Cash deals are at an all time high right now in the past, I would say in the last 12 months, cash deals were hovering around 41-42% during the peak of the buying frenzy. During the pandemic in 2021, we saw cash deals get up to about 50%-51%. But recently there’s been a rash of cash deals and there’s no surprise about why it’s happening. Nobody’s really super excited about paying a 6.5 or a 7% interest rate, let alone how do you get an investment property here to a cashflow at 6.5% or 6.75%? You don’t! You don’t get it to cash flow, so most people are just turning to cash and some statistics are showing me that as of recently, up to 60% of the deals on the Big Island are cash.
So what does that mean for you? Well, if you are getting a loan, yes, you can still buy a property, but you may have a difficult time competing and you may be wondering if all the properties getting multiple offers? No, they’re not getting multiple offers. Some of them are getting multiple offers. If it’s the right property in the right location, it will get into a multiple offer scenario.
So what do I mean by “right property, right location”? Well, first, it means it’s a property that’s in a short-term vacation rental zone. If something comes up in one of the resorts that is short-term eligible, and it’s in a good complex — that means it is going to get into a multiple offer scenario.
The other reason why we might be in a multiple offer scenario is because of inventory. Inventory is incredibly low. There was an article in Inman News, which is our trade publication for Realtors, that said inventory across the country is the lowest it’s been in decades. That’s a plural in decades. And so we know that if you’re a Realtor like me and you’re operating in the market every day, you know that’s going on. So, when a property does pop on the market, it might be so rare that one becomes available that instantly there’s multiple offers. For instance in Maua Lani Point – it’s so rare and it’s so in demand that it’s going to get multiple offers for no other reason than an extreme inventory shortage.
If you’re going in and you’re trying to buy a popular place in a popular location, and you’re doing it with a loan, you’re gonna have to do something to sweeten the deal. You’re going to have to do something to give the seller more money. Then what they’re going to get in a cash deal, because chances are, if you’re competing for that property, nine times outta ten, you’re competing against a cash buyer.
As far as interest rates go, you’ve heard me talk for a long, long time that I thought interest rates were gonna come down and it would happen this fall or into the winter. I think there is still a slight chance that could happen, but I’m not so optimistic anymore. I think that this 6.5 to 6.75 interest rate is probably here for a while longer. I think it’ll probably extend now into the fall and into the winter.
And you may ask why I’ve reversed my opinion. And the answer is, I’m not quite sure. I cannot put my finger on it. Somebody is artificially keeping these mortgage rates high because there’s no real economic data to indicate that they should be 6.5%. There’s no economic data to support higher interest rates. Inflation has been coming down. It’s 4%. Before long, we’ll be down to the benchmark of 2.3%. The jobs numbers are good, unemployment is low. There’s no real reason to keep a mortgage interest rate at 6.5. Fed Chairman Powell came out and said there’s a pause and we’re not raising interest rates at this time. We’re not going to raise short-term interest rates to banks. So again, there’s really no economic basis for a mortgage rate at 6.5%, which leads me to believe that somebody’s artificially keeping these mortgage rates up for a reason that we don’t really know.
That’s the best I can tell you right now after being in this business for 16 years. I’ll tell you this: over all of the years, in all of the markets, not any single market has ever been the same. Not one of ’em! There’s always a slight difference, something unique, something different about each market. If you ever want to learn more about the market and how if affects you as a home buyer or seller, just give me a call (808) 913-0899 or email me!