The gap between what a typical O'ahu family can afford and the median price of a single-family home is close to its widest point ever this year.

The median home price is projected to be $221,900 more than what a median-income-earning family can pay this year — the widest affordability gap since 1990 when the difference was $227,700, according to University of Hawai'i-Manoa economist Carl Bonham.

The affordability gap on O'ahu — where single-family homes sold for a median $615,000 in the past three months — is another reflection on how out of reach homes have become for first-time buyers in a housing boom that has shown little sign of slowing.

"It's definitely more challenging now," said Kendall Hirai, executive director of the Hawai'i HomeOwnership Center, a nonprofit organization that assists first-time home buyers. "I'm praying there's opportunity for the market to come to a point where people can get back in again."

Socioeconomic benefits of homeownership are being denied to a growing kama'aina population of low- to moderate-wage earners, Hirai said. Those benefits can include building home equity that can pay for a child's education, retirement, starting a business and insuring against rent increases that can lead to job instability, family instability and sometimes homelessness.

"There are so many advantages (homeowners) have," Hirai said. "Are housing prices creating a divide? Yes."

Bonham calculated that O'ahu's annual median household income of $67,750 this year generally would be enough to buy a $369,400 home assuming a 5.8 percent interest rate on a 30-year loan with a down payment of 20 percent of the selling price.

That's $221,900 less than the $591,300 median single-family home price Bonham projects for the entire year. The gap could be higher and surpass the 1990 record if interest rates, which are on the rise, climb above a 5.8 percent average for the year, or if the rate of price appreciation is stronger than Bonham anticipates for the last three months of this year.

"It's going to be close," Bonham said. "Certainly next year we'll break that barrier if prices keep rising."

NATIONAL PICTURE BETTER

The 1990 affordability gap record was driven in part by speculative purchases at the peak of the Japanese investment bubble when price increases and interest rates were more lofty than today.

Breaking the 1990 barrier, if it happens this year, would follow six years of rising home prices, largely driven by residents and second-home buyers from the Mainland, and further reinforce O'ahu as one of the most expensive places to live in the country.

Home affordability on the island stands in stark contrast to the national housing picture, where the median-priced single-family home in the second quarter cost $43,400 less than what a median-income family could afford.

The National Association of Realtors said in its latest affordability report that a typical family earning $56,917 a year could afford a $251,900 home, which is more than the $208,500 median home price.

People new to Hawai'i as well as kama'aina first-time home buyers are often shocked at how little they can afford in the Islands, said Rusty Rasmussen, a vice president with Castle & Cooke Mortgage, the in-house lending arm of Castle & Cooke Homes Hawaii.

"People come in and say, 'You mean I have to make $100,000 a year to buy a home?' " Rasmussen said. "Oh yeah, you do. It's a tough time. It's really, really tough."

To purchase a $600,000 home, Rasmussen said a buyer with little debt generally would need an annual income of about $100,000 assuming a 6 percent mortgage rate on a 30-year loan and a 20 percent, or $120,000, down payment.

In terms of interest rates, today's market is better than it was in 1990. Fifteen years ago, interest rates averaged about 10 percent and the median-priced home sold for about $350,000.

First-time buyers also have more creative financing options, such as interest-only mortgages, 40-year loans, 100 percent financing, low-documentation loans and negative-amortization loans.

Still, for many people, buying a single-family home is not possible.

Hirai of the HomeOwnership Center said the number of first-time home buyers able to purchase single-family property, even in more remote neighborhoods like Wai'anae, have declined in the past few years.

"Like we tell our clients here, everybody has a dream home," he said. "But it may not be their first home. It may not be a house in Manoa; it may be a condo in Waipahu or 'Ewa or wherever."

BETTER TIMES IN 2001

The affordability gap is one reason O'ahu has one of the nation's highest rates of condominium ownership.

Since 1990, the best chance O'ahu median-income families had to buy a median-priced single-family residence was in 2001 when interest rates had fallen, median household income grew and home prices were relatively low.

Bonham calculated that the $298,600 median price in 2001 was $16,100 more than what a family earning $62,400 could buy at a 7 percent mortgage rate.

The gap rose to about $30,000 in the next two years, then jumped to about $100,000 last year.

Bank of Hawaii chief economist Paul Brewbaker, who keeps similar records using slightly different wage and price figures, calculated that only twice since 1977 — in 1999 and 2001 — could a median-income family afford the median-priced home under conventional lending terms.

Daren Presbitero, a computer systems engineer, says he feels fortunate that he and his wife, a teacher, bought their $295,000 Kane'ohe house four years ago with a $30,000 down payment.

"I bought at the right time," he said. "It would have been difficult to afford a $600,000 home, much less come up with a down payment of $120,000."

Despite record prices, the number of sales continue to rise over previous years, leading some to believe that the affordability gap can't be that bad since more people are still buying.

Bonham said money being spent on homes — $4.5 billion this year through September — is generally good for the local economy, as spending benefits real-estate related businesses, government tax coffers and home sellers.

But he said there is a definite downside for those who don't earn enough to buy. From their viewpoint, Bonham said, "It looks like you may never get into the market."

Reach Andrew Gomes at agomes@honoluluadvertiser.com.