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

by Than Merrill | @ThanMerrill
Published on Tue, Jun 29 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 height of 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 facing 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 that 2020 was a rough year for the Honolulu real estate market, but 2021 appears ready and willing to build off some positive momentum.

Honolulu Real Estate Market 2021 Overview

  • Median Home Value (Honolulu County): $785,722

  • Median Sales Price: $978,000 (+22.7% year over year)

  • Number Of Sales: +63.3% year over year

  • 1-Year Appreciation Rate: +9.2%

  • Forecasted 1-Year Appreciation Rate: +15.7%

  • Median Days On Market: 8 (single-family homes)

  • New Listings: 430 (+24.6% year over year)

  • Median Rent: $2,197

  • Weeks Of Supply: N/A

  • Price-To-Rent Ratio: 29.80

  • Unemployment Rate (Metro): 7.2% (latest estimate by the Bureau Of Labor Statistics)

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

  • Median Household Income (Honolulu County): $85,857 (latest estimate by the U.S. Census Bureau)

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Honolulu housing market trends

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 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, and the first quarter of 2021 was no exception. According to Attom Data Solutions’ first-quarter 2021 U.S. Home Sales Report, “the typical first-quarter 2021 home sale in the United States generated a profit of $70,050. That was down from $75,750 in the fourth quarter of 2020 but still up 26 percent from $55,750 in the first quarter of 2020.”

“The typical $70,050 home-sale profit represented a 34.2 percent return on investment compared to the original purchase price – down from 37.1 percent in the fourth quarter of 2020 but still higher than the 30.8 percent level recorded a year ago,” said the report.

In the Honolulu real estate market, timely investors were able to capitalize on short-term gains. Still, prices continued their historic run. Home prices have tested new highs in each month of 2021, and investors are finding rehabs harder and harder 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.

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 May, the average rate on a 30-year fixed-rate loan was 2.96%, according to Freddie Mac. While slightly higher year to date, mortgage rates are historically low (and will continue to remain low for at least a couple of years). The Fed’s decision to lower rates has brought down acquisition costs for investors using conventional financing. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to increase their monthly cash flow from properties placed in operation.

Lower borrowing costs will help absorb today’s high prices, but it’s the cash flow potential of real estate assets that make the prospect of owning a rental property even more attractive. With a median rent price of $2,197, 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 29.80 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 simultaneously increase cash flow and mitigate the risk of costly vacancies.

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

According to Attom Data Solutions’ Q1 2021 U.S. Foreclosure Market Report, a total of 33,699 U.S. properties received a foreclosure filing (default notices, scheduled auctions or bank repossessions) in the first quarter of this year. According to the latest research, nationwide foreclosures are up 9.0% from the last quarter of 2020 but down 78.0% from this time last year.

“The foreclosure moratorium on government-backed loans has virtually stopped foreclosure activity over the past year,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company. “But mortgage servicers have been able to begin foreclosure actions on vacant and abandoned properties, which benefits neighborhoods and communities. So it’s likely that these foreclosures are causing the slight uptick we’ve seen over the past few months.”

The state of Hawaii, in particular, is expected to see an increase in foreclosure filings over the course of 2021. If for nothing else, 2020 saw the state’s filing rate drop to a decade low. Therefore, as government programs run their course, there’s only one way for foreclosure filings to go: up. Nowhere else in Hawaii are foreclosure filings expected to increase more than in Honolulu. Investors who position themselves well today may be in line to help financially strapped homeowners in the future avoid bankruptcy.

Median Home Prices In Honolulu 2021

The median home value in Honolulu is $785,722. At its current valuation, the local median home value is nearly three times the national average, which currently rests somewhere in the neighborhood of $287,148. 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 48.8%. Over that same period of time, the median home value in the United States increased 75.0%. The increases were largely due to three prominent indicators: an improving national economy, positive sentiment, and (ironically) a distinct lack of available inventory.

It is worth noting that appreciation rates in Honolulu were outpacing the rest of the country up until the second quarter of 2018. At the time, prices had increased so much that they experienced a pullback. It wasn’t until supply and demand issues caused by the pandemic in August of 2020 caused prices to appreciate quickly. Over the last year, the median home value in the Honolulu real estate market appreciated by as much as 9.2%.

Of particular importance, however, is how the Honolulu housing market is expected to fare moving forward. The pandemic has a lot of people asking the same question: Will the Honolulu housing market crash? The most likely answer is no; the Honolulu housing market isn’t expected to crash. There is too much demand for prices to decrease. In fact, forecasts are calling for a 15.7% increase in the coming year.

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 due to 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 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 a costly place to invest at the moment, but there are still opportunities for those who know where to look.

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