New Trend Emerges: Condos appreciate at higher rate than single-family homes

Screen Shot 2017-02-25 at 5.54.45 PMThe home-buying truth on Oahu is that condo prices, at the close of 2016, outperformed the prices for single-family homes. The 2016 values for condominiums increased 8.3 percent, versus the 5 percent for single-family homes — and the trend continues into 2017. So the question is: Is this a trend or a solid wave of the future?

Another question is: Why is this happening? That answer lies in where the buyers are. Condos typically fall into the price range that appeals to, and is affordable for, the most buyers. Another reason is there are more condos for sale than single-family homes. This combination of appealing price points and availability puts the focus on condos — especially for first-time homeowners.

With inventory of single-family homes and condos remaining near all-time lows, even small differences in the number of properties available make a big difference. The mix of low inventory and continued low interest rates creates competition in the Oahu real estate market. This combination is measured in units called “bid-ups.” A bid-up is when a property sells above its asking price with multiple offers. This past year saw the highest number of condo bid-ups ever recorded in Oahu’s market at 23.4 percent. That means almost one in four of all condos sold above their asking price with multiple offers. And bid-ups are the mechanism that pushes up median prices. This is why we expect to see prices for both condos and single-family homes continue to increase.

Rising interest rates also are coming into the picture for the first time since 2008. In 2008, to get lending moving again, the Federal Reserve intervened to force down home loan interest rates. Buyers have enjoyed those artificially low rates since then. However, 2016 saw the end of the Federal Reserve’s intervention. Now interest rates are free to move with the market, and there already have been rate increases in 2017.

The combination of increasing prices and increasing interest rates is slowly closing the window of opportunity for new homeowners. As this dynamic continues, buyers will begin to be priced out of the market. And the buyers who are priced out first usually are first-time homeowners.

Instead of seeing this as a bad thing, however, look at it as an opportunity: the window hasn’t closed yet. Waiting, on the other hand, is a bad idea because it means paying more for the same property, or having to settle for much less.

Locations LLC is often asked how mainland real estate markets affect Hawaii. The simplest answer is the mainland doesn’t affect the local market very much at all. Hawaii is a unique real estate market for all the reasons that Hawaii is a unique state: It is the most remote set of islands in the world, there is not much land to build on and most of that land is mountains. Furthermore, much of the suitable land to build on is protected by zoning or other regulations that restrict development. Additionally, the state has a significant number of foreign property buyers, especially in the higher price ranges.

As Chad Takesue, senior vice president of sales for Locations, said, “The demand for Hawaii real estate is always strong. With interest rates expected to increase, anyone looking to invest or trade up should know, the time is now.”

It’s time to contact your real estate agent, as demand continues to grow, and while inventory remains low. Keep in mind when searching for the right property that what really matters is availability in your price range that meets your needs.

Locations Hawaii
Michael Marks
Sandwich Isles Realty
Kimo Smigielski, Broker-in-Charge
R, ABR, CRS, GRI, e-PRO
Hawaii Life Real Estate Brokers
Emily Garcia
Agent, REALTOR(A), RS-77391
Coldwell Banker
DAY-LUM Properties

Edith Crabb, RB-8195
Coldwell Banker
DAY-LUM Properties

Glenn Takase, RB-18547
Coldwell Banker
DAY-LUM Properties

Misti R. Tyrin, RS-75836
Coldwell Banker
DAY-LUM Properties

David L. Skeele, RB-12882
Kauai Landmark Realty
Phil Fudge, RB-18576
Claire Keaton, RS-73854
Coldwell Banker
DAY-LUM Properties

Shea Miyashiro, RS-64678
Coldwell Banker
DAY-LUM Properties

Atsuko Winston, RS-75899
Coldwell Banker
DAY-LUM Properties

Mark Skeele, RS-77005