As I understand it, Hawaii is different in its real estate market not because rich people are flocking to certain beachfront and mountain areas, but in that middle-class people do not intend to move. Ever. If one plans on living in an area for longer than five years, sometimes it is considered okay to buy a home despite a slightly above-average home price-to-rent ratio (although Hawaii has the second highest rent ratio in the US, so still buying in Hawaii is still problematic). The average American moves once every six years, and 20% of Americans move every 18 months, so the whole idea widespread home ownership in the continental US does not make sense (despite George Bush’s Thatcherite dreams of a conservative “ownership society”). Even in 2009, there was a severe shortage of plumbers and auto mechanics in some parts of the US because working-class people who are usually nomadic as a matter of course in their professions were stuck in houses that they bought. But this is not true in Hawaii, where people plan on keeping the home indefinitely and probably passing it down to their family.

There is a difference between a bubble and a boom. When people pay too much in relation to their income, that is a bubble, and that pops. When rich people “discover” an area — like, say, Dumbo, Brooklyn, as they are now — and move in, that permanently drives up home prices. That is not a bubble, and it is not unstable. But booms have their own problems, as it drives out lower-income people (and artists, in the case of New York City, where there seems to be this dynamic of artists colonizing poorer, more affordable areas and then rich people following them).

Now, Ian stated that the price-to-income ratio does not take into account the incomes of out-of-state buyers. I was sure that this was not true. My assumption was that if certain home prices were falling in Hawaii on average (I was thinking of condos on Maui), yet the price-to-income ratio is still nonetheless hovering at a certain level, it suggests that rich people are selling off real estate and less wealthy people are snatching it up at lower rates — keeping the price-to-income ratio nearly flat, even as the price-to-rent ratio falls. In that case, it would be the formation of a second bubble which will burst yet.

But if Ian is right, then it is not a bubble but perhaps a boom, perhaps caused by new out-of-state money (buying condos typically, if it is Canadian snow geese or retirees). However, it might reflect falling incomes in Hawaii.

http://www.deptofnumbers.com/income/hawaii/

After all, the overall asking price of homes in Hawaii has been rather stable, so falling family incomes would drive up the price-to-income ratio.

http://www.deptofnumbers.com/asking-prices/hawaii/honolulu/

But I don’t know. Ian trumped me and has stumped me.

If rich people were buying homes in Hawaii, then one would expect the home price index in relation to income to be falling.

The home price index is calculated on resident incomes, and home sales prices. It would not capture non-resident purchasers. So if non-resident purchasers drive up overall housing prices, the home price index in relation to income would continue to rise.