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The Winds Are Changing

by | Apr 3, 2021 | Blog, Buying, Luxury Market, Selling | 0 comments

This is easily is the best real estate market in 15 years. Never has there been such a frenzy of real estate transactions like this in my career and there are so many reasons for it.

First, over the last ten years, we watched the migration from the suburbs to the cities. No longer was it cool to have a big house in the burbs? All the action was in urban inner-city areas with super high-rise luxury condos, everything within walking distance, and weekend farmers markets in stadium parking lots, etc. Now, in the last 12 months, we have seen a mass exodus from the cities back to the suburbs and beyond. Why? Social unrest, COVID, and the fact that no one wants to be lockdown in a 1200 sq. ft. condo in the city or see their neighborhood burned down by rioters. Bigger houses, wide-open spaces, home offices, farms, outbuilding, and Ohana’s are all the rage! The problem is, we have been running a massive shortage of homes for the last 5-7 years. New home formations (meaning people wanting to buy a new or re-sale home) have seen a steady demand of about 2 million per year. We as a nation are only producing about 1.1 million homes a year for sale (both new and re-sale). We have been running in a 900,000 home deficit for 5-7 years. That issue has caught up with us finally.

Second, I never thought so many people would consider buying a home site unseen. In fact, had you asked me 18 months ago if people would buy a house entirely online and never step into it before closing, I would have said maybe, but in about 7-10 years. COVID changed all of that and accelerated that timeline to today which is another reason for the frenzy.

Third, COVID has changed the game on working from home. A nation that got up and went to work in the city, in an office building, in a storefront, now gets up in sweatpants, PJ’s, or a golf shirt that only shows on Zoom. The new frontier means that we can work from anywhere, sell goods and services, make a living, support our families and do it all from the comfort of our home office. For many people, if they can work from home and their kids go to school online, why not work, play, and live in a place with a view like Hawaii. That’s exactly why we have seen a boom in the market in the Hawaiian Islands like never before.

Now here’s the bad news. It’s not sustainable. Double-digit appreciation, homes selling for $238,000 dollars over asking price, every deal a cash deal, 10 -15 offers on each property, will not last much longer. Why?… here are some of the reasons:

  • #1 – As more and more people get vaccinated; the country will become more comfortable with traveling again. This means they won’t feel as confined, or they won’t feel like they cannot escape their surroundings. As long as they can travel without the risk of getting sick, it’s more likely that they will stay in their current home. As restrictions in each state begin to lift, people will again feel comfortable staying put. The frenzy to move somewhere else will begin to slow.

 

  •  #2 – Washington is spending money like drunken sailors. The national debt of $30 trillion will start to have an effect on the entire country. Inflation will be a real concern and the feds will move quickly to keep it under control. Most likely it will be in the form of higher interest rates. I predict that by this time next year, the interest rate for a home mortgage will be 4.5 or 4.78%.

 

  • # 3 – The current plan by the President and his administration is throwing money at people. It is not addressing job growth and wages. Both will become a problem as we get into the third and fourth quarter of this year. As a result, the majority of Americans will be experiencing higher taxes and fees with stagnant job growth. This coupled with the fact that small businesses have been decimated across the country means the economy will slow or have limited growth to begin 2022.

 

So, what does this mean for buyers and sellers? The frenzy has to end, and it will. This is actually good news for buyers and sellers and I’ll explain why next month when I write part two of “The Winds Are Changing.”

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 were thinking about buying or selling in Hawaii then please don’t hesitate to reach out to us at team@thehawaiiteam.com or call 808-913-0899.

 

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