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Oahu’s frenetic housing cycle, which has seen the median single-family home price soar above $1 million, is cooling.
The rush was still going on in May to buy and sell homes on Oahu before interest rates and inflation rose, which can shut buyers out of the market, creating a drop in demand that drives values down .
Sales of single-family homes and condos were still moving at a near-record pace in May, when the median time on market was just 10 days. Demand was so strong in May that a majority of single-family homes and almost half of condominiums sold for more than the asking price. It’s not uncommon for buyers to come to the table with cash to cover spreads when valuations are above the sale price.
But there were signs in data released Monday by the Honolulu Board of Realtors that the market is losing some of its sizzle. While median prices for single-family homes and condos hit all-time highs in May, sales fell by double digits for single-family properties.
Paul Brewbaker, director of TZ Economics, said the data is “an indication that there is a cooling about to happen, insofar as it hasn’t already.”
The Honolulu Board of Realtors reported that the median sale price of previously owned single-family homes on Oahu reached $1,153,500, an increase of 17.9% from May 2021. However, single-family sales fell to 344 , a decrease of 15.1% compared to the same period. .
The council said condominium sales in May soared to 688, up 15.1% from May 2021. Over the same period, the median price paid for a condominium rose 12.8% to reach $516,500.
Brewbaker said recent bumper demand, which has been driven in part by a new legion of homeworkers looking for better homes, has started to subside as more buyers find themselves squeezed by the rise. interest rates and rising prices.
He said the full effect of the average rate on a conventional 30-year fixed-rate mortgage dropping from 3% to 5% likely won’t show up in real estate data until June, July and August.
“There is a deceleration that will play out deeper over the summer. It’s not a train wreck. It’s not a sudden stop. But it’s holding back,” Brewbaker said. “We hope to see a soft landing rather than a hard rebound.”
The University of Hawaii’s Economic Research Organization reported in May that expected interest rate hikes may have boosted near-term demand as buyers rush to secure fixed-rate mortgages. But the organization said that “ultimately the combination of higher interest rates and soaring house prices will put downward pressure on housing demand, suggesting that Hawaii’s rapid housing appreciation is unlikely to continue.
Brewbaker said the slowdown doesn’t mean prices have to crash like they did after past bubbles, which differed from this price rally because previous bubbles had higher appreciation. Also, past bubbles were consistent, unlike this cycle where condominiums still have room to grow.
“I don’t think we’ll see a big release on top of the release that we’ve already seen,” Brewbaker said.
“Prices may drift for a while,” until they realign to their historical long-term average annual growth rate of 4%, he added.
Real estate analyst Stephany Sofos said even with the downturn, the current market is still hot.
Sofos said rising interest rates were adding challenges, though it was more concerned about the impact of inflation and stagnating employment.
“Rising interest rates make more of a difference to someone buying a $1 million house than a $500,000 house,” she said. “The current problem is not price for most people; it’s the lack of inventory.
Sofos said many buyers are still paying premiums. To be sure, the Board of Realtors reported some 217 single-family homes, or 63% of May single-family home sales, sold above demand. As many as 313 condominiums in May, or 45.5% of condominium sales in May, sold for more than the original price.
Matthew G. Beall, CEO and principal broker of Hawaii Life, agreed that inventory is one of the biggest challenges on Oahu, especially for homes in the luxury segment, which cost more than $3 million each. Last year, Beall said, that market and the ultra-luxury market, homes over $10 million, “had their best year in Hawaii real estate history.”
“While we’re doing less volume in luxury than a year ago, it’s still historically very high,” Beall said. “If you zoom out, it looks like we had a big spike of Stegosaurus. The question is, where does it land?
Beall said it could return to pre-pandemic levels. But, he thinks, for Oahu, which has a lot more inventory issues in the luxury space, “that may sort it out a bit because at a certain point you don’t have anything left to sell.” .
Shannon Severance, high-volume real estate agent at Re/Max Honolulu, said inventory is so limited on Oahu and demand is so high that she’s had buyers who were willing to pay six figures compared to the request.
“Even my veteran 100% financing buyers have to come with cash. If the valuation comes out, everyone is happy, but if it doesn’t, they are expected to close the gap in that market. I can’t remember the last offer I made without an evaluation clause in over a year. »
Severance said home values have appreciated so much on Oahu that townhouses in her Ewa Beach neighborhood are now going for what she paid for her home in 2012. Rents are also high, a- she declared.
UHERO reported in May that nationwide rents have risen 18% over the past year, while rents in Honolulu have risen 11%.
“I think prices will stabilize and we will see a small plateau,” Severance said. “It’s not something I’m nervous to see. I think that’s what we need for our market and our economy. It’s clean.”
Severance said uncertainty over the end of the house price spike has caused some sellers to try to profit before the market turns.
“People are renting normally owner homes because they thought it was a bubble,” she said.
A few sellers are listing homes early, even if it means the inconvenience of having to rent for a while, Severance said.
“People react emotionally to the market,” she said. “I tell them, ‘It’s a seller’s market, congratulations. But now you are a buyer. “
HOME SALES
The number of homes sold in Oahu in May with median price and percentage change from the same month in 2021:
HOUSES
MEDIAN SALES PRICE
May 2022 344 $1,153,500
May 2021 $405,978,000
Change -15.1% 17.9%+
CONDOS
MEDIAN SALES PRICE
May 2022 $688,516,500
May 2021 $598,457,750
Change 15.1% + 12.8%+
Source: Honolulu Council of Realtors
