by Edwin Quinabo
Whether you’re an investor, first-time buyer or bought and sold real estate for the tenth time, the process of buying or selling real estate comes with stress and uncertainty. Anticipating when stubbornly high mortgage rates will come down and guessing when available inventory in the real estate market will peak are answers all buyers want to know. But interest rates are still hovering on the higher side close to 7% and inventory in Hawaii experienced only a marginal uptick, some areas better than others.
These conditions in Hawaii’s real estate market rendered flat and steady changes from the previous year, experts say. Navigating through the rest of the year and at least through the first quarter of 2025, could be more of the same as mortgage rates are expected to be choppy. Real estate analysts say the real estate market is still settling in from the disruptions caused by the pandemic. However, in 2025 there should be a slow but modest pace of homes sales rising to about 2.6%, according to Zillow.
Changes in the real estate market will depend on economic factors such as a strong economy and employment changes that could impact both buyer’s confidence and ability to make purchases, expert say. There is consensus, however, that the limited land availability in Hawaii makes it unique and will keep demand robust so that any chance for a dramatic drop or market crash is low regardless of any potential economic downturns ahead.
In the latest data of October 2024 from the Honolulu Board of Realtors, the median price for single-family homes remained unchanged at $1.1 million from the previous year; condominium prices climbed slightly to 1.9% to $525,000 from the same time in 2023. Sales for single-family homes and condos have gone up. There were 791 single-family homes and 2,035 condos available for sale at the end of October, an increase of 20 percent and 50 percent, respectively, from last year.
“With an uptick in sales across both single-family homes and condos, coupled with stable median prices, O‘ahu’s housing market shows resilience entering the fourth quarter,” Honolulu Board of Realtors President Fran Gendrano said. “With increased inventory and new listings, prospective buyers have more flexibility to find the home that best fits their needs.”
Such conditions could be characterized as a buyer’s market.
To buy or sell now versus next year
Chona Montesines-Sonido, Real Estate Agent, Ilar Homes LLC, said “If you have a significant amount of cash or are cash-rich, now could be a good time to invest in real estate, as prices have decreased or remained stable, depending in the area of interest. Currently, it is still a buyers’ market. Interest rates are holding steady on the higher side, which may not be attractive to homebuyers. This rate is relatively high, especially for investors who need to finance a large portion of the property’s price through loans from financial institutions. I recommend waiting until next year to see if interest rates have decreased for first-time homebuyers who may need more for a down payment.”
According to Locations Market Report October 2024, there are signs of moving to a seller’s market territory. “The median Days on Market in October was 17 days for homes and 26 days for condos. Market times were shorter compared to a month ago, in contrast to the typical trend. Also, competitive pressures continued in October 2024, with one in three single-family homes and one in five condos sold were bid-up over the asking price—a 7-month high for condos and a 13-month high for homes.
Experts say to get a more precise assessment, prospective buyers and sellers should look at inventory and prices by neighborhood. For example, parts of Honolulu might be a buyer’s market with lower prices and larger inventory, but other parts of Oahu could be a seller’s market with higher prices and less inventory.
For example, in the same Locations report it showed mixed results, “At the local market level, most single-family home markets in town have seen price increases of around 5% over the past 12 months. Notably, home prices in the Hawaii Kai and Manoa markets rose by 12 percent and 10 percent, respectively, while prices remained flat in the Waialae-Kahala and Kaimuki markets. Home prices were also up 9% in Pearl City-Aiea, but have fallen in outlying markets, down 2% in the North Shore and Makakilo markets, and down 1% in Leeward Oahu.
“Condo prices have been mostly flat in west and central Honolulu, with the exception of the Ala Moana-Kakaako and Waikiki markets, up 10% and 5%, respectively, over the past 12 months. The Kailua and Kaneohe condo markets also saw price increases of 5-6%. Condo prices dropped by 6% in Leeward Oahu, and 3-5% in East Honolulu, stretching from Kapiolani to Hawaii Kai,” the report said.
Roland Casamina, President and CEO of House of Finance, Inc., said “I always tell clients if you find a house you really like, then offer to buy, don’t wait because the property may not be there. If the interest rates are too high for now, you can always refinance later to a lower rate, if the interest rates go down.” He adds, “The advantage if you wait to close at in 2025 versus closing your purchase at the end of 2024 is the tax deduction: a) the “points”- or the loan origination fee when you closed the loan; b) the property tax, and c) the interest paid till the end of the 2024.”
Is it a good time to sell your property? Casamina said, “It seems the properties are not moving as fast. Therefore, selling the properties now would make sense. Unless there are capital gain considerations it may be better to wait till 2025 versus closing now. Paying later is always better. Consulting with your tax preparer would be best to determine your options. Also, your realtor would know if this option were even available to you.”
Montesines-Sonido said, “Motivated sellers who are eager to sell their property can still successfully close a sale before the end of the year. To increase their chances, sellers should consider offering incentives or concessions to attract potential buyers. If they are unwilling to provide these incentives, they will need to set a fair asking price, lower it, or propose an irresistible deal to entice buyers.”
John Gephart, residential broker/The Park on Keeaumoku Sales Consultant at Coldwell Banker Realty, said “typically, there are less buyers in December due to the holidays, so there is less competition. A lot of buyers decide to wait until after the new year, so you may find yourself competing with other buyers for a desirable home. Is it a buyers’ market? In some cases, like condominiums and townhomes, yes. If you are looking for a single-family home that is move-in ready in a good neighborhood, it is still a seller’s market, and you may find yourself competing for the home with 2-3 other buyers.”
He adds, “Thankfully in Hawaii we are not affected by the winter season, so there is never a ‘bad’ time to sell. There may be fewer buyers out there, but if you list your property in December and it is priced right, you will be able to sell it. Regarding if it is a sellers’ market, the answer is yes and no depending on what type of property it is (single family or condo), where it is located (neighborhood), and condition.”
Judith V Ilar of Ilar Homes LLC believes there is no good time or bad time to make a real estate transaction. “If Buyer has the means to purchase and can comfortably make the monthly payments, then i don’t see any reason why they should not transact.”
Chief Sales Officer for Locations Chad Takesue said, “The Oahu real estate market saw strong sales activity in October 2024, bucking typical seasonal trends. Both home and condo sales increased month-over-month and year-over-year, while market times dropped from the previous month and the percentage of sales bid up over the asking price rose to a 13-month high for homes.” He adds, “heading into the end of the year, we expect to see continued strong demand; however, we’ll be watching the market’s reactions to the larger economic and geopolitical climate.”
Sharp rise in insurance and maintenance fees could impact Hawaii’s real estate market
2024 saw the price of insurance in Hawaii rising to skyrocketing rates due to global disasters, including the recent Maui wildfires. Rates for hurricane insurance and regular homeowner policies in Hawaii were already on the rise as insurers had to pay more in the global reinsurance market, but with the Maui wildfire last summer, some companies say they are having to charge more because of greater exposure and that Hawaii is now seen as a wildfire state, at least temporarily.
The Hawaii Condominium Associations say the price of master insurance policies increased by 300% or more in one year, some buildings seeing premiums increase by as high as 900-1,300%.
As a result, some buildings associations have been forced to raise their maintenance fees by hundreds of dollars that have some unit owners in a financial bind which could lead to some of them needing to sell.
To worsen matters, some condo associations are now carrying master insurance policies that provide less than 100% replacement coverage, not enough funds to rebuild, which means individual unit owners must purchase additional insurance on their own if they carry a mortgage.
Lenders require that their mortgage holders have enough homeowner’s insurance to pay for a complete rebuild of your home in the event of a fire, storm, or other covered damage. For new buyers, this is an additional cost to even get a loan in the first place.
Mortgage giants Fannie Mae and Freddie Mac, both of which purchase mortgages from banks and other lenders, require coverage of 100% of a building’s insurable value, which is why many banks won’t lend on units with less than 100% coverage.
Casamina said, “If a condo project does not have replacement costs, many lenders do not lend on the project. Because FNMA/ FHLMC do not purchase the loans. Those lenders who lend on it would want a much larger down payment and higher interest rate.”
Sue Savio, president of Insurance Associates in Honolulu, said it’s creating a domino effect with condo owners, buyers, sellers and lenders all feeling the impact. “It’s financially a serious concern,” says Savio, who estimates about 400 buildings are carrying less than 100% coverage. “I think it’s probably worse than ever.”
Experts say this situation could last for years and it could deepen its impact on Hawaii’s real estate market. Mortgage experts anticipate home sales to drop in those 400 buildings not carrying 100% replacement coverage. This could lessen the pool of potential buyers in the condo and townhouse market.
This past legislative session, the Hawaii Legislature attempted to bring relief to the condo insurance problem with a bill that aimed to revive the Hawaii Hurricane Relief Fund that would allow condos to get coverage. But that bill failed to pass in the last days of the session. It is likely to be brought up again in 2025.
Richard Asuncion and his wife Mely, Pearl City, said his children have moved to the mainland and they already have families there. Richard and Kelly have been thinking about downsizing, selling their home to move into a condo in town. “When I’ve been reading that condo and townhouse owners are being hit with higher maintenance fees or special fees, I am having second thoughts of downsizing. If it happens, maybe moving to the mainland is an option to be closer to our kids and where it is more affordable. There’s no security if prices can go up in a year by hundreds of dollars. I’ve read people with maintenance fees of $500 have it go up to $1,000. That kind of price hike is too much for retired people on a fixed income. And who knows how much more it could go up.
“The purpose of downsizing is to enable us to have more retirement income. Hawaii’s maintenance fees have been going up but steadily. That slow pace was reassuring. But now, unfortunately, it’s not,” said Asuncion.
“This new development is sad for Hawaii locals because again we see more of us being forced to leave the islands because of cost. We often talk about providing affordable housing. It looks like even people with homes are not safe. Our Hawaii lawmakers have got to fix this situation and offer an alternative to buy insurance through the state, at least until homeowners insurance prices stabilize or go down some,” he said.
Asuncion blames the insurance companies. “I don’t believe many of these giant insurance companies do not have enough in reserves to cover a greater share for the time being. It’s their fault for not putting more aside adequate funds for the reserves instead of paying off their stockholders. Now Hawaii homeowners must carry an extra financial burden that many of us cannot afford. We’re getting ripped off. I’ve never filed a claim as a homeowner in my entire life. I think most homeowners do not file claims, but we pay each month for coverage. It’s not fair. I feel sad for some of these condo and townhouse owners. Some of them say they need to take out a loan just to pay for the additional costs.”
KHON2 reported that one homeowner’s association in Mililani-Mauka told residents they each must pay $5,200 for the association’s premium. A resident there said, “It’s crazy. We don’t mind keeping up but to have that just dump on our lap all at once, it seems pretty unfair.”
With many Hawaii residents keeping afloat paying their bills without much to set aside, coming up with thousands of dollars suddenly is simply not possible, some condo-townhouse owners say.
In another example, Asami Meikle told KHON2 the condo association where her mother lives have requested owners to pay a special assessment fee to cover the cost of insurance. Meikle said, “This is a three-bedroom, and my mother pays approximately $625 in maintenance fees a month and for the five months she’s expected to pay $1,102 every month.”
Ilar said those on a tight budget are being most affected.
Lahaina wildfire effect
Sue Savio said she has seen extreme scenarios of condo insurance rising by 1000%. “I tell anybody who has insurance premium, who has property, and their insurance payments only doubled to consider themselves lucky.”
In one extreme case, an $800 condo policy has jumped to $8,000 a year.
The Lahaina wildfire disaster and other natural disasters around the country have increased the liability of insurance companies.
“We were always about 30 to 40% less in premium cost than the mainland states,” Savio told KHON2. “Lahaina put us front, and center and the reinsurers said oh my we just paid out $6.9 billion and counting for Lahaina we’re raising the rates.”
One concern that lawmakers have is for insurance companies to leave the islands. Some property owners are not even given a chance to pay more but are having their policy cancelled, which is leaving them to search for other insurance to meet their mortgage requirements. When they find coverage from another carrier, it’s the same sticker shock of paying hundreds more per year. But what happens when more insurers leave the islands? How would that raise rates higher?
It’s not just condo-townhouse owners having to pay more for insurance, but single-family owners as well.
Experts say what will help is for the risk assessment to drop and that wildfires will happen far less or not at all that affects large communities so that insurers will interpret the Lahaina wildfires as an anomaly. Some in the insurance industry say that carriers are not out to gouge the market but are trying to balance out their losses.
The Hawaii Insurance Division with the state’s Department of Commerce and Consumer Affairs said insurance costs have increased by at least 50%.
Going forward, for prospective condo-townhouse buyers, Seth Colby, a member of the Hawaii Economics Association Board of Directors, said “when you’re buying a condo take a look at the reserve fund, how well the condo is being managed and just because it has low condo fees does not guarantee that you’re not going to pay.”
Asuncion said, “It’s doesn’t look like downsizing from a house in Hawaii to a condo is worth it because even if you pay off that condo, the maintenance fee from what we’re hearing going up to about $1,000 a month, it’s like having a partial mortgage again for those of us who already paid off our house free and clear. The worst case is if homeowner’s insurance and hurricane insurance for single-family property go through a similar outrageous price hike. We see it’s gone up enough already.”
Nationwide rate increases, influenced by reinsurance market contractions, have led to substantial cost increases upward of 50% for carriers over the past several years. Some experts say Hawaii has been lucky for the past years but are now feeling the hurt. They say it could take a decade before rates come back down.
The trajectory of Hawaii’s real estate depends on many variables like interest rates, economic factors, local government policies, personal financial strength. It looks like one additional variable could be the cost of homeowners insurance and association maintenance fees.
“There are a lot of concerns from buyers/sellers about the rising maintenance fees that associations are having to implement in order to offset higher insurance premiums. Condo and townhouse resales have already been impacted by this, and unfortunately, all associations will increase their maintenance fees. The only question is when,” Gephart said.
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