Big Island

Where Are We in Hawaii’s Real Estate Market Cycle?

Where are we in the real estate market cycle in Hawai’i? This is a question both sellers and prospective buyers of property here are asking us. Most of them are coming from the perspective of Mainland markets, many of which are already experiencing an upswing.

Mainland analysts are sure the bottom is in our rear view mirror, and the National Association of Realtors just announced that the volume of home sales in March was actually constrained by lack of inventory.

If you’ve been paying attention to our blog posts on the Hawaii Life website over the past 18 months or so, you’ve been hearing the refrain of declining inventory and rising prices. Recently economist Paul Brewbaker was quoted saying that Oahu home prices could rise 15% this year and double in the next 4 years.

Maui viewed from Big Island Hawaii

Metaphors for Hawaii’s real estate market cycle: islands with peaks rising sharply from sea level

Real Estate Market Cycles in Hawaii – Quick Overview

At Hawaii Life’s 2nd Worthshop held on Oahu last August, the very first speaker was the one most people found boring and I found riveting: the senior market analyst from Prudential Locations who presented 30 years of data on Hawaii’s real estate market cycle.

My two takeaways were simple:

Hawaii Real Estate Market Investment Principle #1 – The rise and fall of prices is steep. When people think “cycle,” they tend to think in terms of a nice gentle sine wave. That’s not what the real estate market cycle looks like here in Hawaii. 

Over a 10 year period, about half the period prices will be pretty flat. Then, they rise steeply and fall steeply from the peak. Sort of like our Big Island volcanoes, Mauna Kea and Mauna Loa, rising from sea level to almost 14,000 within a few miles of the ocean.

Hawaii Real Estate Market Investment Principle #2 – The overall inflation-adjusted price trend has been gradually upward. Over the past 30 years, that flat-spike-flat curve bottoms out slightly higher each time. Here’s an interesting thought. Our market is more like Manhattan than Las Vegas. These are islands and beyond a certain point, there is nowhere to expand. 

So unless we suddenly had no one wanting to move to Hawaii (and an outflow of people wanting to move away), it makes sense that prices would be higher than in markets with seemingly endless land for easy expansion potential…and that over time prices will continue to rise.

So Where Are We in the Real Estate Market Cycle in Hawaii – and What Does That Mean for You?

Having worked in both natural resource and capital markets, I’m familiar with the psychological phenomenon that at the bottom of a cycle we think we will never regain the top, and at the top we delude ourselves in thinking that this time is different. The one thing that seems certain is that while all real estate is local, overall the supply-demand balance indicates that prices will continue to rise.

How quickly prices rise depend on a number of factors. Some, like developers having timed new built product to coincide with the current bottom in resale inventory, are easily quantified. A big unknown is just how the infamous “shadow inventory” held by lenders will find its way to market. In Hawaii, that potential deluge of foreclosures seems to have been forced to a trickle by the legislation that moved the bulk of the foreclosures in to the slower, more expensive judicial process.

My advice in general to sellers is: if this is the right time for you to sell, then list and be happy that the lack of inventory will help you sell fast.

My advice in general to buyers is: if you find something you like, don’t hesitate to pull the trigger and don’t fool yourself about where the balance of power lies in today’s market. There is another buyer around the corner and the seller knows it.

But specifics of your property or buying criteria may be different. So feel free to contact me or a Hawaii Life agent specializing in your local market of interest to discuss.

A hui hou,

Beth Thoma Robinson, R(B)
Direct: 808.443.4588

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