Hawaii Home Prices and Mortgage Rates Expected to Rise

Economists predict single-family home prices on Oahu will eclipse $700,000 this year.


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If you think the price to own in paradise is ridiculously high now, Hawaii home buyers could be in for even more sticker shock.

Home prices in Honolulu and mortgage rates are expected to increase over the next two years, taking a hit on affordability, according to the latest forecast by the University of Hawaii Economic Research Organization (UHERO).

The group of economists and researchers predicted single-family home prices on the island will break the $700,000 mark for the first time ever this year and reach $710,500, a 9.8 percent increase over 2013’s median of $647,000. From there, it is expected to surge another 8.9 percent to $773,800 in 2015, according to the report.

Honolulu condo prices, meanwhile, are projected to rise 6.2 percent this year to a median of $354,400. That mark has already been met with the median price hitting a record high $359,450 in February. Next year, condo prices are expected to rise another 6.2 percent to $376,300.

The figures were included in UHERO’s Hawaii Construction Forecast report, which was released Friday. “On Oahu, prices have now eclipsed their pre-recession highs, but, on the Neighbor Islands, they have recovered less than half of the decline,” the report said. The report explained that prices have been rising because of low housing inventory, low mortgage rates and an improving job market.

To compound to the affordability challenges for working families, mortgages rates are expected to creep up. Gone are the days of sub-4-percent mortgages we saw just a year ago.

“One factor supporting strong current demand for homes is historically low interest rates and the anticipation that those rates won’t be around much longer,” the report said. “Mortgage rates began to turn upward last year and are running a full percentage point higher than they were at the end of 2012. We expect rates to continue to rise gradually over the next several years.”

UHERO projected the 30-year conventional rate to average 4.6 percent this year and edge up to above 5 percent in 2015. “Low mortgage rates along with falling home prices boosted home affordability in the islands during the recession and early recovery period,” UHERO said. “As rates and prices rise, affordability will begin to erode, although healthier family incomes will moderate this impact.”

The construction report detailed the residential building boom on Oahu with several condo projects being built in Kakaako. Despite thousands of condo units being built and planned in Kakaako, that increase still may not be enough to alleviate the housing shortage. “Based on expected population growth, Oahu will need to add almost 4,000 housing units per year between now and 2020,” the report said.

UHERO’s mission is to inform public- and private-sector economic decision-making through research with a particular focus on the economies of Hawaii and the Asia-Pacific region, according to its annual report.

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