Hawaii’s Real Estate Shows Signs of Recovery

Even though mortgage rates have not yet dropped significantly, there are signs that the real estate market in Hawaii has begun the road to recovery. There are always reasons for people to buy and sell properties, and it is nearly impossible to wait for perfect conditions to execute your transaction. The young couple with a growing family cannot forever delay the sale of their condo to purchase a home with a yard. Retirees cannot delay the sale of their home if they need the proceeds from the sale to enter a retirement community. Last year, there was a pause in the Hawaii real estate market brought on by higher interest rates as the Federal Reserve tried to stem inflation. This caused both a drop in sales volume and a drop in prices in 2023. The first two months of 2024 seem to signal the beginning of a return to a normal real estate market as buyers and sellers are again entering the market.

The month of February saw a year-over-year increase in the median sales price of 8.9% for single-family homes and 6.8% for condos. Additionally, the total number of closed sales increased for both single-family homes and condos (3.5% and 2.8%, respectively). The number of new listings on the market is also increasing for both single-family homes and condos, seeing year-over-year increases of 26.6% for homes and 15.1% for condos. This increase in inventory provides more choices for prospective buyers. In 2023, homeowners had a diffi cult time giving up their extremely low interest-rate loans. Homeowners are slowly becoming sellers as their immediate needs take precedence over their low interest-rate loans.

Although the Federal Reserve has delayed reducing interest rates to ensure its battle against inflation is going as planned, many experts expect several interest rate decreases from mid-2024 to the end of 2024. Of course, this all depends on the path of inflation. As the interest rates decrease, the demand for real estate should increase as the buying power for prospective purchasers increases as well. Barring any unforeseen political/economic disruptions, we should return to a more normal real estate market with an increase in the volume of activity and normal annual price increases in line with inflation.

There is one significant divergence between the current market for single-family homes and condos. While the median days on the market for single-family homes has decreased from year to year from 47 days to 30 days, the median days on the market for condos for the same period has increased from 28 days to 39 days. Here are two possible reasons why condos are taking longer to sell: (a) Many older condos are facing the need for major capital improvements, which have led to significant maintenance fee increases, special assessments and/or association loans; and (b) There has been a recent development involving certain condo projects being underinsured for hurricanes, which has made obtaining financing for those underinsured condos difficult. Eventually, the aforementioned issues will work themselves out, and the days on market for condos should move more in step with the days on market for homes.

What does this mean for today’s buyers and sellers? As mentioned earlier, more properties are being listed for sale, which means there are more choices for buyers. If a buyer can qualify, it may make sense to buy today and refi nance if interest rates drop. Waiting to purchase until interest rates drop may result in more competition between buyers who wait for interest rate decreases prior to submitting offers. Also, if prices continue to rise, buyers may purchase a property that may be more expensive later in the year. For sellers, rising prices are a strong indicator than the real estate market may become more favorable to Sellers in the near future.