Despite rapidly increasing prices over the last five years, local economists do not foresee any "bubble" or boom-to-bust scenario for the Oahu housing market. In fact, they predict this sharp upward trend will continue for at least another year or two.
The price of a typical Oahu single-family home has nearly doubled since 2000. During May, 2005, prices were up $65,000 over those of April. This brought the median sales price to $610,000.
One 14-year-old Oahu home recently listed at $875,000. In August, 2003, it was sold at $402,000, and then again in August, 2004 for $660,000. Such increases are common across the island.
At worst, experts like Paul Brewbaker, Bank of Hawaii Chief Economist, and former state Council on Revenues Chairman Mike Sklarz believe any housing price peak would most likely be followed by a leveling-off effect, rather than a sharp drop. Another expert, Mike DeMello of Pacific Locations, said he, too, is reassured by the real estate market's momentum. All three expect the rising price trend to continue.
The notion that home prices will not collapse is bolstered by Hawaii's economic outlook. It projects the state's inflation-adjusted gross product to increase about 2.5 percent annually through 2008.
The concept of supply and demand is a key factor affecting Oahu's housing market. Island construction has been limited by Hawaii's land permitting process. Relatively few new homes have been added annually, while purchases have reached record levels. Nonetheless, demand continues to increase, primarily driven by low interest rates. Hawaii's steady job growth and population increase have also generated more buyers.
Likewise, more and more baby boomers are investing in Hawaii real estate. This group comprised 23 percent of island home buyers in 2004. Many have cashed-in poorly performing stocks or tapped-into existing mainland home equities to purchase income properties and dream homes for retirement.
Studies confirm that most housing booms do not lead to busts. Recent findings by The Federal Deposit Insurance Corp. determined that in the 54 housing booms nationwide from 1978 to 1998, 83 percent did not result in busts. Further, even after those booms had slowed, prices continued to rise by an average of 2 percent per year over the next five years.
