There’s been a major shift in the Maui real estate market the past few months. In general it’s been cooling down, with considerably less buyer demand compared to the first quarter of 2022. With recent federal interest rate hikes, an increasingly volatile stock market, and the war in Ukraine, many of our buyers have held a “wait and see” mentality.
We all know a market goes through its ebbs and flows. Let’s further dissect the current transition in our Maui real estate world.
What’s Coming Next for the Maui Market
There’s a common trend in a typical down housing market cycle triggered by rising mortgage rates. First, pace of home sales start to decline; follows a rise in price reductions; then, growth in inventory of homes for sale. Even though buyers seeking financing are immediately impacted, prices don’t drop the moment mortgage rates rise. In fact, there’s often a lag time of 3-6 months for these reductions to happen, based on my professional experience.
Yet, I believe Maui’s home prices will not correct dramatically as they already have in areas like Boise, Denver, and Salt Lake City, to name a few. This is due to an important reason…
We’ve harped this point through our monthly market reports recently, but it requires repeating. There’s a significant housing shortage on the island. Maui’s limited inventory is mostly caused by this mix: lack of new projects in the pipeline; as well as continued high desirability from buyers from around the world. Furthermore, affluent “Digital Nomads“, the prolific at-home workforce born during the pandemic, have migrated to the Maui lifestyle in droves.
(These factors have also led to another noteworthy situation. Rents have not stopped their meteoric rise, and are at an all time high. The demand for rentals far exceeds currnent supply, which has created a huge challenge for any affordable housing.)
The term “correction” doesn’t have a precise numerical meaning in the context of real estate; like it does in the stock market, for example, which has officially reached bear territory. It’s very important for us as real estate practitioners to distinguish the difference between a market correction and a market crash, like we saw back in 2008. Many of our real estate colleagues from around the US in the metropolitan areas are forecasting the possibility of a single-digit percentage decline in home prices in the next several months. It could be more. Only time will tell.
Difference for Buyers and Sellers in a Market Correction
A correcting real estate market, combined with rising interest rates, affects both buyers and sellers differently. This is especially true for our clients who must urgently buy or sell a home.
Today, it’s commonplace to find sellers listing their properties at comparable prices based on neighborhood transactions that are already three to six months old. Sure, the first few months of 2022 featured record high prices. However, that looks like the recent market peak, as those sales are becoming increasingly less relevant for today’s market conditions. I am currently advising sellers these few specifics: looking back towards a year+ for comps; lowering your prospective price sooner, as opposed to later, if your property is not selling; and avoid chasing the market down as interest rates are expected to continue to trend upwards in the short term.
This is coupled with another fact. Buyers are again becoming extremely discerning; sellers should expect to negotiate. I recently wrote about this recent empowerment of the buyer mindset here. Gone are the days when sellers could almost make up an asking price and still have an instant bidding war. The list prices I see being reduced most often have initially overshot their mark; now struggling to make an adjustment to be competitive and in line with the current market.
Prospective Buyers—Don’t Wait For A “Crash”, Far From 2008
For buyers, I’d advise not to wait to buy, as rates should continue to rise. (FYI, rates are still low by historical standards.) We are encouraging our buyer clients to shop around for the best mortgage interest rates currently available, as they will likely balloon in the next 6-12 months according to our lending partners. A variable interest rate is also worthy consideration, and can always permit you to refinance later. As our dear friend Bryan Bomba said recently: “Marry the House, Date the Rate!”
In conclusion, the Maui market is showing signs of an expected slowdown–but that’s mostly with the volume of transactions. Sure, it’s increasingly likely we will not see another huge upward spike in prices anytime soon. But current market values are still supported by the basic market forces of demand and scarcity. With continued record low inventory, it may take some time for lower prices to be seen across all sectors of our marketplace. Even though the single-family average home price dipped below $1 million for the first time in almost a year, the average condominium price on Maui continues to be at an all time high. And that as I like to say, is a developing story…
Contact a Maui Real Estate Specialist
Beyond being a trusted advisor in the real estate market, your REALTOR should be a professional who recognizes their role in supporting your wealth building and wealth preservation. Helping to magnify wealth is one of the core values of The Sayles Team; a set of guiding principles for how we serve our clients at the highest level. As experts in the field, we are constantly learning and providing guidance about making the wisest choices for the future. If someone you care about needs guidance or recommendations, please share our contact information and we would be honored to help them! If you would like to receive our in-depth market update or would like an evaluation of your property’s value we would love to hear from you.
Anthony Sayles R(S)