In the latest sign that Hawai'i home prices could be headed for a dip, the average sale price for homes at vacation resorts fell 3 percent during the first quarter of this year when compared to a year earlier.

New and previously owned homes at resorts from Princeville, Kaua'i, to Kuki'o on the Big Island, sold for an average of $1.27 million in the first quarter, compared with $1.31 million a year earlier. The number of homes sold was also down — by 29 percent — from a year ago.

"If this holds for the year, the market will have undergone one of its periodic corrections," said Ricky Cassiday, author of the report and a local housing market analyst. The last time resort-home prices and sales declined in the same year was 1994.

Higher interest rates, buyer exhaustion and waning investor interest are sapping some of the strength in the resort-home market that's primarily driven by Mainland buyers retiring in Hawai'i or acquiring second homes, Cassiday said. The price drop, he said, also was due in part to developers building fewer oceanfront homes that command higher prices.

The drop in resort home prices may foreshadow a decline in the state's largest housing market — previously owned homes on O'ahu.

So far this year, O'ahu home prices have continued to hold above their year-ago levels. In the first quarter of this year, the median sale price was up more than 18 percent, according to the Honolulu Board of Realtors. In August, the median price for single-family homes on O'ahu was $635,000, up 1.6 percent from August 2005.

The median, a point at which half the sales are for more and half for less, is a slightly different measure than the average, which can more easily be swayed by a few extremely big or small sale prices.

Local economists earlier this year forecast that median home prices on O'ahu will rise by 5 percent to 10 percent in 2006 and by a smaller margin next year. But there have been recent signs that prices could be on weaker ground, including sharply fewer sales and inventory rising because homes are sitting on the market longer.

"A 25 percent decline from the current price levels wouldn't surprise me at all," said David Wicker, a renter who works and lives at Ko Olina Resort & Marina on O'ahu. "I love Ko Olina and want to own property here because, in the long run, this may be the best place to live and invest on O'ahu. But right now I'm watching the market and collecting cash. If prices turn around, I want to have the down payment ready to go."

Other observers believe prices will plateau instead of declining from the previous year.

Despite the first quarter decline in resort-home prices, Cassiday predicted that prices will end the year higher by a low single-digit percentage point margin.

"I think there will be a bunch of new (sales later this year) that will pull everything up," he said.

Cassiday said he expects the number of resort homes sold will be softer for 2006 compared with 2005. In the first quarter, 360 resort homes sold, compared with 508 in the same quarter last year.

The biggest selling project was Na Hale O Keauhou on the Big Island, where 24 condominiums sold for an average of $715,000, according to Cassiday's report.

The average resort-home price was brought down by a drop in the cost of new homes sold by developers on less pricey land, according to Cassiday.

The average price for newly built resort homes fell by about $1 million to $1.25 million, down from $2.39 million a year earlier.

Cassiday said the difference was largely because there was a drop in sales of oceanfront condos in the first quarter, compared to the year-ago quarter. A year ago, more oceanfront properties were available at resorts such as Kuki'o, where units were selling for up to $10 million.

"Once you run out of beachfront, your prices go down," Cassiday said. "The mix has changed."

The average price for previously owned resort homes rose to $1.28 million in the first quarter, up from $1.05 million a year earlier.

Even if sales and prices end lower this year, Cassiday said 2006 would still likely be the second best year for Hawai'i's resort-home market.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.