Honolulu, HI Real Estate Market Trends & Analysis [Updated 2021]

Jump To Another Year In The Honolulu Real Estate Market:

Perhaps no other market across the country was hit harder by the introduction of the Coronavirus than that of Hawaii’s housing sector. The Honolulu real estate market on the South Shore of Oahu, in particular, was reeling from the pandemic. The city’s median home value is nearly three times that of the country’s, and unemployment numbers shot past the national average, making homeownership a moot point for many locals. To make matters worse, the city’s primary source of revenue—tourism—all but disappeared. To be blunt, the South Shore of Oahu is in the midst of a severe economic crisis, and the local housing sector has borne the brunt of the downturn. However, it is worth noting that the latest disruption may have actually opened the door for investors. There’s no doubt about it: 2020 was a rough year for the Honolulu real estate market, but 2021 appears ready and willing to build off of some positive momentum.

Honolulu Real Estate Market 2021 Overview

  • Median Home Value: $740,338

  • 1-Year Appreciation Rate: +3.6%%

  • Median Rent Price: $2,200

  • Price-To-Rent Ratio: 28.04

  • Unemployment Rate: 8.0% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 974,563 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $82,906 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 8.96%

  • Foreclosure Rate: 1 in every 9,777 (1.0%)

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Real estate in Honolulu

Honolulu Real Estate Investing 2021

The South Shore of Oahu has served investors well since the last recession, which begs the question: Is real estate a good investment in Hawaii? In particular, will Honolulu investment properties be worth investors’ time? Simply put, an investment property can be an excellent investment. Investors who know how to navigate today’s real estate landscape will find the area has plenty of opportunities. If for nothing else, the current pandemic has disrupted daily routines and market indicators, which means new openings to capitalize on.

Homeowners have realized impressive profit margins across the country for the better part of a year, despite the introduction of the Coronavirus. According to Attom Data Solutions’ second-quarter 2020 U.S. Home Sales Report, average “profit margins – the percent change between median purchase and resale prices – rose from the second quarter of 2019 to the second quarter of 2020 in 81 (78 percent) of 104 metropolitan statistical areas around the United States.”

To be clear, not every market across the country shared the same profit margins when selling a home. The Honolulu real estate market, in particular, saw some of the most significant declines in profit margins year-over-year from the second quarter of 2020.

“The biggest decreases were in Pittsburgh, PA (down from 28.6 percent to 20.9 percent); Modesto, CA (down from 58.7 percent to 51.1 percent); Honolulu, HI (down from 43.8 percent to 36.2 percent); Greeley, CO (down from 41.5 percent to 35.4 percent) and Naples, FL (down from 22.1 percent to 16.7 percent),” according to the second-quarter 2020 U.S. Home Sales Report.

Profit margins are growing harder and harder for the Honolulu real estate investing community to come by. Local real estate prices are too high for investors to consider rehabbing the most viable exit strategy on their part of the island.

High prices aren’t unique to the Honolulu real estate market. Nearly a decade’s worth of appreciation has driven prices up across the entire country at a historic pace. Consequently, investors across the United States have started to adapt to the new housing landscape, and the Honolulu real estate investing community is no exception. While rehabbing is entirely possible, home values—combined with newly introduced indicators brought about by the Coronavirus—have made long-term real estate strategies the most attractive options at the moment. In particular, rental properties appear to be the most attractive investment vehicles at this point in 2021.

At the very least, here are three market trends in Honolulu being shaped by the current landscape:

  • Interest rates on traditional loans are historically low

  • Years of cash flow can easily justify today’s higher acquisition costs

  • The price-to-rent ratio suggests high home prices will increase rental demand

As of January, the average rate on a 30-year fixed-rate loan was 2.74%, according to Freddie Mac. January also represented one of the lowest average mortgage rates ever, and the Fed announced its intentions to keep rates low for the foreseeable future. Lower rates have brought down acquisition costs for those looking to add to their passive income portfolios. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to pad their bottom lines.

Lower borrowing costs will help absorb today’s high prices, but it’s the cash flow potential of real estate assets that makes the prospect of owning a rental property even more attractive. With a median rent price of $2,200, it is possible to simultaneously rent out an investment property while having someone else pay down the mortgage. That way, investors could build equity in a physical asset and collect cash flow each month with the right long-term investment.

If that wasn’t enough, rental demand appears to lean heavily in favor of rental property owners. In fact, the city’s 28.04 price-to-rent ratio suggests it is considerably cheaper to rent than to own, which means more residents will be looking to become tenants than homeowners. The demand should create competition, which could even increase cash flow.

Investors are lucky to have several viable exit strategies at their disposal. Still, none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.

Foreclosure Statistics In Honolulu 2021

The Honolulu real estate market has a relatively high foreclosure rate. According to RealtyTrac, as many as one in every 9,777 homes are distressed. More specifically, 1.0% of local homes are either in default, up for auction or bank owned. For some added context, the foreclosure rate across the whole country is faring better than the Honolulu housing market. One in every 12,448 homes in the United States may be classified as distressed, which amounts to a 0.8% foreclosure rate.

The overwhelming majority of distressed homes in the Honolulu housing market aren’t actually foreclosures, but they are at risk of falling into foreclosure. Otherwise known as pre-foreclosures, 63.6% of Honolulu’s distressed inventory is at risk of falling into foreclosure, which means investors need to market to distressed homeowners if they want to increase their chance of buying a home under market value.

To narrow the search down even further, here’s a list of the neighborhoods with the highest distribution of foreclosures:

  • Laie: 1 in every 1,077 homes is currently distressed

  • Ewa Beach: 1 in every 4,009 homes is currently distressed

  • Waianae: 1 in every 13,424 homes is currently distressed

  • Kapolei: 1 in every 14,140 homes is currently distressed

  • Mililani: 1 in every 18,387 homes is currently distressed

It should go without saying, but the latest increase in foreclosures across the United States should suggest Honolulu will see an increase of its own. The Honolulu housing market, in particular, has been hit by a unique economic crisis. The local foreclosure rate is well above the national average, and tourism (the city’s main source of revenue) isn’t expected to return for a while. As result, an influx of foreclosures is expected sooner rather than later. While it is too soon to tell just how much foreclosures will increase, investors who line up financing and position themselves for success at this time could be in line for a busy 2021.

Median Home Prices In Honolulu 2021

The median home value in Honolulu is $740,338. At its current valuation, the local median home value is nearly three times the national average, which currently rests somewhere in the neighborhood of $266,222. It is worth noting, however, that home prices in Honolulu have increased a great deal since the last recession. Since September 2011 (when real estate bottomed out), the median home value has increased 41.5%. Over that same period of time, the median home value in the United States increased 53.6%. The increases were largely the result of three prominent indicators: an improving national economy, positive sentiment, and (ironically) a distinct lack of available inventory.

In particular, Honolulu has suffered from a distinct lack of available housing, and the crisis has turned out to be a focal point of the local government.

“Increasing our housing inventory remains a priority of this administration, especially during the pandemic as thousands in our community remain unemployed or struggling to make ends meet,” said Mayor Kirk Caldwell

According to a 2019 Housing Planning Study, a pre-coronavirus report released by the Hawaii Housing Finance Development Corporation, “Honolulu will need 22,168 new housing units between 2020 and 2025” to help alleviate the current inventory crisis. The lack of available housing has contributed to historically high prices and made the city less affordable than most markets.

Local neighborhoods have seen drastic increases in home values in a relatively short period of time. As perhaps the largest beneficiaries of Honolulu’s latest success, here’s a list of the city’s most expensive neighborhoods (according to NeighborhoodScout):

  • Wailupe

  • Kaalawai

  • Pali Hwy / Nau Anu Pali Dr

  • Kahala

  • Round Top Dr / Tantalus Dr

  • Portlock

  • Sierra Dr / Wilhelmina Rise

  • Manoa Rd / Oahu Ave

  • Woodlawn

  • World Medicine Institute / Puuikena Dr

The Impact Of COVID-19 On The Honolulu Housing Market

The onset of COVID-19 may have served as a blessing in disguise for real estate in Honolulu. That’s not to undersell how tragic the pandemic has been, but rather that the resulting indicators may work in favor of the local housing market. In particular, the Fed’s decision to spur buying activity by lowering interest rates has served as an important catalyst. The local real estate market, for all intents and purposes, had been stagnant since 2018. Home prices had risen so much that practically nobody could afford to buy. However, the Fed’s decision to lower interest rates made today’s prices a lot more bearable for many prospective buyers. As a result, demand increased and actually allowed more owners to list their homes. For what it’s worth, the pandemic actually pulled the Honolulu real estate market out of a rough patch.

Honolulu Housing Market: 2020 Summary

  • Median Home Value: $705,049

  • 1-Year Appreciation Rate: -2.8%

  • Median Home Value (1-Year Forecast): -3.7%

  • Median Rent Price: $2,200

  • Price-To-Rent Ratio: 26.7

  • Unemployment Rate: 12.5% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 974,563 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $82,906 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 8.96%

  • Foreclosure Rate: 1 in every 10,120 (0.9%)

Honolulu Real Estate Investing 2020

Honolulu real estate market trends in 2020 were the direct result of the Coronavirus. When 2020 first kicked off, for example, real estate in Honolulu was on a downward trend. Home values had appreciated to the point where they became prohibitively expensive. As a result, Honolulu became one of the only places in the country to see home values drop at the onset of 2020. It wasn’t until the Coronavirus was declared a pandemic that local real estate started to show signs of life. At first, the pandemic stalled activity, but the stagnation was short-lived. Prices dropped in the first quarter, but started increasing by April, and haven’t looked back since.

Home value increases were primarily the result of two factors: previous price drops and the Fed’s announcement to keep interest rates low for the foreseeable future. This unique convergence of indicators convinced indecisive buyers to “get off the fence” and make a purchase. In a matter of months, the Honolulu real estate market was full of prospective buyers, but inventory levels weren’t ready for the influx of interest. The city’s lack of available inventory drove up the competition, and prices increased shortly after (for the first time since 2019).

The latest bout of appreciation forced local real estate investors to reconsider their exit strategies. While most investors made a living flipping real estate for more than a decade, appreciation rates all but erased attractive profit margins. As a result, Honolulu’s real estate market trends turned in favor of long-term investment opportunities. Local investors turned their attention to rental properties because lower interest rates helped offset higher acquisition costs. While flipping remained an option, chances were few and far between.

Honolulu Housing Market: 2018 Summary

According to Honolulu real estate news outlets at the time, the local market was the healthiest it had been since the recession. Median home values had been on the rise for the better part of a decade and, and only a small percentage of homeowners were without any equity in the area. More specifically, however, Zillow estimated that only 4.5% of the homes were underwater in 2018, whereas the national average was approximately twice that—10.4% to be exact. On top of that, demand persisted in the face of rapid appreciation. That said, Honolulu wasn’t able to escape the same inventory crisis facing the rest of the country, even isolated out in the Pacific Ocean. As a result, price appreciation has continued today and made the area more unaffordable than many would like to see.

Honolulu Real Estate Investing 2018

At $662,636, the median home value in the Honolulu real estate market was more than three times the national average in 2018. At their 2018 value, homes were up approximately 2.9% from the previous year, when median home values were somewhere in the neighborhood of $644,000. Even at that time, investing in Honolulu real estate had turned to a more long-term approach because of the high prices. 

Honolulu Housing Market: 2015 Summary

  • Median Home Price: $677,600

  • 1-Year Appreciation Rate: -0.3%

  • Unemployment Rate: 4%

  • 1-Year Job Growth Rate: 1.3%

  • Population: 374,658

  • Median Household Income: $70,093

Honolulu Real Estate Investing 2015

Despite tempering appreciation rates, the local housing market was one of the most expensive in the country as recently as 2015. With a median home price hovering around $677,000, the home’s value was roughly three times more than the average home in the United States.

In the three years leading up to 2015, the Honolulu housing market appreciated to a point where it was able to remove itself from a period of post-recession price weakness. Subsequently, the region increased in price for three consecutive years. In that time, homes appreciated by 13.0%. Owners in the area are, therefore, were the beneficiaries of a lot of new equity. 

An equally strong job sector supported both supply and demand within the Honolulu real estate market. In fact, the city had one of the healthiest unemployment rates in the country just five years ago. At 4.0%, the local unemployment rate was nearly 2.0% lower than the national average. Perhaps even more importantly, Honolulu’s unemployment rate continued to get better. Over the course of one year, it dropped a half of a percentage point. While the decline may not seem significant, it assuredly was.

A report issued by Trulia suggested that Honolulu was the fourth most overvalued market by 13.0%. The only markets more overvalued at the time were Austin, Orange County, and Los Angeles. For comparisons, it was overvalued by as much as 87.0% in 2006, before the bubble burst.

Honolulu County Map:

Map of Honolulu neighborhoods

Honolulu Real Estate Market Summary

The Honolulu real estate market on Oahu has experienced a great deal of fluctuation in a relatively short period of time. A mere five years ago, the local housing market was the beneficiary of a bustling job sector propped up by tourism. However, the introduction of the pandemic and quarantine orders issued by the government have made it difficult for real estate in Honolulu to receive support from the economy. As a result, many homes are unaffordable to local residents. That said, the disruption may create an opportunity for advantageous real estate investors. While prices are extremely high at the moment, a brief pullback onset by the pandemic could bring down acquisition costs on long-term investments, in addition to lower borrowing costs. All things considered, Honolulu is an incredibly expensive place to invest at the moment, but there are still opportunities for those who know where to look.

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