Keahi’s Market Murmur – Is the market slowing? Impacts of inflation?

Anyone can quote the statistics put out by the Board of Realtors. My goal in this section is to provide unique insight on trends that may not be readily apparent in the numbers. I call it a “Market Murmur” because over the years I’ve noticed that the brokerage community smells shifts and changes in the market well before most pundits can quantify them. Here are this month’s Market Murmurs.

For the last few months, nearly every agent I talk to asks if the market has slowed. The mere asking of the question is evidence that the brokerage community is feeling a shift. A reputable local economist confirmed that his numbers showed a market peak in July.

Should you be concerned? If you are a seller, you are going to sell fast and get a great price as compared to 2020 and prior. The market still favors sellers, but not as insanely as before July.
If you are a buyer, you still need to be ready to act quickly because desirable properties in good locations are still going fast. Buyer’s may be competing against 3-5 offers instead of 10-20 offers. Though the market is different, it is still a very good seller’s market.

According to my insider economist, 99% of Oahu’s Covid period buyers have been local. This means the market was overly hot with very little input from “off-shore” buyers. As these travelers return, could they fuel another run up in prices? Does the “off shore” buying community have pent up buying motivation? We will see.

Prior to Covid, Honolulu saw significant purchasing activity from mainland China. To me, it seemed many Chinese nationals were concerned about the direction of the Country and wanted to use Hawaii and the USA as a safe harbor for their cash. Given the shifts in Hong Kong and the Chinese Communist Party (CCP) move away from freedom and liberty, could there be even greater urgency to move money to Hawaii? If the CCP tightens the economic grip on its people, will the urgency to shelter assets accelerate? Time will tell.

For the first time in decades inflation is in the economy. I entered real estate in 1983, the tail end of the last significant inflationary cycle. What did I learn from this?
#1 People with cash bought real estate because it is a hard asset and it gave them a hedge against inflation.
#2 People without cash couldn’t buy because the 18.75% 30 year fixed rate financing made it nearly impossible for them to qualify for a loan.
#3 As a result of high interest rates, the pool of renters grew dramatically, sharply driving up demand and hence rental prices.
#4 Seller’s with high equity positions (very small existing loans) were selling with owner financing. They would ask for 20% or more down payment and the buyer would make monthly payments at the low rate of 12% per year. Owners that did this deferred capital gains taxes (which may be possible today) and received excellent returns as compared to most other investments at that time.

For now, we are blessed with low interest rates and, I believe, the market could absorb some increase in interest rates. The challenge we face is there have be 30’ish years of low and declining interest rates. The long-term low rates have shifted the perception of what is a high interest rate. Since the Fed uses interest rates to kill inflation, is 5% or 6% now considered a high interest rate? I’m not sure what the actual rate is, but I am sure that it is significantly lower for millennials than the generations before them. If this is true, then a rate of 5% or 6% could be perceived as very high and the buying community could begin to balk at purchasing.

In closing, we are in a time of more and more uncertainty and if you have not yet done it, I recommend reviewing all the interest rates on your loans and seeing if you can lock in the lowest possible long term rate. This will protect you as rates rise and, over time, you will look like a financial genius. If you don’t yet own a home, now is the to purchase. This will allow you to lock in of low interest rates and avoid potentially rising rents.

Let me know what think and what murmurs you hear. Feel free to pass this on