O’ahu Market Report – July 2024
The market is shifting! Typically, Hawai’i’s real estate market moves at a slower pace, with trends identifiable over the short term. However, external events, such as the pandemic, the sub-prime mortgage crisis, or the federal tax credit, can disrupt the market’s usual flow. Currently, the market may be reacting to the insurance crisis and a sudden drop in mortgage interest rates, possibly triggered by economic concerns. The long-term impact of these factors on the real estate market remains uncertain. Below is an overview of the key indicators and issues at play.
Insurance Crisis Boosting Condo Inventory: Over the past year, natural disasters have driven up insurance costs, with providers becoming more selective about who they cover. Condos have been hit particularly hard, with higher insurance premiums leading to increased maintenance fees. In some cases, condo associations are forced to purchase costly gap insurance due to insufficient hurricane coverage. These rising fees can dampen demand for condos and motivate owners to sell. As a result, condo inventory surged by 61.8% last month compared to the previous month, providing more options for buyers and potential leverage for negotiating lower prices.
Mortgage Interest Rates Are Declining: Over the past two weeks, mortgage interest rates have fallen below 7% for conventional loans and below 6% for VA loans. If this trend continues, it could have significant effects. Buyers already in the market might afford more expensive homes, increasing their options. Additionally, buyers on the fringe of qualifying, or those waiting for rates to drop, may now enter the market. However, sellers who secured low mortgage rates before 2022 have resisted selling, rather than giving up their current low rate. Selling a home that has a current mortgage of below 4% and replacing that by moving to a new home at over 7% significantly increases the owner’s monthly housing expense. That gap has proven to be too much and thus, less sellers make the move causing lower overall inventory for sale. If mortgage interest rates continue to fall, that dynamic may change, increasing homes for sale while demand also grows. That race of demand and supply will determine what happens to home prices.
Transitioning to a Balanced Market: A buyer’s market happens when the supply of homes surpasses demand, while a seller’s market occurs when demand outstrips supply. In either case, the side with greater leverage typically has an advantage in negotiations, influencing price and contract terms. Last month, the inventory for homes was at 3.2 months, and 5.1 months for condominiums. This means that at the current sales pace, all available homes would be sold within 3.2 months, and all condos within 5.1 months, if no new properties were listed. Additionally, buyers paid 99% of the list price for homes and 98.1% for condos last month, indicating some negotiation but not significant discounts.
Whether you’re a buyer, seller, investor, or just interested in real estate, the market is once again shifting, making it crucial to stay in close contact with your agent. There are opportunities hidden within the current trends — reach out to your representative to explore them.
