Honolulu, HI Real Estate Market Trends & Analysis [Updated 2020]

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Perhaps no other market across the country has been hit harder by the Coronavirus than that of Hawaii’s housing sector. The Honolulu real estate market on the South Shore of Oahu, in particular, has been reeling from the pandemic. Home values are nearly three times that of the country as a whole, and unemployment numbers have shot past national average. To make matters worse, the city’s primary source of revenue—tourism—has all but disappeared in a matte of a few months. 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. It is worth noting, however, that the latest disruption may have actually opened the door for investors.

Honolulu Real Estate Market 2020 Overview

  • 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%)


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Real estate in Honolulu

2020 Honolulu Real Estate Investing

The South Shore of Oahu has served investors well since the last recession, which begs the question: Is real estate in Hawaii a good investment? In particular, will Honolulu investment properties be worth investors’ time? Simply put, an investment property can be a great 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 there are 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 in the same profit margins when it came to selling a home. The Honolulu real estate market, in particular, saw some of the largest 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.

There’s no doubt about it: profit margins are growing harder and harder for the Honolulu real estate investing community to come by. Local real estate prices are simply too high for investors to consider rehabbing the most viable exit strategy on their part of the island.

It is worth noting, however, that 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 historical 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. Rental properties, in particular, appear to be the most attractive investment vehicles at this point in 2020.

At the very least, here are three market trends in Honolulu being shipped 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 June, the average rate on a 30-year fixed-rate loan was 3.16%, according to Freddie Mac. June also represented one of the lowest average mortgage rates ever, and the Fed announced its intentions to keep rates low for the foreseeable future. As a result, lower borrowing costs have brought down acquisition costs for those looking to add to their passive income portfolio. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to pad their bottomline.

Lower borrowing costs will help absorb today’s high prices, but it’s the cash flow potential of real estate assets which 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 potentially 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 26.7 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 a number of viable exit strategies at their disposal, but 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.

2020 Foreclosure Statistics In Honolulu

The Honolulu real estate market has a relatively high foreclosure rate. According to RealtyTrac, as many as one in every 10,120 homes are distressed. More specifically, 0.9% 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 14,691 homes in the United States may be classified as distressed, which amounts to a 0.6% foreclosure rate. That said, the foreclosure rate isn’t anything to worry about, but it could stand to improve a little.

While slightly higher than the national average, the local foreclosure rate has made up a lot of ground in a relatively short period of time. As recently as June, “the number of properties that received a foreclosure filing in Honolulu County, HI was 13% lower than the previous month and 68% lower than the same time last year,” according to RealtyTrac. The United States, on the other hand, has started to see the impact of the Coronavirus on the foreclosure market. While foreclosure filings are down 81.0% year-over-year, there was a 5.0% increase from May to June. The month-over-month increase could serve as an indicator for markets across the country, and the South Shore is no exception.

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, 85.0% of 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:

  • Hauula: 1 in every 1,748 homes is currently distressed

  • Pearl City: 1 in every 3,964 homes is currently distressed

  • Waipahu: 1 in every 6,573 homes is currently distressed

  • Kailua: 1 in every 8,397 homes is currently distressed

  • Honolulu: 1 in every 12,583 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 second half of 2020.

2020 Median Home Prices In Honolulu

The median home value in Honolulu is $705,049. At its current valuation, the local median home value is nearly three times the national average, which currently rests somewhere in the neighborhood of $248,857. 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 42.7%. 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.

Honolulu, in particular, 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” in order 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 across the country.

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

Home prices have increased nearly every year since the end of the Great Recession, dating back to about the first quarter of 2012. On a national level, the median home value has increased for eight consecutive years. However, the Honolulu real estate market peaked towards the last quarter of 2018. Since then, prices have declined to where they are today. In the last year alone, the median home value has dropped 2.8%. Moving forward, the presence of the Coronavirus is expected to drop prices even further, to the tune of about 3.7%. It is important to note, however, that the drop in prices isn’t an indictment on the local market, but rather a much needed return to normalcy (or at least something resembling a “normal” market). Not only that, but the disruption onset by the pandemic could actually represent a buying opportunity for opportunistic investors.

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 under water 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 to 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 value of a home 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. 

Both supply and demand within the Honolulu real estate market were supported by an equally strong job sector. 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.

*The information contained herein was pulled from third party sites. Although this information was found from sources believed to be reliable, FortuneBuilders Inc. makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. Any reliance on this information is at your own risk. All information presented should be independently verified. FortuneBuilders Inc. assumes no liability for any damages whatsoever, including any direct, indirect, punitive, exemplary, incidental, special, or consequential damages arising out of or in any way connected with your use of the information presented.
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