Last month I said that if you want to time the market, the time is probably now. This month I’m more sure of it.
The second quarter has come to a close, and what a quarter it was. Aside from 9/11, you would be hard pressed to find a world more changed in a 90 day span over the last 80 years. We have truly been through a “black swan” event. I’ll skip all the Covid talk, except for how it relates to Hawaii and real estate in Hawaii.
I wrote a piece last week about where I see the market going in the next few years, and my reasoning for that prediction. I don’t claim to have a crystal ball better than anyone else’s, but I am seeing some evidence that we are headed in a certain direction.
Looking at the numbers from the second quarter, we can make some pretty clear observations. In terms of units sold, the residential market is doing much better than the condo market. The residential market was down 41.5%. The condominium market on the other hand was down 61.9%. The reason for this is pretty clear. People live in houses full-time much more than they live in condos full-time. Many condo purchases are typically for second homes, vacation homes, or investment properties. Those things are not high on people’s priorities in the immediate aftermath of sudden economic shifts.
When we look at the price data things really get interesting. Both South Kohala and North Kona we saw residential prices go up at a pretty decent rate. Right now, condos lag behind houses in both areas. Still, we saw good gains for the median price of condos in South Kohala and a small decrease in North Kona. Overall this data is a little bit surprising. We did not see any panic selling and we did not see a big decrease in prices. I think this is because we have had many years of people buying properties with cash or large amounts of cash in the purchase price. People can wait this out. Having said that I do think there is a chance of some softness moving forward in the condominium market because the potential buyers who would rely on vacation rental income to pay their mortgage are not going to be confident getting into a new property right now. This does represent an opportunity for second home and vacation home buyers who do not need income to make payments. I think we will see some condo owners have to sell quicker than residential property owners.
Right now on the ground I can tell you that we are seeing a lot of buyers showing interest. There is a pretty strong move towards residential properties right now and people that I have not heard from in years are reaching out to re-engage in the home buying process. I think this is similar to what we saw after 9/11. When we have world-changing events some people take long-term goals and accelerate their timeline. Additionally, Hawaii is not going through the same social tensions that we see on the mainland and our rates of Covid have been remarkably low. It will be interesting to see how things change in the next few months as we open up Hawaii to people from the mainland.
The chart above should really get your attention. I’ve made the 2 most important data lines bold. The black line represents the number of closings we have for each week. We can very clearly see the upward trend. But remember, closed sales are what’s happened. To see what’s happening, look at the bold red line. That represents the number of closing we will have in the next few weeks. We are moving back toward the volume we saw before Covid.
What About Current Market Conditions
Let’s look at three different measurements for both the residential and condo market under $1M.
Right now there are 109 residential properties in escrow (25 more than last month). Compared to March 1, our last clean datapoint, that number was 108. For condos, we have 93 properties in escrow up 8 from a month ago. On March 1 we had 130 in escrow. This tells us that the residential market is back to where it was, while there is softness (opportunity) in the condo market.
Current Listing Count
We have 104 houses on the market currently. March 1st it was 122, so a significant off-season decrease, which is not normal. We have 207 condos listed on the market right now. In March it was 160, again, softness in the condo market for now.
This brings us to our current inventory. Right now our residential inventory is 2.6 months, down significantly from 5.3 last month. Condo inventory is 7.1 months down from 11.5 months just 30 days ago. For perspective those numbers were 2.3 for residential and 3.4 for condos before Covid. This is yet another confirmation through the data that houses are right where they were before Covid, and condos are lagging for now.
Mike Drutar is the Principal Broker and Owner of NextHome Paradise Realty, located on the Big Island of Hawaii.