Updated: Jan 18
Best wishes to all of you in 2020. Many clients are interested to know what is 2020 outlook of Hawaii Real Estate so here we are to provide you some insight and data so to help you make better-informed investment decisions.
The most common questions from investors
1. Is it a good time to buy 2020?
2. With so many luxury condos coming up, where are those buyers coming from?
3. Is it a good time to sell in 2020?
4. Hows the rental market in Hawaii right now?
Let's start by looking at the big picture first
1. Australia real estate
Some of the investors chose to invest in Australia in the past, but now with the currency value drops and the fire that continues to burn, I think many will try to stay away from Australia or even trying to sell their investments to get out of it. Those investors will try to look for a new place to invest and Hawaii could be one of their choices.
2. Hong Kong
Riots in HK devastated its economy and tourism. The price of the HK real estate is just too high for many of its local people to consider to invest so we are seeing more investors are looking to purchase in other areas.
Tighter regulation, and slow down in real estate in China, investors are still looking for the opportunity to invest but not so much in China. People are still having a hard time with money transfer into the USA to buy. However, Hawaii's real estate was never really heavily dependent on Chinese buyers. However, more and more Chinese investors are looking into Hawaii instead of Seattle and SF. And more and more buyers are coming from West USA to look for their 2nd homes here in Hawaii or retirement place. Many prefer the stable home price situation in Hawaii on top of the low real estate property tax rate. How can one resist fresh air and rainbows in Hawaii?
The Fear of Recession
People are talking about the possibility of the recession but according to a panel of more than 100 housing experts and economists, the next recession will not be caused by the housing market and the home price declines likely will be small. Not to mention Hawaii's tight supply and high demand and limited land spaces will likely buffer the housing market more than many other states. This is evidenced by 2007 and 2008's Hawaii housing market on Oahu that showed how unique the Hawaii housing market is compared to California, Nevada, and Florida.
After the previous USA Housing Bubbles, most affected states are as followed
Let’s take a look at 10 states with the highest negative equity rates after the housing bubble in the past.10. Maryland
Negative equity shares: 16.2 percent9. Rhode Island
Negative equity shares: 17 percent8. Georgia
Negative equity shares: 18 percent7. Michigan
Negative equity shares: 18.5 percent6. Ohio
Negative equity shares: 19.2 percent5. Illinois
Negative equity shares: 19.7 percent4. Arizona
Negative equity shares: 20.1 percent3. Mississippi
Negative equity shares: 20.1 percent2. Florida
Negative equity shares: 26.9 percent1. Nevada
Negative equity shares: 29.4 percent
So those investors that have been through the bad times know that it is not a good idea to put all eggs in one basket. For example, if one investor buys all his/her properties in Nevada, he/she will face a greater risk when the economy turns bad. It is advised that one should spread their real estate investment in different places to be safe. Hawaii provides a rather stable housing market for those investors who wish to do long term investment since the price fluctuation is much less. Property tax and sales tax are considered low in Hawaii when one compares it to other states. Please refer to the graphs in the following part of this article to see the price trend over 5 years in Hawaii.
Hawaii economy: despite the trade war which affects the number of Chinese visitors to Hawaii (dropped about 36% in 2019), Hawaii's GDP is predicted to grow 2.6% in 2019 and 1.4% in 2020 and 2021. With rising wages and a good employment rate, residents will be able to support higher apartment rental prices.
Here is the forecast into 2020 and 2021 according to Hawaii economic report by Hawaii.gov.
The Hawaiian economy is still good and wages have risen over 4%. Solid demand for rental units and new constructions. The rental market is still good in Hawaii as well as in the past.
Honolulu Oahu Real Estate Forecast
The most recent December 2019 stat has come in as followed
We are finishing up 2019 with a strong number and as you can see the median price for both condo and single-family home remain strong.
From the graph, one can see the trend line of home prices in Hawaii in 2020. The housing market is now geared more toward to buyer's market as seen in 2019 but we will still see a slight rise in the next 12 months. This graph is based on Zillow's prediction.
Hawaii housing demand is still higher than its supply- in the last few years, billions of real estate investment dollars have flowed into the state.
Foreign investors do play a major part in the Hawaii real estate market. We have investors from all over the world to compete with limited supplies of real estate. In 2019, I have heard many worries that the price of real estate would decline too much so they withheld their investment a bit to observe the situation. Now Let's see how the median price for single-family home and condo in Hawaii for the time frame of 5 yrs.
(above) The median sale price for the single-family home over 5 years span
(above) Median sale price for the condo over 5 years span
So as you can see from the graph above, the real estate in Hawaii remains quite stable even in 2019 where many thought the price would tank. Did I mention that the Korean billionaire purchased 4 more parcels of land along the Kapiolani Blvd for future development? This is the same group that is developing the Sky Ala Moana Tower.
The median days on the market for both single-family home and condo is shown as followed
The median days on the market remain low.
Hawaii Housing Demand
Hawaii's government predicts a 19% growth in population by 2025. Demand for Honolulu is 25847 units during the 2015-2025 period
The west side of Oahu, Kapolei and Ewa, is still developing new houses and the demand is still high. We have a constant influx of new soldiers and their families into the state and many of them chose to purchase homes in Hawaii. This also makes supplies of new home availability lowered for local residents.
You may wonder how about those luxury homes market in Hawaii. We see the new projects such as Azure, Sky Ala Moana, Central Ala Moana, Ililani, and Victoria Place starting sales in 2019. Azure and Sky Ala Moana are selling very well and are already in the middle of construction. Central Ala Moana was sold out so is Ililani. Victoria Place is the newest sale project taking place for Kakaako. This is also the first-line ocean view building. The unrestricted sale has already begun and sold very well. The owner-occupied units are about to start its sale soon. The result of those successful sales shows that the housing market is not weakened as much as many have anticipated. The number speaks for itself.
Last unit of Central Ala Moana Sold 100% sold out 2019
The effect of Bill 89 on Short Term Rentals
Clients have brought up the issue about the short term rentals and bill 89. Many owners that were previously doing short term rentals are now selling their investment due to bill 89 and many have received warnings or citations. While it is true that some of the investors are listing their units on the market, it is not true that they are selling it cheaper. The prices are still largely governed by the market trend. So if one thinks just because more owners are listing those units it means cheaper to buy it is not 100% true. It could mean that it might be easier to negotiate a better price for buyers but it doesn't mean sellers are making a loss on all of them. It is best to discuss with us before you buy a condotel unit or a unit to do short term rental. We can help you to stay away from troubles in the future. This bill also makes the units that can legally do short term rental more lucrative for some.
As we know in 2019, we have seen interest rate reductions. This interest rate, by all means, helped the Real Estate in the USA well into 2020. We don't expect the interest rate to fall further too much more so it may not be a bad time for investors who need to get a loan to make a purchase when the market is still more of a buyer's market.
As for the sellers, if you are thinking of selling your unit or house you may have the advantage of selling it in 2020 while the interest rate is low. Even if you want to do a 1031 exchange of your investment, it is a good time to do so because when you purchase the new property it would be to your advantage with the low-interest rate. For the people who plan to buy your property, they will also have an easier time.
The housing market on Oahu will still likely be a positive market in 2020 but the prices of the home will not drastically appreciate and neither will it drastically decline.