After the U.S. Federal Reserve raised interest rates in May, home sales on the Big Island are already slowing down.
The Federal Reserve on May 4 raised its benchmark interest rate by 0.5% in order to combat inflation, just two months after hiking it 0.25% in March.
And already, the higher rates have had a cooling effect on the Big Island housing market, which has been extremely vigorous over the last several years.
“It’s hard to tell, but I think it has slowed down a bit,” said Lori McNeel, real estate agent with First Island Realty in Kailua-Kona. “We’re not getting 30 offers on the same property anymore, we’ll get more like five.”
According to Multiple Listing Service data, if sales prices for single-family homes are decreasing, it is almost imperceptible. The median sales price for a home in May was $522,500, a decrease of only about $3,000 from April, but still more than $20,000 higher than it was in May 2021.
On the other hand, the average sales price — $945,362 in May — has dropped from last year, when it was $1.06 million.
Dana Kenny, principal broker for Savio Realty in Hilo, said he expects the full impacts of the rate hikes will not be felt until later this summer.
“There’s people still selling and buying with cash, so there’s still money floating around in the pool,” Kenny said. “But it’s gradually going to slide off.”
But anybody who failed to pull the trigger on a home purchase before the rate increases will be more reluctant to do so now, Kenny said.
“Let’s say I want to buy a $400,000 home at a 4% interest rate, and then they drop the rate to 3%,” Kenny said. “I can now afford to buy a $600,000 home. 1% makes that big a difference.”
McNeel said the continued prevalence of remote working is continuing to drive a lot of sales, with people from the mainland deciding that, if they can work anywhere, they may as well work in Hawaii.
But with other economic factors driving up the cost of everything from fuel to food, that market could shrink soon, too. On the other hand, she said, the most desirable properties are still leaving the market within days, just as they have for the past few years.
Although McNeel and Kenny both noted that mortgages aren’t being handed out willy-nilly like they were during the subprime mortgage crisis that caused the 2008 Great Recession, Kenny added that the situation could lead to a feedback loop that drives home prices down.
“I’ve been a broker for 35 years, so I’ve seen this five times before,” Kenny said. “Of course, I remember when we had rates at 21% under (President Jimmy) Carter (in 1980). I think we’ll always recover … but this is the first time I’ve looked at it and thought it’s getting a bit scary.”
Meanwhile, the Federal Reserve has indicated that it will continue to raise rates until inflation drops to 2% from its current position at roughly 8%.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.