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.

1. 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.
2. 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.
3. 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.

Square Footage: Why Size Isn't Everything in Real Estate

To make it easy to compare homes, the real estate industry supplies lots of data for each listing, including number of stories, type of home (condo, single-family, etc.), building materials (brick or siding), size of lot, number of bedrooms and baths, and so on. Nearly all homes listed for sale provide square footage to indicate overall size, but there are several reasons why square footage can be misleading, causing you to either overpay for a larger home or pass up a smaller home that’s actually more comfortable and livable.

First, there’s no single universal means of measuring square footage. Differing state rules and customs make calculating square footage somewhat subjective. Insurers, tax authorities, lenders, and real estate professionals typically use square footage numbers as determined by licensed property appraisers, but this data can conflict with tax roll figures if improvements to the home were made without permits.

Some states exclude attics, basements, garages and detached structures, while others allow them to be included if they’ve been finished out as living space. In high-rise buildings, square footage often includes balconies, even though they’re open air and not enclosed.

As a homebuyer, use square footage as a guide, but pay more attention to the home’s living spaces. Does foot traffic flow easily from room to room? Does the floorplan make sense? Are the rooms the right proportions for their purposes? Do you have the right spaces for your family’s needs? These questions will help you prioritize factors like flow, layout, and functionality over square footage alone.

What is Rentvesting & How Can It Help You Buy a Home?

Many aspiring homeowners cannot afford to buy a home where they want, especially in expensive inner cities. So, they’re turning to a new concept: rentvesting. It’s a clever way to enter the property market and start building personal wealth, giving you the freedom of renting coupled with the financial benefits of homeownership.

Rentvesting means renting a home where you want to live while buying an investment home somewhere else. While it may seem ironic, rentvesting can make sense. You rent a home where you can’t afford to buy, and then charge rent on a nice, less expensive property in the suburbs or a nearby town. The trick is to buy a home that’s right for your budget so you can earn a profit. Take the profit and save it, spend it to lower your rent, or best of all, reinvest it into your rental property so you can pay off your mortgage faster and build equity.

Of course, there are pros and cons. Some things to consider:

• You can live wherever you want
• You can buy a home anywhere you want
• As a homeowner, you can deduct the interest on your loan, depreciate the property, manage property expenses, and more. However, as a renter, you do not receive these tax benefits
• You can increase the rent on your property, but your rent payments may also increase
• You aren’t responsible for maintenance when you rent, but you’ll be responsible as a landlord.
• Ask your Berkshire Hathaway HomeServices Hawai'i Realty agent to help you become a rentvestor.