Hawaii Real Estate [2022 UPDATE] - Will The Housing Market Crash?
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With the highest inflation we've seen in history and interest rates rising everyone is concerned with the next housing market crash. The Hawaii Real Estate market has been BOOMING for the last couple of years. The United States as a whole felt the boom of the seller’s market and Hawaii was no different in that aspect.
Now that the market has begun to shift from a seller's market to a buyer's market, which we’ll explain later plus talks of a recession in 2022; lets dive into Hawaii real estate 2022 market update.
Is the Hawaii real estate market going to crash?
First, what does a housing market crash even mean?
The first thing that comes to mind for a lot of people is what happened in 2008. We had a full-blown recession along with a real estate housing crisis. Because of that now everybody correlates a recession with a real estate market crash. And that's just not true.
According to keepingcurrentmatters.com, a top real estate news outlet, in 4 out of the last 6 recessions homes appreciated in value.
While no one has a crystal ball I can tell the future we can look at historical data and current trends to accurately predict what we think may happen with the current real estate market. And we could very well be wrong. but we can do our best to guide our clients into making the best decision possible with the current conditions.
In Hawaii’s real estate market we are not currently predicting a full-on housing crisis. In fact, we're just noticing a shift in the market and we'll talk about more indicators of a market shift.
Historically speaking a recession does not equal a housing crisis and we're not predicting another round of 2008.
Just a shift into a more normal Hawaii real estate market.
What Does A Buyer’s Market Mean?
In order to have a better grasp on the conditions of the market you should first understand a little bit of real estate terminology.
Let's Talk about the difference between a seller's market and a buyer's market.
In simplest terms these really reference to old school economics when were talking about supply and demand. Things we learned about in grade school.
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What is a seller's market?
A seller's market is what we just experienced and the real estate industry by nearly the last two years. Inventory was at an all-time low and demand was at an all-time high.
When we say inventory we're talking about homes available for sale on the market. almost as if you were walking through the grocery store looking for toilet paper and there was no toilet paper. that would mean there was no inventory.
The Demand was high due to historically low interest rates and the affordability of homes of mass amounts of people ready to purchase a home.
In a seller's market there is a lot more competition for a little amount of homes available for sale.
This led to home sellers experiencing situations where they were receiving anywhere from five to 30 offers on their home that they had to sift through to figure out which one worked best for them.
The leverage was in the seller's hands which led to buyers overpaying for homes and having to bring a lot more cash to the table to close the deal.
Now that we are noticing the market shift, and not crash, let's talk about what we're shifting into.
What is a buyer's market?
A buyer's market is what we are now shifting into as of July 2022. the exact opposite of what was just described above.
The Hawaii real estate market is noticing an uptick in inventory while demand is slowing down.
Why is the demand slowing down?
With Talks of a recession (by definition of) in July of 2022 as well as inflation combined with higher interest rates then what we saw with the historical lows this has affected buyer qualification and others being skeptical about purchasing at the right time.
One thing you should never do as a home buyer is try to time the market. You'll lose every time.
In a buyer's market the advantage (or leverage) is in the hands of the buyer. Meaning you'll have more selection with more inventory in the market, less bidding wars, and sometimes even paying less and what the home is listed for.
Hence the shift in supply and demand.
As Of July 2022 this is what we are now seeing as the market begins to shift, not crash.
Indicators Of The Market Shifting
Now that we have covered the difference between a seller's market in a buyer's market and what that means to you as a home buyer let's talk about some indicators of the market shifting and things that you can start to look out for as you begin searching for homes in Hawaii.
Let's list out some of the indicators then we'll go through them.
- Inventory
- Days on Market
- Price reductions
- Expired listings
- Interest rates (to a degree)
1. Hawaii Real Estate - Housing Inventory Explained
We already detailed when inventory means above but what is it that you should be looking out for?
In the image below you will see Data directly from the Honolulu MLS showing you inventory from the last 3 years and then as of June 2022 over the course of the last 6 months.
You can see that as of May 2020 inventory was at 4.1 months of supply.
As of June 2022 and over the course of the last six months inventory was at 1.6 months.
So You can see how drastically inventory went down which then created more competition when we were in the seller's market. If Supply begins to tick back up and a demand goes down we expect to gradually get back to the 3 to 4 months of supply and what is it typically hey normal Hawaii real estate market.
2. Days On Market
Days on Market is something that you should really pay attention to in the here and now. Meaning you're actively shopping for a home here in Hawaii and ready to make offers.
If you see a home that has been sitting on the market typically the first question that comes to my mind is, what's wrong with it?
When fact there may not be anything wrong with it, the market is just shifted and it's bad timing for the seller.
In the seller's market homes were barely staying actively listed for longer than a week before going under contract. now that we are shifting into the buyer's market, here are some of your key indicators that are going to give you leverage when writing your offer.
Shifting into a buyer's market when you see a home that has been on the market for 10-14 days is usually when you will see a price reduction of some sort on that particular home.
Think of it as the 2-week mark being your point of leverage in the shifting market. When you reach out to us and are working with our team these are things we go through with you for each and every home when we talk about writing an offer that plays to your advantage.
Knowledge is power!
3. Price Reductions In The Hawaii Real Estate Market
Price reduction was just briefly mentioned above. That 2 weeks benchmark it's typically when we start to see a price reduction.
If the agent selling the home reduces the price that could be due to one or many factors. Factors such as overpricing the home, timing of the market, and not getting the traction they thought they might get on that particular home. There are other factors but these are some of the main ones.
As a buyer working with our team when we see a price reduction we attempt to see why the price reduction was made and any other motivating factors for the seller.
But anytime you see a price reduction the factors above then give you leverage putting the ball in your court as a home buyer.
4. Expired Listings
Listings (homes for sale in the market) expire all the time and that's not always due to a shifting market. It's when we see more expired listings than usual.
Again this could be because agents have the home overpriced, the home needs way too much work, and/or ultimately the market has decided that home is not worth that price.
This again puts the ball in your court giving you the leverage as the home buyer if you're interested in a home that has expired.
5. Interest rates (to a degree)
Interest rates change with the wind.
This is not an ultimate factor of a shifting Hawaii Real Estate Market but can have an impact on the amount of buyers looking for homes and their qualification (their purchasing power).
As we have seen interest rates go up we have seen a decrease in the amount of buyers shopping for homes in Hawaii. Some have expressed concern with the high interest rates and are playing the waiting game hoping they come back down.
So when we have more inventory on the market and less buyers in the market (shopping for homes) we have an increase in supply and a decrease in demand.
Here's our take on interest rates.
Interest rates should not scare you from purchasing a home.
What Should have been scary over the last two years was home buyers paying anywhere from $10,000 to $100,000+ of the asking price of the home. Those buyers will not get that money back until the home appreciates giving them the money back in equity. And who knows how long I could take.
Now that the market has shifted along with higher interest rates, Home buyers in Hawaii are not coming out of pocket with near as much cash if any at all. Some even come in under the listed price. So they may have a higher rate in the beginning but did not have to come out of pocket with an extra $50,000.
We say the beginning because in a year's time, or when the market brings lower interest rates, that buyer can look into refinancing their home and possibly get that lower interest rate.
As the saying goes…”marry the house, date the rate.”
What Is The Average Cost Of Homes In Honolulu Hawaii?
The average cost of homes in Honolulu Hawaii is just under $900,000.
As you can see in the image below with Hawaii real estate market data as of June 2022, The figure is there on the right and this average is the average sales price over the last 6 months for both single-family homes and condos/townhomes.
Oftentimes you will see data for Hawaii real estate that says homes are a million dollars and I doubt I can easily be misconstrued by many home buyers.
Does that mean you'll be buying a house for $900,000 or no house at all?
No!
Depending on your needs, criteria, lifestyle, goals and priorities, there are homes in Honolulu Hawaii that are less than $900,000. Going the other way there are plenty of homes that are worth more than $900,000.
When you get on a call with our team we will break everything down and dial-in your preferred communities, lifestyle, criteria of your home and so much more.
Bottom line it really just depends on what you're looking for.
Hawaii Real Estate Market - Conclusion
As the market continues to shift back to a normal Hawaii real estate market we love helping our home buyers find their perfect place. Whether you’re a single-working class individual or a family looking for that special spot to call home, if you have more questions about buying a house in Hawaii or the Hawaii real estate market in general don’t hesitate to reach out. We talk to so many people about buying a house in Hawaii every single day and we absolutely love it. We’re here when you need us!
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MAHALO!
Ryan Strong
