Sellers and Interest Rates

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If you are in the process of buying a home utilizing conventional financing (a mortgage), chances are you are not just focused on home prices. You are probably also carefully tracking interest rates, since they have a major impact on the overall affordability of the property which you are seeking to purchase. The National Association of Realtors created a Housing Affordability Index to help determine overall home affordability based on interest rates, prices and income. The NAR tracks this by region on a monthly basis.

This post was originally written on our site in 2017. The long and short of it was that sellers should keep a close eye on rates as it is likely to impact demand for their home. If your circumstances dictate that you want to sell quickly, you may want adjust pricing downward if rates are increasing. I thought it was worth revisiting after a number of dynamic years in our market.

It is now Spring of 2024. If I were to hop in a time machine and tell my 2017 self that interest rates would shoot up from 3% to 5% to 7% and then almost 8%, my first question would have been, how much did prices fall? My 2017 self would have been gobsmacked to learn that prices continued to ascend slowly even after these big increases. Heck, my 2021 self would probably be equally surprised. So what gives?

The answer is both nuanced and somewhat simple. Interest rates impact market demand. In 2020 and 2021, record-low rates caused a massive spike in demand. Since then, increased rates have slowed demand and thinned the pool of buyers. Plain and simple, many buyers are priced out of the market.

That, however, only speaks to the demand side of the equation. The spike in rates also had a significant impact on the supply side. Graced with mortgages at or below 3%, many potential sellers have so-called golden handcuffs. They don’t want to sell and trade their low mortgage for a significantly higher one.

Thus far, the low inventory levels in the market have largely insulated sellers from the impact of higher rates. The supply is low enough, and there is just enough demand from motivated buyers to help preserve pricing and, in some cases, increase prices.

Again, there is nuance to this. When rates spiked in the fall of 2022, parts of the Maui market saw a decrease in prices. That was particularly true at or below the median sales price. Island residents already struggling with the price increases in 2021 and early 2022, could not afford to absorb the rise in rates. That price dip was short-lived as inventory fell and rates eased a bit.

When rates spiked again in the fall of 2023, there was almost no effect on pricing. Supply was the big reason there. Our constrained housing supply took another big hit with the Lahaina Fires and the loss of over 2,000 residences. That event also increased demand as residents displaced from the fire sought new housing.

So does that mean Maui sellers don’t have to pay attention to rates any more? No, I am going to bring up that dreaded Nuance word again. Inventory is variable in the market with some price points, neighborhoods, and condo developments seeing higher inventory levels. The condo market is creeping up slowly towards 2019/early 2020 inventory levels. Sellers need to focus less on big-picture numbers and more on the inventory levels for their price point and community.

If you live in a neighborhood or price point with rising inventory levels and spiking mortgage rates, you may need to adjust your go-to-market strategy. Either expect longer days on market, or adjust your pricing strategy if necessary.

If you are considering selling your home on Maui, the Maui Real Estate Team provides excellent marketing and thoughtful representation for its listings. We are data-driven with our market analysis and pride ourselves in giving honest feedback and recommendations to our sellers.

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