Last month, if you read our featured story of the month, we talked about how the real estate market is headed for a change. We talked a lot about what created this market frenzy in the first place and the factors that are likely to come into play to slow it down. If you missed part one of the story or would like to refresh your memory, you can reread it by clicking here. We finished part one by talking about how the frenzy coming to an end was both good for buyers and sellers. So, let’s pick up there this month with an explanation of why the real estate market change may be a good thing.
First, double-digit appreciation cannot last forever. Prices are rising way too fast; soon huge chunks of the population will be completely priced out of the home buying market and wages
aren’t even close to keeping pace with the appreciation of home values. This will be a big problem for the entire country. In fact, over the last few months, we’ve experienced something
called stagnation. We haven’t heard that term since the Jimmy Carter administration. Stagnation is when you have stagnant job growth and inflation on the rise. Both things happening at the same time are not good signs for the economy. People need to go back to work, and businesses need to get healthy again. Homes appreciating 14 or 17% year-over-year is ultimately not a good thing for anyone. A more modest appreciation, say 4 to 5%, is what I would expect going forward. The only thing that’s stopping this from happening, is the inventory shortage. So, let’s look at how to solve that problem.
Inventory on the resale market is predicated on whether the people at the top of the funnel – usually those with big homes who want to downsize or families of homeowners who have
passed on – are ready to sell. Once those homes at the top of the funnel become available then the door opens for potential buyers to move on or upgrade to the next level. This has not
happened recently because people have been reluctant to sell their homes during pandemic conditions, likely because they felt they had few alternate home options to consider. More
options will appear as homebuilders are able to ramp up new home starts. Their production is entirely dictated by the availability of materials and skilled labor. Skilled labor is and will
continue to be a problem; however, materials will start rushing back to the marketplace and at lower prices as factories come fully back online.
More inventory becoming available is the key to slowing down the real estate frenzy. More inventory means more choices for buyers and less competition. It also means that prices and
appreciation will start to slow down. As I’ve said many times before, this is ultimately a good thing. Buyers are getting discouraged after making offers on 7, 10, or more homes and coming
away with nothing. Sellers who can sell their homes at a premium price still need a place to live, so giving them more choice and more inventory is a good thing as well. It should spur more people on to sell. If you are thinking, “well I’m a seller and I want that record-breaking price for my home. I don’t want this to end!” Don’t worry you’re still going to get a mind-blowing price for your home. Remember, what’s happening right now is the perfect storm in real estate. This is a once-in-a-generation event; it cannot last forever, and it never does. Something always has to give.
Dan Polimino is the owner of the Hawaii team in Kailua Kona, Hawaii. He and his team are the luxury residential experts for the Big Island. If you are thinking about buying or selling in
Hawai`i, then please reach out to us at team@thehawaiiteam.com or call 808-913-0899.
