Is Hawaii in a Housing Bubble?

Are you worried about headlines and comments you hear about the housing market being in a bubble? Lots of us remember the housing bubble that happened right before the massive crash of 2008, and seeing trends that are reminiscent of that era can cause some concern.

If you are wondering if Hawaii is in a housing bubble, we can help break it down. Spoiler alert: it's not. The conditions of today's market are actually pretty different from what we saw 14 years ago, and people investing in real estate right now are still setting themselves up for success. Here's why.

What counts as a housing bubble?

A housing bubble is not simply a swift increase in housing prices. Many people are using the term housing bubble to describe what is happening in the Hawaii real estate market right now when what they should say is that prices have risen quickly over the past couple of years.

To qualify as a housing bubble, these rapidly rising home prices must be accompanied by over-valuation and shady lending practices. In 2005 and 2006, we saw home values skyrocketing simply because people would pay the price, getting qualified for loans based on stated income rather than being tax-return verified. The crash came when so many people were tied to mortgages they simply could not afford, resulting in a massive number of Americans defaulting on their loans.

The bottom line is: rising home prices do not equal a housing bubble if the people buying them can afford the mortgage.

The Difference between 2008 and 2022

In 2008, the market crashed because of widespread foreclosures and so many homes flooding the market. The value of these properties plummeted as so many people lost their homes. The mortgage lending practices that created this scenario are now illegal, designed to protect the housing market and the economy at large from suffering from another housing market crash.

Today, lenders are governed by much stricter requirements. Stated-income loans and interest-only loans are no longer available or very limited, which means that, generally speaking, people cannot get into a mortgage that is far beyond their means.

Rising Interest Rates

While rising interest rates feel like bad news to those of us planning to buy a home with a mortgage, there is a silver lining to them. Rising interest rates are designed to prevent a bubble from happening, correcting the market more gently. If you can afford to buy a home with today's interest rates, it is still a great investment. Keep in mind that today's 5% or 6% rate is still historically quite low, and you won't be tied to it forever. As the market changes, you may be able to refinance in the future for a lower rate.

Steady Demand in Hawaii

One of the primary factors that determine housing prices is the balance of supply and demand. Housing in Hawaii is always in high demand, with an inherent limit on supply based on the boundaries of the islands themselves. No matter the economy, people love to travel to Hawaii. Real estate prices are held up by the steady demand for vacation rentals.

In addition to the demand created by tourism, Hawaii is one of the best places to live in the nation. It is the dream of many people to live on the islands, moving here with their remote jobs or planning and working for years to be able to retire on the islands.

If you are one of the many people who is excited about owning a home in Hawaii, we would love to answer more of your questions about why now is still a great time to invest in Hawaiian real estate. Contact us any time to learn more.