The Maui Real Estate Market Has Settled Down
Earlier in the summer, I wrote a market report when the real estate market had just begun to shift after having been on an extended hot streak since the fall of 2020. So, here we are today about 5 months after that shift started and we certainly have a dramatically different real estate market today nationally and locally here on Maui. You're probably not surprised to learn that the market has cooled significantly, but Maui's unique market makes for a unique market report that has a few surprises.
The national headlines are still full of doom and gloom stories, but at this point in the transition, while closed sales and pending sales on Maui are significantly down from the same time last year, the number of transactions has basically returned to pre-pandemic levels. It had to at some point right? Prices have yet to admit defeat though. While the trajectory of appreciation has decelerated, prices are stable and the market continues to provide good opportunities, as it always does. In this report, I’m going to give a clear picture of where the market is today, the historical perspective of how we got here, and do my best to help forecast what’s going to happen next.
In Some Ways, Maui Makes It Own Market
The Maui real estate market is known for playing by its own rules when compared with the national market of the continental United States. That isn't to say we don't follow some of the national trends, but we have a unique combination of supply and demand dynamics that are the result of the island’s appeal to second homeowners and investors, particularly in the short-term rentable condo space. Moreover, Maui County has placed a moratorium on the construction of short-term rentable condo complexes and is also very slow to develop new homes for locals.
Both of those factors are contributing to what has become a market where perpetually low inventory seems to have become the norm. Property ownership on Maui remains in high demand but is unattainable at this point for most of the individuals and families who live and work here. The national housing crisis looks mundane compared to Maui's challenges given our average home and condo prices when compared to the median income.
But, We Do Share Some Market Trends With the Mainland
On the mainland, particularly in major metropolitan areas that were very hot during 2021, there is a noticeable uptick in new inventory along with a noticeable decrease in average prices. October was the 8th straight month of a decline in existing home sales across the United States with a 24% decrease nationwide.
Everyone already knows that this is the result of the Federal Reserve's efforts to decrease the accelerated pace of inflation by hiking interest rates at an unprecedented rate. As a result of the monumental increase in home values over the last two years and now the spike in mortgage rates, housing and affordability have become two words that can’t currently coexist on the mainland or on Maui.
The Maui Market By The Numbers
While the transaction volume on Maui has decreased significantly, down 36.3% year over year from last October to this October, the median sales price for condos is still up 19% while single-family home median sales prices are up 13.5%. Interestingly, the average closed sales price for a single-family home has jumped a staggering 49%. The total number of new listings for single-family homes on Maui is down 15.3% while the number of new condo listings is down 50%.
As buyer demand has slowed, the total months supply of inventory for a single-family home is up to 3.4 months from 1.8 months, we will need to double that to get to a buyer’s market. In the condo market, we are up to 1.3 months of inventory supply from .8 months of supply during the same time last year. Those who purchased anytime prior to the most recent rate increases in May of 2022 and have held onto their property will only sell if they have a significant life event such as moving for work, change with family, or economic hardship elsewhere in their investments.
After the refinancing boom of the pandemic-induced low-interest rate environment, most property owners who are financed have a historically low-interest rate, and anyone that purchased prior to last summer definitely has a rate below 5%. So, to sell and cash in on equity means to pay a higher price on the monthly payments with the replacement property. That’s the predicament that most of the primary residences market on Maui and across the country is in right now. Sellers don’t want to sell and first-time homebuyers in particular can barely afford to purchase.
Cash Is Keeping The Market Strong
Due to the large amount of cash buyers in the Maui market, our property values haven’t been as affected, at least not yet, it seems, by the initial rate hikes. Our short-term condo market is still going almost as strong as it was last year with many new listings going under contract quickly with multiple offers to choose from.
The affordability of an investment property like these vacation rentable condos is based largely on rental revenue rather than interest rates as the rental revenue will be covering most if not all expenses including financing. Since rents have risen along with property values, there are still many properties on the market that can carry their own ownership costs or even cash flow. This is true, particularly for short-term rentable condos in Kihei.
The buyers who are purchasing these units at a similar clip to 2021 are those who have cash, are doing a 1031 exchange with cash from the sale of another investment property, or are able to leverage a HELOC from other investment properties with rates from their banks still in the 3%-4% range on that type of financing. Lenders on Maui and around the country have been getting creative and there are still ways to get lower than the national average rates, around 7% now, using adjustable rate mortgages or making a higher down payment on a 15-year loan amortized over 30 years that was offering, as last I checked, around 5% on the rate.
Newest Real Estate Listings on Maui
Federal Reserve and The National Real Estate Market
Given the contraindications of strength and weakness across different sectors in the broader US and global economies, experts and analysts can only speculate about where the national and local Maui real estate market will go from here. The Federal Reserve seems to only overcorrect. Chairman Powell overcorrected by taking the rates to 0 and igniting the market and they are now overcorrecting the other way by going too high too quickly. The Fed’s inability to stay in the middle of the road with interest rates has caused some chaos and how it plays out in the housing market is yet to be fully understood.
Are Prices Going Down?
Most homeowners across the country are worried that their property values will decline. While list prices are leveling off and a small general decline in value seems to be on the way, most agree that we are not in store for a big decrease in home values. Maui has historically been behind on the trends of the mainland and in the luxury markets of Kapalua and Wailea, there is even more cushion with the higher amounts of cash in those markets and fewer circumstances where sellers wouldn’t wait for market conditions to improve before selling at a discount.
We're in a Seller's Market, Where Buyer's Get Options
We do know from previous eras of declining prices that for significant price declines the market needs around 6 months' supply of inventory. That means that if no new homes came on the market the available inventory would be exhausted in 6 months' time based on current buying activity. That much inventory does not appear to be on the horizon anytime soon given the overall quality of loans and the amount of equity across the housing market on Maui and on the mainland.
Jobs reports have been coming in stronger than expected, meaning that people won’t be selling because they lost their job and can’t afford their current homes anymore. I think we can expect to see this weird standoff market persist until the Fed decides to start bringing rates back down. This doesn’t mean there aren’t going to be opportunities for both buyers and sellers to make good moves until then, but they will need to be more strategic than they had to be in the last year.
Buyers and Sellers Need to Be Savvy and Work With A Seasoned Agent
For buyers this means we get a chance to vet our purchases a little more by not always having to waive the inspection and in some cases offering below the list price. We will want to make sure that those short-term rental investment properties are performing at their best as well as look for creative ways to finance the purchases. The conventional loan route can still work for some, but exploring options is more important now than ever. Buyers do not have to pay over asking on most purchases now and have slightly more options, however, the slight decrease in price trajectory isn’t enough for all buyers to be able to afford the monthly payments given the increase in mortgage rates.
For home sellers, we will have to really use the comps to support our price, make the small improvements that weren’t necessary a year ago, and make sure we are constantly monitoring the competition on the market to establish as attractive of a position as possible. If you’re selling a short-term rentable condo on Maui, we aren’t able to just add 10% to the most recent sale anymore, but if it looks good on a pro forma we can still go a little above the previous comps. If we’re selling a single-family home with other comps in the neighborhood, we will need to come in very close on price or slightly below the others to get the attention of buyers.
Is It a Good Time to Buy Real Estate on Maui
No matter what market cycle we are in, this is always a valuable question to ask as there isn’t a blanket answer for every individual. Every buyer’s situation will dictate if it's a good time to buy, not the market. For primary homeowners, the answer is a little more nuanced. It’s not always better to buy than to rent. If your rent is $2,500/month and you're looking at buying a house that will cost you $6,000/month, of which only $1,200 is going towards your principal monthly, it might be better to stay put right now.
Now, if you’re renting a place that’s too small, in a bad area, etc, and buying the home is an improvement in quality of life and the additional costs are within your budget, go for it! Most experts do expect rates to go down in the next 18 months, especially if the Fed's overcorrecting creates a recession, which appears likely. For investors, it's all about the balance sheet and short-term condos are still making ends meet. Not every unit that comes on the market is a good buy of course, but many will still cover their costs at least. Taking the time to do our due diligence matters more than ever now.
Recent Buyer Client Story
I had a cash buyer recently who had been looking for a property since February of this year in the Wailea and Makena area. We eventually found the perfect condo at Na Hale O’ Makena in October and she closed on it in three weeks. The sellers purchased the property last December for 2.55M and she was able to close on it for slightly under 2.6M with small concessions from the seller for some items that needed repair. There weren't any issues with the unit, it's just a non-short-term rentable complex and is primarily for those looking for a second home only.
While the rest of the condo market was up 19% we were able to get this unit for only 2% higher because of the seller’s motivation to sell and our fortunate timing, not to mention my negotiating skills! Nothing makes me prouder than helping a client secure a deal like this. It was the right time to buy for my client because it was the right property and in a market like Maui, it can be a year or two before a specific type of property that will meet your criteria comes on the market, particularly in Wailea. The market will continue to evolve and change, but if the time is right for you and it's the right property, it's definitely the right time to buy.
Lessons From the Pandemic Housing Market
Even as the pandemic has subsided, the lessons we learned about how important our homes really are will remain. A home or even a second home isn’t just a roof over our heads or a floor under our feet, these properties are the stages for the important events and special moments of our lives. From the day-to-day activities of cooking, relaxing, and being with loved ones to birthday parties, holiday celebrations, and more... home is where we celebrate life, and celebrate each other.
Home is now where many of us do the majority of our work and also where we rest and recharge. What we need in a home has changed. Where we spend our time matters as much as how we spend our time and I would be honored to spend my time helping you navigate the always-changing real estate market on Maui.
Please, feel free to call me out of the blue, send me a late-night text full of emojis, or email me an improbable list of criteria for a home or condo you’re looking for, I’ll always do my absolute best to provide the very highest level of service, share my expertise and to make the experience enjoyable and memorable.
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Evan Harlow is a Realtor on Maui who has the expertise, experience, and work ethic to help you achieve all of your real estate buying or selling goals. We promise exceptional service and support from the beginning of the process through closing and beyond.
Posted by Evan Harlow R(S) 82003 on