Finally, Something To Write About!
I had to take a break from writing market reports! It was just too redundant, it was the same story month after month for the past year and a half with terms like ‘pent-up demand’, ‘historic low inventory’, ‘multiple offers/200k over ask’ and ‘historic low-interest rates’. If you were as tired of reading them as I was of writing them, this market report is going to be a breath of fresh air.
We finally have something new to share and analyze. After about 18 months of running itself to death, the real estate market itself has finally taken a much-needed breath of fresh air and we can pronounce the market as shifted.
The Maui Market is Still a Seller's Market, But It Is Beginning to Favor Buyers More
As the macro-economic conditions in the US change the broader housing market, the market on Maui is also seeing its own changes. The breath that the market is taking is, of course, brought on by a long-awaited rise in interest rates as well as prices that have risen too rapidly. Since about mid-April, when rates really began to creep into the high 4’s and mid 5’s, many buyers have either been priced out of the type of property they had their hopes on or are taking a calculated recess from making a buying decision. Many are hoping to catch lower prices on the other side of this, but that doesn’t appear to be in the forecast, just the return to a more traditional, more balanced market.
Maui is unique in its real estate market stratification because such a large part of our broader market is the luxury, second-home, and investor sector that influences the primary homebuyer market. This luxury, second home, and investment sector is, of course, responding slightly differently to the interest rate hike. These clients are less affected by rates and less has changed with these buyers and sellers.
The micro-market most affected by rates is of course the primary homeowner market. Many buyers around our median price point around 1.2M are just getting priced out, unfortunately. The appreciation combined with rates is taking them out of the market. There are still many who haven’t been, but fortunately for them, and less fortunately for sellers, there is less available demand making it easier for capable buyers to get an accepted offer.
Are Real Estate Prices Going Up or Down?
Declining prices and decelerating appreciation are two similar, but distinctly different functions in the market. As of June 2022, the median price for a single-family home on Maui is $1,255,000 ( A 13.6% increase from June 2021) and for a condo, it's $832,500 (A 34.3% increase from June 2021).
The reason we are seeing price reductions and some listings sitting longer than usual is that many sellers who listed in the last two and half months didn’t have good data. It's not always easy to see a shift coming, or want to believe it's coming. Prior to the shift, you could just slap 20% over the last sold price in a complex and still get multiple offers, over ask, without an inspection, because that’s how things were going for a while.
Fortunately, for buyers, the market is balancing back in their favor.
So, in order for sellers to get their properties sold (unless it's priced perfectly, or in the top 10%-20% of desirability), they have had to either do a price reduction or continue sitting on the market. They may have had to accept an offer that had an inspection contingency (that’s so 2019) and they may have had to take a little less than their ask. But, the sold prices support the notion that we aren’t seeing a big price drop, just decelerating appreciation, hopefully back to something more sustainable. On Maui, that’s 7% a year and up, unlike the wild 20% and 30% average we’ve seen in the last 12 months.
Why Isn't Inventory Rising Significantly?
Even in light of the reduced buyer demand, inventory has yet to show signs of any significant increase. For prices to actually decrease, we would need to see a significant increase in inventory. Any increase in inventory like this is typically precluded by some national or international event that requires a certain percentage of property owners to get out of their mortgage and secure their equity to stave off a financial threat elsewhere. This is not the case right now and even a full-blown recession wouldn’t necessarily create that event.
Inventory has been growing ever so slightly on Maui, out of buyer hesitation rather than there being an increase in sellers. Since the mortgage crisis of the late 2000s, lenders have had to ensure that they are writing loans that can get paid, imagine that. Thereby reducing the chances of a broad mortgage default, which isn’t happening. One of the main things that’s holding back an increase in inventory on Maui is that the short-term rentable condo market is outperforming almost every other investment in the world, except maybe oil over the last few months.
Maui Properties For Sale
When Realizing Massive Gains Doesn't Make Sense
A great example of the value of a successful short-term rentable condo is from a client that I helped purchase a unit in the Kapalua Golf Villas in 2021. He closed on that unit in April of 2021 for 950k with an interest rate of somewhere in the mid-3 % range. A few months back in February of 2022, I brought him an off-market offer for 1.8M. That’s a nearly 100% ROI in less than 12 months.
He is, of course, an extremely wise individual, savvy investor, and all-around smart businessman. So, he said no thanks to the offer. He says, “What am I supposed to do with this money? I wanted a condo on Maui where I could come and spend time with my family, I wanted to do that with a unit that would generate positive cash flow, and I’ve accomplished that. If I sell and make 850k, what do I do with it? Buy another unit using a 1031 tax-deferred exchange or pay taxes and hold cash. Neither really makes any sense. I think I’ll actually buy a second unit after seeing the rental revenue this one generates, I’m a buyer, Evan, not a seller.”
I was certainly understanding of his position and we politely declined their offer. He turned down realizing his gains on that type of appreciation because he genuinely loves his time on Maui, generates a healthy positive cash flow YOY, and sees the long-term value of holding. The fact that you can invest in a market where the other investors have this type of foresight, poise, and confidence is a great sign of its continued strength.
We all see what happens in more liquid and volatile equity markets where ‘flash crashes’ and ‘panic selling’ regularly happen. In the short-term rentable condo category on Maui, owners are very reluctant to give up their home away from home which makes them money when they are away. So, they just kick up their feet on the lanai, watch the sunset and enjoy another Mai Tai. This is likely what most of these owners are doing today while inventory remains scarce and they have no thoughts of selling.
Back To The Future: What's in The Forecast?
Well, if I knew the future I probably wouldn’t be in real estate, I’d follow my true passion of sports betting! Just kidding.
We do have a few ideas of what the near forecast for the Maui real estate market for the rest of 2022 may hold. I had an interesting conversation with one of my lenders recently and he believes interest rates may be heading back down by the end of the year. This caught me off guard because most of what we’ve been told in the news is that we should expect them to keep going up based on the Fed's recent comments.
He indicated that we passed the sweet spot for rates and given the recessionary models, rates will need to come down to soften that blow. While we may initially need to have rates raised in the near term, high rates are not necessarily here to stay. Most economists would agree that taking the rates down to 0 during the pandemic was an overcorrection at the time and if the Fed does execute the next .75 rate hike, that could be the overcorrection that drives us into a recession. Historically, rates always drop during a recession.
Browse Condos For Sale Around Maui
A Confluence of Events Like Never Before
Weathering the pandemic's economic storm has created some very unique economic circumstances. When was there a recession where unemployment was below 4%? We’ve had declining GDP for two consecutive quarters, but many corporations are posting all-time high profits? The stock market took a significant correction, but that’s on the heels of an incredible bull market. The media needs to generate headlines that get our attention, but they are not motivated by expressing a calculated and sober view of the economy, they need to generate buzz and nothing generates buzz like fear.
I have a client who happens to be an esteemed global economist, who I won’t name, but he is kind of a big deal in certain circles. His belief is that this inflationary period won’t lead to a protracted recession, that it is primarily the result of the pandemic supply chain issues that existed prior to the Russian/Ukrainian war and are now exacerbated by that conflict. His assertion was that when these constraints begin to ease, so will inflation.
It Pays To Know The Maui Real Estate Market
While we are still waiting to see how everything plays out completely, what we do know for sure is that the real estate market has shifted, will shift again in the future, and will keep doing so periodically. Studying the market is one of my biggest responsibilities as a Realtor and navigating these shifts successfully for my clients is something I take a lot of pride in.
I appreciate my clients more than they could know, mainly for the plethora of things I have learned from them and continue to learn from them. I’m always happy to share my own Mana’o (The Hawaiian word for knowledge), so, if you have any questions, I’d be honored to be a resource for you.
Get In Touch
Get started on your journey to owning property on Maui by getting in touch with us at Maui Elite Property.
Posted by Evan Harlow R(S) 82003 on