The effects of rising interest rates are beginning to be felt on the Big Island as numbers of prospective homebuyers taper off.
The Federal Reserve more than doubled its key rate to 1.75% last month, with further increases expected before the end of July. With mortgage rates rising correspondingly, Big Island real estate agents say fewer people are looking to buy homes here.
“For every percentage point interest rates go up, we lose 10-15% of our buyers,” said Gretchen Osgood, principal broker at Hawaiian Isle Real Estate in Kailua-Kona. Osgood added that the amount of supply remains steady, but the amount of demand has dropped.
Consequently, Osgood said, properties are spending a longer time on the market than they have for years, with some properties staying unsold for 90 days or more — not a long stretch by any means, she said, but statistically significant given the pace of the pandemic market.
According to multiple listing service data, there have been about 1,494 single-family homes sold on the island this year to-date, a drop of 140 from the 1,634 sold last year to-date. However, the median sales price remains higher to-date than last year: roughly $515,000 this year, which is 9% higher than 2021.
Median prices are still higher in every Big Island district this year compared to last, save one: The median price in Ka‘u dropped by a little over 1% to $274,000, although that district only had 19 sales this year.
Only Puna has had an increase in home sales this year so far: 628 single-family homes have been sold in the district this year, which is 130 more than in the first half of 2021.
Jessica Gauthier, principal broker for Salt Water Real Estate in Hilo, said the rising interest rates have cut out the lowest end of the local buyer’s market, adding that it’s “hard to find anything under $400,000 anymore” and that fewer buyers are purchasing homes sight-unseen.
With the market cooling, Osgood predicted that sellers will begin cutting their asking prices by a few percentage points, but added that most prices on the island already are wildly inflated, so the reduction will be more of a return to reasonable prices to start with.
After that happens, Gauthier guessed that prices should stay “relatively stable” for the remainder of the year.
She added that in about a year, many of the people who bought homes in Hawaii to take advantage of work-from-home policies during the pandemic will sell their homes and move away.
But both Gauthier and Osgood said a recession is very likely in our future.
“I don’t know how we could avoid a recession at this point,” Osgood said. “The financial machinery is already turning.”
But they also both assumed that the recession will not approach the devastation of the 2008-2009 market crash, “because there was more real money in this boom,” Gauthier said.
However, the recession could have other effects, Gauthier said.
“I think we’ll see a lot of newer Realtors who started during the pandemic going back to other professions,” Gauthier said.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.
