I challenge you to find a segment of the Maui Real Estate market that experienced a more drastic reversal of fortune over the last 12 months than vacation rental condos. With tourism shut down starting in April of 2020, demand for vacation rental condos shrank rapidly over the spring and summer. With no rental revenue to offset costs and economic forecasts calling for a slow rebound in tourism, many owners opted to sell. Inventory rose steadily through spring, summer and early fall. On October 15, 2020, the state rescinded the mandatory quarantine rules for incoming travelers. Residents and vacationers who tested negative could avoid the Covid vaccine. This marked the first step in a gradual shift in the market.
For the first couple of months after tourism reopened, visitor numbers were a fraction of what the island experienced pre-Covid. That said, buyer demand ticked upwards and supply slowly ticked downwards as soon as visitors returned. With the start of the new year, a significant shift occurred. Visitor numbers recovered far faster than anticipated. Apparently, many of the visitors were vacation rental condo buyers.
Soaring Sales and Shrinking Inventory
They say a picture is worth a thousand words. These two pictures tell the tale of the Maui Vacation Rental condo market pretty succinctly. Buyers returned to the market in big numbers in early 2021. With a pretty healthy inventory of condos to choose from, the volume of transactions grew quickly. Buyer activity reached its peak in March with 290 condos under contract. Volume started to dip in April. While there was a minor uptick in May, the number of properties under contract continues to fall.
The healthy inventory of condos in January and February quickly gave way to scarcity. A ravenous buyer pool quickly chewed through much of the inventory. Anecdotally, I started to get a lot of e-mails from other Realtors beating the bushes searching for unlisted properties in late March and April. The inventory continued to fall through late Spring and the summer. The contrast between this summer and last summer is pretty stark. While many popular condo complexes had double digit inventory in the summer of 2020, most currently have a handful of active listings at most. The overall condo inventory is less than 25% of last summer.
Shrinking inventory is in turn impacting the volume of properties under contract. There are far less active condos for sale now than there were that went under contract in March back in the peak of the market. It is difficult to compare demand now compared to demand back in the late winter and early spring. Anecdotally, it feels like demand is down some. That said, with such limited supply market dynamics feel similar to the spring when demand and supply were both higher. Plain and simple, it is a strong sellers market.
Strong Demand Plus Declining Inventory Equals Rising Prices
With strong demand and dwindling supply, it’s not surprising to see the trajectory of prices. While median prices on island tend to fluctuate based in part on the composition of condos sold within a given month, there are clear signs of price increases. The median price of the vacation rental condos sold in August of 2020 was $600,000. The median price of vacation rental condos sold in August of 2021 is $747,500.
Other Notable Numbers From the 2021 Maui Vacation Rental Condo Market
- There were 880 vacation rental condos sold on Maui between January 1, 2021 and August 25th, 2021. That is a 221% increase in activity compared to the same period of 2020.
- The average price of condos sold between January 1, 2021 and August 25th is $1,079,000 and the median price is $715,000.
- The lowest priced vacation rental condo to close sold for $110,000. That was a leasehold, oceanfront, one bedroom at Maui Sands.
- The highest priced transaction for the year to date closed for $14,250,000. This was for a 3 bedroom, 3.5 bathroom, direct beachfront unit at Wailea Beach Villas.
- There was a lot of activity in the higher price ranges of the vacation rental condo market. The Wailea Beach Villas sale was one of two transactions that closed over $10,000,000. It was one of nineteen sales over $5,000,000 and one of ninety-two sales over $2,000,000.
- Kihei was the busiest market with 278 closes.
- Kapalua saw the biggest increase in activity of any area of the island compared to the same period of 2020. The 80 closes as of August 25th are a 615% increase in activity over the same period of 2020.
- Kamaole Sands was the busiest individual condo development for sales. There were 33 condos sold for the year as of August 25th. Honua Kai was the next busiest with 31 condos sold.
Market Outlook for Buyers
As mentioned above, scarcity is a challenge for buyers in this market. The summer did not bring any inventory relief. July and August had the fewest new condo listings since April of 2020. It will be interesting to see if we see more inventory in the fall. Mainland markets are seeing a slow increase in inventory. Is our lack of inventory a reflection of different dynamics in play on Maui, or are we just seeing some lag before we catch up to trends on the mainland?
Might we also see a decrease in demand? A report from Redfin in June indicated demand for second and vacation homes started to shrink in the spring. They cited a variety of factors including decreased affordability and tighter underwriting standards. They also indicated that many that intended to buy a second home already made their purchase.
I can see where affordability could start to impact demand on Maui. Price increases over the year are significant. Those looking for strong cap rates are likely to be discouraged. While rents are up some this year thanks to strong demand, they aren’t quite keeping pace with appreciation. Buyers more focused on cap rate rather than personal use of the condos will be less likely to buy in the current market.
Last but not least, the adverse impact of Covid is not over. Cases are up sharply in Hawaii and hospitals are strained. Some tourists are heeding the governor’s calls to delay visits due to the recent surge. Hotels are reporting cancellations over the next two months. Will that dampen demand at all?
Market Outlook for Sellers
The market outlook for sellers is pretty clear. There is still good to strong demand and inventory is limited. Prices are up. If you aren’t using your condo or you are just looking to cash out, this is a good time to sell. It is worth noting that while the market is supporting strong appreciation, it is still quite possible to overprice your property. Approximately 53% of the current active listings are on the market for over 30 days. If you want to sell quickly, it still makes sense to look at recent comparable sales when formulating a pricing strategy.
Contact The Maui Real Estate Team
Contact The Maui Real Estate Team if you are interested in buying or selling a vacation rental condo on Maui. For buyers, we would be happy to review current inventory options in your price range and keep our ears open for unlisted properties. For sellers, we would welcome the opportunity to give you a free broker’s price opinion on your condo. We look forward to being of assistance.
