Tag: Real Estate Bubbles
The sixth edition of Maui Market Musings is here. The latest edition includes a review of the first quarter statistics that point to scarcity and competition in the market. It also delves into the taboo question of whether we are in a housing bubble. For that and a little more, keep on reading.
All Done with Quarter One
March 31st marked the end of the first quarter. The end of the quarter presents an opportunity to look back at the sales activity during that time. Specifically, I wanted to show the numbers that point to the scarcity of listings and the resulting competition for properties on the market.
The signs of scarcity are pretty clear in the numbers. New listings of single family homes decreased 9.5% compared to the first quarter of 2021. New listings of condos fell 8.9% compared to the first three months of 2021. We entered the year with low inventory and the lower number of new listings meant less relief for buyers. There was an average of 188 homes for sale during the first quarter. That is down 29% from the average of 264 during quarter one of 2021. The average number of condos for sale during the first quarter of 2022 was 71% lower than early 2021! The lack of inventory showed when it came to sales volume. Home sales for the quarter are 13.7% lower and condos sales are 3.7% lower.
The signs of heightened competition are also readily apparent in the first quarters statistics. Days on market for homes dropped 13.7% compared to the first three months of 2021. The average days on market for condos in the first quarter was 76 compared to 143 in the first quarter of 2021. That is a 46.9% drop! Competition impacts bidding strategy and drives offer prices higher. Of the homes that sold in the first quarter, 64.58% of the homes sold for list price or above. That compares to 42.21% during the first three months of 2021. For the condos that sold in Q1, 71.02% sold for asking price or above compared to 34.52% in the same period of 2021.
Of course, changes in the median prices also reflect increased competition. Median home and median condo prices increased 20.4% and 25.2% respectively compared to the first quarter of 2021. The March monthly median prices were both all time highs at $820,000 for Maui condos and $1,177,500 for Maui homes. For the data geeks looking for more numbers, here is a link to the Realtor’s Association of Maui March Statistics.
Are We in a Bubble?
The question now is where does the market go from here? After two straight years of extraordinary growth, the conventional wisdom among real estate economists seems to be that the national real estate market should slow gradually as the year progresses. Rising interest rates would help to cool demand despite continued low inventory. Over the last week, some economists are taking a more bearish outlook. Most prominently, the Dallas Branch of the Federal Reserve released a paper that highlights what they see as signs of a housing bubble.
The Dallas Branch’s paper highlighted the metrics that indicate a growing break between the market and what fundamentals support. Specifically, they site price to rent and price to income ratios as being out of balance. They show that the current ratios are starting to look similar to what we experienced during 2006/2007 when the last real estate bubble was about to burst. If comparisons to 2006 and 2007 give you a case of the cold sweats, take some solace from the fact that the Dallas Fed is not predicting a similar fallout if there is a housing correction.
Another thing that is worth noting from the Fed’s article is their explanation for what causes bubbles and markets to diverge from fundamentals. It often happens when there is a widespread belief that price increases will continue. Buyer’s fear missing out before prices go up and so they bid more aggressively. This of course helps to spur price increases. In light of this, I thought this tweet from Economist Ali Wolf from Zonda was interesting.
Will the Dallas Fed’s article put a dent in some of the exuberance that caused market fundamentals to fall out? In other words, will the widespread belief in additional price increases start to fade? Or will discussion of housing bubbles fade as we move away from the publication date of the article? It is worth noting that the discussion of bubbles is happening at a time when interest rates for 30 year loans spiked near 5%. Is there a threshold with mortgage rates that saps that exuberance?
While there may be a few more people raising concern about a housing bubble, it’s safe to say that this is not an emerging consensus. There are still a significant number of economists advocating for the gradual shift. This is a volatile time in our world making prognostication that much harder.
What does this mean for buyers and sellers? For buyers wondering whether now is an ok time to buy, we ask two questions. Can you afford it and how long do you plan to own the property? With the first question, how much of a stretch is it for you to buy right now? Are you going to be leaving yourself house poor? If the answer to the last two questions is yes, it may not be the best time to buy. Are you planning to hold the property for 5-10 years or just looking for an interim home for a couple of years? If it is a more short term purchase, again now may not be the best time to buy. It depends on your individual circumstances.
For sellers, market conditions remain in your favor. That said, it is a time to be more vigilant about economic and market conditions. We are continuing to see sellers really push the envelope on pricing with mixed levels of success. If and when market conditions start to cool, those sellers may end up way out of line with the market.
Notable on Recent New Inventory
Over the last week or so, it seemed like a few more properties came to market that only sold within the last couple of years. I looked at new listings between March 21st and April 4th to see if the data backed up anecdotal observations. Of the 150 new listings, 15 sold previously between 2020 and 2022. That’s a nice even 10%. Looking at those 15 listings, it is clear that there are some that are fix and flips, some are flips with limited or no improvements made by the seller, some appear to be sales due to life changes and some are just head scratchers. The head scratchers were the properties that closed and were back on the market within the month with more limited price increases.
A little Maui Beauty to Brighten the Post
A drier than normal winter meant fewer rainbows on Maui. The return of trade showers last week brought not only some much needed moisture, but also some color to the sky.
Contact The Maui Real Estate Team
Dynamic market conditions, limited inventory and strong competition demand quality representation. Contact The Maui Real Estate Team if you need assistance buying or selling property on Maui. We would love to take the time to discuss your real estate needs.
