State of Hawaii Economy and Real Estate Market

The worldwide situation has declined significantly, with inflation remaining high and leading to increases in interest rates, hindering economic expansion. The conflict in Ukraine has caused energy shortages in Europe, prompting an economic recession. Fortunately, supply chain issues have been alleviated, yet the coronavirus pandemic in China could cause more turmoil.

Following the midterm elections, Congress will be split between Republicans and Democrats, resulting in a lack of major policy changes. One potential issue that could arise is government shutdowns due to disputes over budget extensions and the federal debt ceiling.

Hawaii Economy Staying Steady

Real Estate is location driven and the current state of the Hawaiian real estate market is looking strong. Prices have been rising steadily over the past few years. Hawaii visitor numbers have regained its strength to their pre-pandemic levels, however, the late removal of travel restrictions and the weak yen have hindered the return of Japanese visitors temporarily. Mainland arrivals is expected to decrease in the upcoming year, yet, the room rates in Hawaii have stabilized despite occupancy being lower than the 2019 level.

Inflation in Hawaii has been higher than the US overall, but rent appreciation has been slowing which will assist in the overall inflation reduction process. Decreasing energy and food costs will also help inflation to drop to less than 4% in 2023 and as low as 2.5% by 2024.

Job growth is likely to stall in the year ahead due to the effects of high prices and interest rates combined with the US recession. This will lead to a rise in unemployment before growth resumes again in 2024. Inflation-adjusted income is expected to increase by 1% in 2023, however, this number should increase to 2% in subsequent years.

Hawaii Real Estate Prices Rising

The median home prices in Hawaii increased by more than 22% between 2020 and 2021. The median sales price in Hawaii in 2021 topped $828,125 and in 2022 it cumulatively topped just over $1 million across the 4 main islands. While the median sales price overall for Hawaii was $717,200 in July 2022. The price of condos has also continued to rise, with no signs of the Hawaii housing market slowing down.

Mortgage interest rates have sharply risen, making housing less affordable and causing home prices to decrease. This reduced affordability has the potential to inflate the cost of developing affordable units, potentially leading to project delays or outright cancellations. Furthermore, permitting delays could also add to development costs. On a more positive note, sizable federal contracts and new hotel projects should be enough to make up for the lessened residential building activity in the construction sector.

The market will sustain its prices for a variety of reasons. Firstly, there is an influx of people moving to the Hawaiian Islands, which is driving up demand for housing. Additionally, the state of Hawaii offers tax incentives for people who purchase property in the state. By offering a federal tax credit of up to 9% of acquisition, construction, or rehabilitation costs (excluding land), the tax credit program encourages owners to build and restore housing for low-income persons. This credit only applies to the costs of the low-income units, and can be claimed annually for 10 years. Furthermore, a State Low-Income Housing Tax Credit provides an additional state tax credit worth 30% of the federal tax credit.

Furthermore, the state is also improving its infrastructure, with the construction of new roads, bridges, and other amenities. This helps to make the islands more attractive to potential buyers, which helps fuel the market.

Tourism Industry in Hawaii

The tourism industry is also thriving, making real estate in Hawaii an attractive investment. Overall, the current state of the Hawaiian real estate market is strong and looks set to remain so in the foreseeable future. With limited inventory and strong demand, prices are expected to remain high. In Kauai, the opening of the One Hotel by Starwood is set to further bolster the local economy. This will be Starwood’s first hotel in Kauai, offering luxury amenities and a close proximity to the area’s beaches and other attractions. In addition, the inevitable return of Japanese visitors is also good news for the Hawaiian real estate market. Japanese tourists are the largest group of international travelers to the Hawaiian Islands, and their return will bring more business to the islands and help sustain high real estate prices.

Finally, the luxury real estate market on Kauai is also thriving. With several high-end resorts and world-class golf courses, Kauai is a the most desirable destination for high-end buyers. This further boosts the island’s real estate market, helping to keep prices high.

Want to Know More?

Reach out to me if you have questions about the Real Estate market or would like a copy of Hawaii Life’s Luxury Market Report.

References:

UHERO Forecast
New Silver Hawaii Housing Market Forecast 2022.
Hawaii Public Housing Authority