25 June 2012

Introducing: The Honolulu Real-Price Index 1975-2012!

Long-time readers (if there are any left after my long hiatus) will have heard me gripe about the lack of a repeat-sales housing index for Honolulu, such as can be found for the nation and 20 major cities.

Back ground: The Case-Shiller Housing Index is an index of home prices for the nation and for 10 and 20 major US cities. The index uses data on repeat sales of the same homes. In this way the index tracks changes in prices of actual houses rather than just median sales price. What you say? Well, the median price of sales can change via two major factors (1) true changes in the valuation of individual homes, and (2) changes in the mix of expensive and less expensive homes that sell. In other words, the median sales price can go up if more rich people buy expensive homes and fewer poor people buy less expensive homes, even though the value of each home may be depreciating.  Hence the Case-Shiller index, and others like it, give close to true changes in the value of homes, in contrast to the 'median sales price' so-often reported by the NAR and HBR.

While the economics professors at UHERO sit on their hands or play with shiny objects, I would like to introduce:

The Honolulu Repeat-Sales Real Price Index:

[click image for larger version]

Honolulu is in fuchsia and is overlain onto the very popular Case-Shiller Inflation-Adjusted plot from CalculatedRisk.  Note the big lag between Honolulu price movements and the nation as a whole. Also note that currently Honolulu is still quite high, while the rest of the nation has come down considerably. (Hawaii State, not plotted, has come down much further in recent years than Honolulu).  What does the future hold? I will just say this: one of the most powerful laws in economics is: Reversion to Mean.

Will all of those thousands of homes currently locked up in the Judicial Foreclosure Process (in the courts) and elsewhere in the so-called shadow inventory come spilling out soon to drive up supply and drive down prices? Only the Shadow Knows!

This summer, the Honolulu market heated up considerably due to a significant lack of inventory and a significant number of moneyed buyers. Put those two together and the bids start flying on well-priced homes.  The buzz it that the bubble is back!  Real estate talking heads spit all over themselves as they gush over the median price sales numbers. Agents dust off their black Reebok casuals and permanent press pants - then visit their dentist for a whitening.  Industry shills sound even more positive and orgasmic about the market than ever before (which I never thought possible).

Meanwhile, at an open house near you the following scene played out: The set: a formerly-cute-but-now-run-down-terribly-dilapitated-bug-infested-fire-trap. The actors: various ladies and gents and young couples stamping around with eyes darting there and there. An agent, smiling white, pressed skirt, hair up, popcorn bowl in hand. The action: the agent darts from place to place pointing to all the home 'attributes'. The would-be-buyers, sour-faced, sphincters tight, hands at side. The lines: everyone is thinking: "Oh god what a dump, this place would ruin me financially."


It turns out that the Federal Housing Financial Agency, of which doubtless you have never heard, was keeping track of this information all along for both Honolulu and Hawaii in general.  It was only up to a non-economist blogger to find it, correct it for inflation, and plot it here for all to see.
According to the FHFA, they use the same methodology as the Case-Shiller index to come up with indices of all of the states and many many cities. Leave it to the federal government to not only reproduce the private sector results, but to do it for all the states and more cities, and then to never tell anybody about it!

*One caveate, CalculatedRisk uses CPI (Consumer Price Index) less shelter to make the inflation adjustment to the curves on the plot. I used CPI-U, because it was easy to enter into my spread sheet.


  1. "Long-time readers (if there are any left after my long hiatus)..."
    I'm still here! Great chart. Been waiting for that one. It's obviously a great time to buy :-) A colleague just bought the very type of dump you described! Sixty years old, corroding door handles (inside!), wood, recently tented...

  2. Perfect! I didn't realize that it took so long for the previous bubble to clear here. This makes me glad I bought in 2003!

  3. Super chart porn! I didn't know I wanted it so bad until I saw it!