The latest edition of Maui Real Estate Musings is coming from the road. While I may be on the mainland, I still have an eye and ear on the Maui Real Estate Market. Volume XII addresses the elephant in the room from last week’s real estate news. As promised in Musings XI, there is also a review of end of May inventory numbers by district and price point. Finally, we take a quick look at the percentage of active home and condo inventory with price reductions. Without further ado, and so I can get back to hanging out with the in-laws, here is musings volume XII.
The Elephant in The Room
The elephant in the room of course is interest rates. Interest rates on the 30 year fixed mortgage spiked to over 6.2 percent last week. Stronger than expected inflation numbers for May and the resulting anticipation of sharper increases in the Federal Funds rate fueled a strong spike in mortgage rates. This is a significant difference in borrowing costs from interest rates below 3% a year ago.
Prior rate increases this year pushed some buyers out of the market. Needless to say, it is likely that this recent rate increase will further thin the pool of financed buyers. Those that do stay in the market, will be able to afford less home. It is possible that we see a brief uptick in activity in the market as buyers who locked in lower rates feel heightened urgency to purchase. Conversely, the shift in rates may cause a more immediate slow down in demand. We shall see how it plays out.
Of course, the smaller pool of buyers and less purchasing power from financed buyers will cause other impacts to the market. Lesser demand will likely lead to growing inventory. Keep in mind, we are still experiencing inventory numbers well below normal. How quickly and how much inventory grows is something of an unknown. The other thing we are likely to see is price reductions. A lot of sellers on the market initially entered the market at prices that assumed continued rapid appreciation. With less demand and less competition, many sellers will need to adjust expectations and pricing.
End of May Inventory Levels
The Realtors Association of Maui tracks end of month inventory levels island wide for homes and condos. We report on those numbers regularly. I took it a step further documenting inventory levels by district and price point on the island. The numbers are meant to serve as a baseline for future comparisons. It is a means to track changes in inventory among different market segments. That said, there is some interesting information to be gleaned from just the May numbers. They show some of the recent variability in inventory levels and market conditions based on both geography and price point.
End of May Home Inventory
End of May Home Inventory by Price Point
End of May Home Inventory Takeaways
- Kahului has the lowest ratio of active listings to pending listings with 11 active listings compared to 24 pendings.
- Kula and Paia have the highest ratio of active home listings to pending sales.
- The ratio of pending sales to active sales is higher in districts with more lower priced options and less second home activity. There is stronger demand and more competition for lower priced primary residences.
- The ratio of pending listings to active listings by price point corroborates the point above. The number of active listings is a small fraction of the pending listings below $1,000,000. There are no homes in the resort markets below $1,000,000.
- With the exception of the $1,500,000 to $1,999,999 range, the higher you go in price point, the the ratio of active listings to pending sales increases.
- While the resort communities have more active listings than pending sales, the inventory in these communities remains limited.
- The same can be said for higher price points. With the exception of the highest price points, inventory is still well below normal in the $2,000,000 to $5,000,000 range.
End of May Condo Inventory by District
End of May Condo Inventory by Price Point
End of May Condo Inventory Takeaways
- First things first, there is an important thing to note in the pending condo numbers. They include 75 pending sales in La’i Loa at Wailea Hills. This development is under construction and the bulk of the contracts were signed in the second half of 2020 and the first quarter of 2021. These pending sales skew the numbers for Wailea and the price points between $1,500,000 and $4,999,999.
- The Kihei Condo market numbers reflect its frenzied state over the last 12 months. This includes both vacation rental and non-vacation rental properties. Supply appears to be well below demand.
- The price points between $500,000 and $1,500,000 have the highest ratio of pending sales to active listings.
- The $5,000,000 to $9,000,000 range shows a lot less active inventory vs recent demand compared to the single family homes in this range.
- Lahaina is notable as the only district with more active condo listings than pending listings.
- Overall, the condo market inventory numbers reflect more scarcity and higher activity across the board than the home market.
A Few Final Thoughts on the Inventory Numbers
This data is lagging behind a few weeks at this point. I will be posting the numbers for the end of this month shortly after the first of July. I suspect we will see increases in inventory across a number of districts and price points. Another “flaw” to this analysis is that it lacks a baseline of comparison to historical numbers. Unfortunately, old Realtors Association of Maui statistics track monthly sales and not active inventory. I wish we had a “normal” number for districts and price points. I am going to need to rely on anecdotal observations as to what seems normal for active listings.
I did want to look at one statistics that gives more of a current look at market conditions. Price reductions give us some sense of demand and how sellers are currently responding to shifts in demand. As of June 22nd, 32.4% of active home listings reduced their price. That is up from 29.5% on June 7th. It is still a little below May 24th when 33% of all active home listings reduced below listing price. For condos, 22.5% of the active inventory reduced their price as of June 22nd. That is up from June 7th and May 24th when 20.9% and 18.2% of the active inventory reduced prices respectively.
Some Maui Beauty To Brighten Your Day
This week’s beautiful Maui tweet comes with a bonus link to an article on South Maui Summer Activities.
Wrapping Things Up
It’s clear that market conditions are changing. A few quick final thoughts for sellers and buyers. Sellers, it is pretty clear the market is a lot different than it was 6 months or even 3 months ago. If your list prices were aspirational, price adjustments may be necessary to get in line with the market. Less competition means less leverage when it comes to negotiations. For buyers, the reverse is true and you may start to have an opportunity to negotiate. There is more opportunity for due diligence and there may be some more choice available to you. The trade off for financed buyers is more purchasing power.
With changing market conditions, quality representation remains as important as ever. Contact The Maui Real Estate Team to discuss your real estate needs. We look forward to being of assistance.