - - ------- - - - - - -- - - - -- Q v 0.80 - - - - - -- ----- - - - - -- d a� 0.70 ------------- - - -- n m -2 0.60 ----------------------------------------- 0 tp Q 0.50 0.40 O N V (O 00 O N V (O 00 O N V (O 00 O_ N_ V (O o0 O N V (O W O 00 00 00 00 00 M M M M M O O O O O N N N N N M m m m m m m m m m m O O O O O 00000000000 N N N N N N N N N N N N N N N N Figure 2 Figure 4 shows the affordability curve for the State of Hawaii. Actual ratios have been calculated from existing data up to 2006. Ratios have been estimated by SMS for 2007 through 2030. Periods of greater affordability occur when household income increases at a higher rate than housing prices increase (assuming interest rates remain relatively stable). Low points in the affordability cycle occur when prices have risen faster than income. In Hawaii, the low points on the affordability curve occur in 1982, 1991, and 2006, corresponding to the endpoints of the last three housing price run -ups. Peaks in Hawaii's affordability curve occurred between 1985 and 1989, and from 1998 to 2002, corresponding to downturns and slow periods in Hawaii's real estate market. The affordability forecast predicts housing prices will be relatively flat for about 6 to 7 years, at which time they will start to increase at a modest rate. The model is currently based on a growth rate of 4.6 percent per year for household income, which is an aggressive rate and assumes that Hawaii's real GSP will continue to grow at rates near two percent per annum though 2013. The forecast suggests that the next price run -up can be expected sometime between 2018 and 2022. Hawaii has had a few large price run -ups in the past and recovery patterns were very different for the last two. The model is not designed to predict exactly what will happen and when, but it shows a rough approximation of how supply and demand functions in the housing market. The Housing Model develops independent forecasts for each of Hawaii's four counties. Table 12 shows affordability ratios for each county. Lower affordability ratios indicate housing markets in greater stress. Affordability is highest on Oahu and in Hawaii County. Ratios are very low for Maui and Kauai Counties, two counties with the longest price run -ups. Hawaii Housing Policy Study, 2006 Page 24 © SMS, Inc. February. 2007