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Local Economist Shares Thoughts on Hot Housing Market

(AP Photo/Mark Humphrey, File)
Mark Humphrey/AP
(AP Photo/Mark Humphrey, File)

Hawaiʻi economist Paul Brewbaker warned there would come a day when the average price of a single-family home hit $1 million. That day came this year for Kauaʻi and Maui.

In July, the real estate guide Locations reported Oʻahu hit that benchmark. Honolulu Board of Realtors numbers were just shy of that seven-digit figure. Speaking to The Conversation, Brewbaker shared what he thinks is happening in the housing market.

Below are excerpts from Brewbaker's interview with The Conversation's Catherine Cruz, edited for length and clarity.

On the current state of the Hawaiʻi housing market

BREWBAKER: (On Oʻahu) median single-family home prices have seemed to have hit a ceiling, about $1,380 below $1 million. They just went right up to and stopped at $1 million the last three months — whereas a year ago, we were talking sevens and eights. So that explosion that occurred in the 12 months from May 2020 to May 2021 appears to have lost the energy that was driving it in the early months of recovery from the COVID-related recession which we now know ended in April of 2020 — like the official announcement that the recession started in February, and it ended in April. So it was super fast. It was super deep. And we have to reframe our thinking because we've been living with COVID for more than a year. But for the entirety of the last year and certainly, since May of last year, what we should have been interpreting is the nature of the economic recovery, rather than recession.

We just don't know these things at the time. When you're down at the bottom getting beat up and people are dropping dead, you have other things to be concerned about. But now, of course, we can look back and see this explosive period of appreciation from May 2020 to May 2021. And on Oʻahu, it looks like it has begun to peter out a little bit after jumping from around $800,000 to nearly $1 million. And as I observed earlier, it's breached the $1 million mark on Kauaʻi and Maui — I mean we're talking $1.1 million in round numbers on Maui and Kauaʻi.

On still being in a "seller's market"

BREWBAKER: We're still in that seller's market kind of environment. However, it's important if it continues, that the rise in prices has tapered off, there's still some upward ratcheting. But it's not this explosion of 20%. It happened over the 12 months from the spring of last year to the spring of this year. It's important to understand the 20% increase in median single-family home prices on Oʻahu, which was incorporating seasonality, a steady rise from month to month over a 12 month period. It's important to recognize that it began to peter out in May — June and July were around the same or slightly higher prices but still shy of a million by about $5 — and that this pattern of rising for a year at 20% and then petering out over a subsequent quarter suggests, perhaps, that it was never really a bubble. It's more like what I've been calling a tiny bubble.

BREWBAKER: As most people are finding when they list their homes, there's still plenty of buyers that are out there. Something, while bubblicious, is uniquely associated with the nature of the underlying economic and indeed biological events that drove it. And another way to see this is that that 20% increase in single-family home prices on Oʻahu is not showing up in condos, not really, not to the same degree of vigor and intensity, or more specifically, not in the rate of price appreciation that you observe in the single-family segment. Something about detached dwellings, and what is sometimes called the donut effect where people who now can work remotely are moving to the suburbs or to "zoom towns" on Kauaʻi and Maui, as the case may be. When you look at Maui data, for example, it's not all of Maui, it's West Maui. When you look at Maui County, it's Molokaʻi, you have to think about that for a while.

On how the surge in COVID-19 cases could affect real estate

BREWBAKER: Remember what we got wrong in March of 2020: first we listened to a guy who told us, like a miracle, it would disappear by April. So we got that totally wrong. But on top of that, we all thought at the time that, as is with the case customarily with catastrophic events, that people would withdraw from risky asset classes like stocks and houses and commodities — and retreat to the safe haven of government bonds or cash. And indeed, that increasing the demand for cash led the Fed to increase the money stock by buying assets and creating the corresponding stock of money. That was true in the moment of the discovery that there was no miracle other than the one that would eventually unfold over 12 months, and in the form of vaccines.

But the discovery very quickly in the spring of last year, that demand for housing had shifted along a margin, though a small margin, a significant enough margin of homes that were in these more suburban or rural or exurban settings, because of the unleashing of telework or remote work or work from home — that that phenomenon itself explains much of the shift to where single-family homes appreciated, detached dwellings appreciated, detached dwellings on the North Shore of Oʻahu, in East Honolulu, in Windward Oʻahu, in places like Mililani and Makakilo, you know, not in the urban core so much. That those neighborhoods were the ones where the price appreciation was sharpest, and pulling up the average, so to speak, pulling up the median with their unusually robust increase in demand for single-family homes in those areas.

So now that we're in a variant wave, which was unexpected by way too many people, and I think it's going to push back on the recovery a little bit. But that doesn't mean it's going to reduce the demand for single-family housing, if anything, based on what's happened in the last year, it might actually reinvigorate that demand. Like you thought it was over and you went on your little vacation to Vegas, your uncle brought the Delta variant back to Hawaiʻi from Vegas. And now we're having to reassess, is the recovery going to continue? Is it going to falter?

This is the worst time in this pandemic to date, from an epidemiological standpoint. It's ironic that at the worst moment of this pandemic for Hawaiʻi that home prices are still appreciating at a 20% annual rate. My guess is they settled back to the appreciation rate that we observed pre-COVID, which for Oʻahu was 4% to 5%. We should be so lucky to go back to the pre-COVID housing appreciation environment of the 20-teens, because right now Hawaiʻi's economy, and Oʻahu's economy, has not actually gone back to where we were.

This interview aired on The Conversationon Aug. 17, 2021.

Catherine Cruz is the host of The Conversation. Originally from Guam, she spent more than 30 years at KITV, covering beats from government to education. Contact her at ccruz@hawaiipublicradio.org.
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