Maui Home Prices In 2024
For years now it seems like everyone’s been asking when will home prices peak, and when will property values drop in Hawaii? In this article we’ll cover what you need to know and what to expect from home and condo prices on Maui, Oahu and Kauai in the coming year.
Why Are Home Prices So High?
Before we can determine where we think Maui home prices might go, we need to understand what has gotten us to where we are today. The single biggest factor that has influenced home prices is inventory. Also known as supply, the island of Maui has had an extreme shortage of housing for over a decade and that problem is only getting worse. The same goes for the supply of homes and condos across all islands in Hawaii (in fact this is the cause of high home prices across most of the country). This is because the great recession in 2008 caused home building to come to a screeching halt, and unfortunately the industry never fully recovered.
Aside from the shortage of available homes, we’ve also had record low interest rates for the last 20 years, particularly over the last 12 years (again since the great recession rates have been lower than ever before). This is the second reason why home prices have surged so drastically since 2012.
We Need To Build New Homes On Maui, Oahu and Kauai
Some estimates say that the U.S. has more than a 6 million home deficit from what we need. On top of this, even though we are building around 1.5 million homes per year, we are still falling farther and farther behind.
This has lead to the most basic principle of economics, supply and demand, being the leading cause of Hawaii’s super hot housing market over the last 10+ years. It’s important to note that the commercial multifamily sector has begun building more rental units recently, so we expect the supply of renal apartments countrywide to increase in the coming years. However that still does not satisfy Maui and/or Hawaii’s need for single family homes and condos that are available to purchase.
As we mentioned, we are currently building about 1.5 million homes per year nationwide. However we really need to be building at least twice as many homes if we want to start making any kind of an impact in the shortfall of housing inventory.
Interest Rates Are Expected to Dip In 2024
The Federal Reserve (also known as the fed) is responsible for setting what we refer to as the target fed funds rate. This interest rate is currently in the 5.25-5.5% range and has been for many months now after the fed increased it 11 times in a row starting in 2022. Although the fed rate does not directly determine what the current mortgage interest rates are in Hawaii, this is the underlying cause of why our mortgage rates have risen so sharply. The cost of a mortgage today is nearly double what it was in 2021.
Normally we would expect this steep of a rate increase to cause home prices to drop. However due to the severe shortage of homes we described above, home prices in all of Hawaii have remained pretty stable because there just haven’t been enough new homes built to satisfy the demand in the market.
The fed has announced that they expect to be lowering the fed rate in 2024. No one knows how much, so it’s pure speculation. But the market agrees that we will likely see the fed fund rate lowered by about .75% by the end of 2024. That doesn’t necessarily mean Maui mortgage rates will be .75% lower… in fact we could see much lower rates.
A good way to explain the relationship would be to say that the fed fund rate does not dictate current mortgage rates, but it does influence them. That’s about the simplest we can break it down for now without going into an extremely complicated economics lesson.
The takeaway from this section is that we do think Hawaii will see lower mortgage rates in 2024 and into 2025, and this is likely to shore up home prices. So even if we do see home prices start to drop (which we have seen in some parts of Maui and Oahu), there’s a good chance that the coming rate cuts will stabilize those drops and hold prices steady.
In conclusion I think it’s safe to expect that Maui home prices should hold steady, pretty close to where they are now throughout most of Hawaii (particularly on Maui, Oahu and Kauai – Big Island is the most unique market in Hawaii, which is why I tend to leave them out of my opinions and projections). The most important factor you need to keep in mind is that these projections do NOT take into account any type of outside catalyst; such as a new war starting, stock market collapse, etc. When home prices dropped in 2008 it was due to the catalyst of unqualified homeowners failing to make their mortgage payments once their initial low interest rate expired and their payment increased. While I don’t see anything like that happening in our market today, there are a million other things that could cause home prices to absolutely plummet. But almost all of those factors are completely unpredictable. Based on that, I choose only to make projections based on the factors that we can see and predict, so please take any home price projections with a grain of salt.
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