Hawaii Real Estate Market Trends & Analysis


Thanks, in large part, to incredible demand, overwhelming international investments, strong employment numbers, and increasing wages, the economy supporting the Hawaii real estate market is nothing less than encouraging. Nonetheless, The Aloha State’s lack of available inventory and increasing levels of demand have created a very competitive marketplace.

Prices have increased almost exponentially, making it difficult for both buyers and sellers to actively participate in the market. Despite Hawaii’s latest round of appreciation, however, prices appear to have reached a tipping point. It is simply too expensive for most people to even consider buying real estate in Hawaii, which suggests price increases are poised to temper, and perhaps even regress towards the national mean.

That said, the Hawaiian housing market isn’t without opportunity. In addition to expected price easements, the state was just one of a few which saw foreclosure activity increase over the last year. Impending access to “cheaper” homes could tip the scales in favor of buyers and investors sooner rather than later.

The Top Hawaii Real Estate Markets


While the best real estate market in Hawaii is up for debate, here’s a list of the cities investors may want to pay special considerations to:

Hawaii Real Estate Fees & Regulations

Real Estate

Closing Conducted by: Attorneys, Title Companies, Escrow Companies
Conveyance: Warranty Deed/Sale Deed

Foreclosure Procedure

Primary Foreclosure Method: Judicial & Non-Judicial
Process Period: 3 - 4 months
Notice of Sale: Trustee
Redemption Period: None

Taxes

Income Tax: 1.4% - 8.25%
Corporate Tax: 4.4 - 6.4%
Sales Tax: 4.00%
Estate Tax: 10%-15.7%
Inheritance Tax: No
Median Property Tax: 0.26%
Property Taxes by County: http://www.tax-rates.org/hawaii/property-tax#Counties

Average Transactional Costs

Closing Cost: $2,808
Transfer Fee: Transfer tax 0.1%-1.0% ; Based on value 0.15%-1.25%
Origination Fee: $2,009.00

Overview

  • Median Home Value: $616,600

  • 1-Year Appreciation Rate: 0.0%

  • Median Home Value (1-Year Forecast): -0.7%

  • Median Rent Price: $2,350

  • Price-To-Rent Ratio: 21.86

  • Average Days On Market: 89

  • Percent With Negative Equity: 4.7%

  • Unemployment Rate: 2.8% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 1,420,491 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $74,923 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 13.65%

  • Foreclosure Rate: 1 in every 2,895

Median Home Prices In Hawaii


Real estate in Hawaii has become a commodity, which begs the question: How much is the average home in Hawaii? The median home value in Hawaii has undergone some significant changes in a relatively short period of time. As recently as January 2012, when the Hawaii real estate market bottomed out during the last recession, real estate on the island state boasted a median home value of about $402,000. Today, median home values in the Aloha State have reached $616,600. For those keeping track, today’s prices are about 53.3 percent higher than they were at their lowest point of the recession. As of the fourth quarter of 2019, median home values in the Hawaii real estate market have become the beneficiary of seven consecutive years of appreciation.

Hawaii wasn’t the only market to realize significant price increases. Thanks to the same indicators that have lifted up the rest of the country — growing optimism in the real estate sector, a strengthening economy, and a distinct lack of available housing — Hawaii has seen its real estate assets become some of the most expensive in the county.

More buyers are able to actively participate in the market thanks to improving working conditions, opportunities and wages. However, there simply aren’t enough homes to meet the demands of said buyers. While more people are financially able and willing to buy in the Hawaii real estate market, listings are not as common as the local economy would like to see. As a result, homeowners have been able to increase asking prices in response to growing competition. For the better part of a decade, in fact, Hawaii homeowners have benefited from a seller’s market based on supply and demand fundamentals.

While prices have risen year-over-year since 2012, it appears as if they have reached a tipping point. In fact, real estate in Hawaii has appreciated so much that there’s very little room for more growth. Over one year’s time (September 2018 to October 2019), median home prices in Hawaii increased a very modest 0.1 percent. Over the next 12 months, prices may only increase 0.5 percent, on average. Median home values across the United States, on the other hand, are expected to appreciate at a 2.8 percent clip over the next 12 months. The lack of growth in Hawaii is directly correlated to how expensive homes currently are. Due to the state’s high housing costs, Hawaii is one of the few markets that’s not unequivocally leaning in favor of sellers.

Median Rent Prices In Hawaii


Rental prices in Hawaii are directly correlated to local home values. Prices in Hawaii have risen sharply for the better part of a decade. Today, the median rent price in Hawaii stands at $2,350, which is well above the national average.

While home prices have increased more than fifty percent since the first quarter of 2012, rents did their best to keep pace. While the same rate of increase isn’t to be expected, rentals in Hawaii increased listing prices approximately 25.0 percent over the same period of time. To put things into perspective, the average increase across the United States was about 30.3 percent.

Despite being one of the most expensive states to rent in, Hawaii’s price-to-rent ratio suggests it is actually a lot more affordable to rent Hawaiian real estate than it is to own. At 21.86, it is currently more affordable to rent long term than to buy. That said, the price-to-rent ratio has more to do with how expensive homes are than listing prices. It is relatively expensive to rent in the state of Hawaii (compared to the majority of other states), but home prices are so high they make renting the more attractive long-term strategy at the moment. As a result, demand for rentals has increased in the face of rising prices.

Hawaii Foreclosure Trends & Statistics


According to data presented by RealtyTrac, a nationally recognized real estate information company that specializes in distressed properties, Hawaii does not have a high distribution of foreclosures. In fact, only one out of every 4,057 homes on the islands of Hawaii have been classified as distressed (default, auction or bank owned). While the United States currently has a 3.9 percent foreclosure rate, Hawaii’s foreclosure rate is only 2.4 percent.

Of all the islands that combine to make up Hawaii, it’s the large island that has the highest foreclosure rate. With a foreclosure rate of 2.6 percent, Hawaii has the most foreclosure activity. That said, the big island isn’t the only market with distressed properties. According to RealtyTrac, the following counties have the highest foreclosure rates in the entire state:

  • Honolulu (1 in every 4,075)

  • Maui (1 in every 4,241)

  • Kauai (1 in every 4,376)



Tax Lien Investing



  • Tax Lien or Deed: Redemption Deed State

  • Interest Rate: 12% after Deed Sale

  • Redemption Period: Varies by County (6 Months - 1 Year)

Real Estate Investing In Hawaii


Real estate investors across the country have made a living off of dealing in distressed properties, but is Hawaii real estate a good investment? In a word: yes, but only under the right circumstances. You see, distressed assets award savvy investors with higher profit margins than their traditional counterparts. Not only that, but distressed homeowners are more inclined to part ways with their properties. When all is said and done, the unique opportunity awarded by the distressed property market makes real estate investing in Hawaii all the more attractive.

Anyone considering investing in Hawaii real estate should pay close attention to pre-foreclosures. If for nothing else, Hawaii’s higher-than-average home prices have helped a great deal of owners get out from underwater, which has significantly reduced the state’s exposure to distressed assets. Consequently, the majority of Hawaii’s distressed homes have yet to enter into the foreclosure process. Instead, the overwhelming majority of distressed homes are those which are merely at risk of falling into foreclosure. Pre-foreclosures, as they are often referred to as, make up approximately 47.0 percent of Hawaii’s distressed homes. To be perfectly clear, they are the most abundant of Hawaii’s most coveted real estate assets, which means investors should start their search for prospective deals with delinquent homeowners.

In order to locate pre-foreclosures, investors will need to head straight to the most trustworthy source: the local courthouse. The information pertaining to homeowners who have neglected to keep up with mortgage payments is made available to the public. A simple inquiry at a local courthouse will reveal anyone who is behind on payments and their contact information. While delinquent homeowners are not always in the market to sell, their financial situation suggests they may be more willing to sell than unburdened homeowners.

Of course, knowing where to find real estate deals in Hawaii is only part of the equation. Once investors secure deals, they need to know what to do with them, which begs the question: Which exit strategies are working the best for Hawaii real estate investors?

Median home values in Hawaii have made it increasingly more difficult to rehab and flip assets. Most properties don’t exhibit the profit margins investors would traditionally look for. However, the same high prices that have become synonymous with buying have also forced many more people to consider renting. As a result, demand for rentals has remained high, and so too has the potential within the rental property industry. Hawaii real estate investors should be able to offset today’s high prices with years of cash flow generated from renting their homes out. That’s not to say rehabbing isn’t a viable exit strategy anywhere on the islands of Hawaii, but rather that today’s market conditions lean in favor of long-term strategies.

Hawaii Housing Market Predictions


The U.S. housing market has followed a fairly predictable ascent for the better part of a decade. Available inventory, housing market sentiment and improving economic conditions have all facilitated a relatively transparent real estate environment across the country. That said, there’s no guarantee things will continue on the same trajectory, especially on the islands of Hawaii. There are far too many variables to guess what will happen next without at least some margin of error. Therefore, instead of predicting where the market will be in a year, it is best to use historic data to make an educated guess as to what will most likely transpire. Those with an ear to the ground in the Hawaii housing market will most likely exercise an advantage over everyone else. Having said that, here’s a look at what’s most likely to happen in Hawaii over the next year or so:

  • Prohibitively expensive housing will make long-term investments more attractive: Median home values in the Hawaii real estate market suggest profit margins are thin at the moment. However, the same high prices preventing many from buying are also forcing many to rent, which bodes incredibly well for investors. As long as prices remain high and inventory remains low, there’s a great chance rental properties will be the best exit strategies for investors to pursue.

  • Prices will continue to rise: Not unlike everywhere else in the country, real estate in Hawaii has seen its prices increase almost exponentially for seven consecutive years. The jump in home prices is largely attributed to a lack of inventory. Until the issue is addressed prices will most likely continue to rise, albeit at a slightly slower pace.

  • Pre-foreclosures will continue to represent the largest number of distressed assets: Of the distressed homes identified by RealtyTrac, the majority are in a state of pre-foreclosure. Moving forward, pre-foreclosures should continue to represent the largest portion of the distressed property market. The length of the average foreclosure in Hawaii (from the first public foreclosure notice to complete the foreclosure process) is longer than just about anywhere else. In fact, Hawaii had the longest foreclosure timeline in the second quarter of 2019, which equated to about 1,611 days. U.S. properties foreclosed in the second quarter of 2019, for that matter, took an average of 716 days. Due to Hawaii’s longer timeline, there’s a good chance pre-foreclosures will continue to make up the majority of the market.

Hawaii Real Estate Market Summary


Despite being thousands of miles from the continental United States, the Hawaii real estate market is right in line with national trends. Much like the rest of the country, encouraging economic indicators, positive housing sentiment and a distinct lack of inventory have pushed real estate prices in Hawaii to historic levels. Now higher than they were prior to the last recession, home prices are prohibitively expensive, but that hasn’t stopped the market from remaining active. Investors, in particular, have found refuge in long-term rentals. While they too are expensive, investors may be able to offset high acquisition costs with years of cash flow.

Sources:



https://www.census.gov/quickfacts/HI
https://www.bls.gov/regions/west/hawaii.htm#eag
https://www.realtytrac.com/statsandtrends/foreclosuretrends/hi/
https://www.realtytrac.com/statsandtrends/hi/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/
https://www.zillow.com/hi/home-values/
https://www.zillow.com/home-values/
https://www.attomdata.com/news/market-trends/u-s-foreclosure-activity-down-24-percent-in-august-2019-14th-consecutive-month-over-month-decline/
https://www.attomdata.com/news/market-trends/mid-year-q2-2019-foreclosure-market-report/

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