The Effects of COVID-19 on Kauai Real Estate in 2021

The Effects of COVID-19 on Kauai Real Estate in 2021

COVID-19 has changed nearly everything. Almost no aspect of our lives and no industry has escaped unscathed and unchanged. As current trends show, this has been particularly the case for the real estate industry. The changes that began in 2020 are gaining momentum this year and look to be around for some time. So let’s take a look at the effects of COVID-19 on Kauai real estate in 2021.

Mortgage Interest Rates

One of the most important effects of COVID-19 on Kauai real estate concerns mortgage interest rates. These rates, owing to intervention by the Fed, hit record lows in 2020. They’re expected to remain fairly low but are slowly climbing.

“Mortgage rates are coming off of record lows entering 2021, with a 30-year fixed-rate loan’s average having slipped down to 2.66%. . . .[T]here will be some fluctuation as mortgage rates climb back up to a modest 3% on average. And, according to . . . the final average rate is projected to be 3.4% by the end of the year. Overall, these rates are low because the economy is still in recovery following COVID-19, and they don’t seem to be going anywhere soon.”

Overall, this remains a bright spot for both buyers and sellers. Rates will still be affordable for buyers throughout 2021. They won’t have to hurry to close in order to stay ahead of rising rates, and they won’t have to pursue a mortgage rate lock. For sellers, lower rates will allow more buyers to enter the market, giving sellers more opportunity to hold for a better price.

Coming Inflation 

Inflation is coming, and the Kauai real estate market will be impacted by this fact. Measures taken to slow the spread of COVID-19 have resulted in shuttered businesses and job loss. The resulting stimulus efforts required money, much produced by printing more.

“$3 trillion in printed money in 2020 equals inflation. Never in history have we come close to the massive amounts of money being printed in 2020. While it has served to keep people afloat during the shutdown, there is no way it cannot have a massive effect on the economy. With the amount of money printed, the dollar is becoming less and less valuable. . . . By printing extra notes, a government increases the total amount of money in circulation. If that amount does not follow an increase in production, there is more money to spend on the same amount of goods and services as before. Everything costs more; thus our money is worth less.”

But what does this mean for Kauai real estate?

There will be two primary effects on real estate. First, because the dollar will be worth less, prices will go up, including real estate prices. A related effect is that builders will be hurt owing to the rising prices of building materials and increased wages for skilled labor. And the upshot is that the housing shortage will only worsen.

Kauai Real Estate Prices

As we just mentioned, housing prices will increase because of impending inflation. Prices were, however, already increasing (though at a slower rate than in previous years), and this trend will be amplified when the inflation hits, impacting Kauai real estate and all other markets.

“While 2020’s low mortgage rates will continue into 2021 with some reasonable increase, they can only do so much to offset overall housing prices. Prices were already high last year based on reports from the U.S.Census Bureau. The median U.S. (new) home sales price was $355,900 in December, a difference of $24,500 to 2019’s median of $331,400 at the same time in 2019. Prospective homebuyers will find these housing prices aren’t going to drop either. Predictions forecast median sale price appreciation to go up by 5.7%.” And that estimate doesn’t really take into account the effects of future inflation.

This effect of COVID-19 isn’t very good news for buyers, but it is for sellers. With home prices continually rising, buyers, particularly first-time buyers, may have to look into one of the down payment assistance programs to get into the market. To find out about the best option for you, contact a Kauai agent at 808-634-4518.

The Housing Shortage

Inventory in real estate has been far short of demand for some time, but the housing shortage will be exacerbated as we fully feel the effects ofCOVUD-19 on the Kauai real estate market.

“In addition to high prices, buyers this year are facing the worst supply situation on record. There were nearly half as many homes for sale at the end of February compared with a year earlier . . . The result is that this is currently one of the most competitive housing markets in history. Nationwide,58% of home offers written by . . . agents faced bidding wars in January, up from 53% in December. That makes nine straight months in which more than half of all offers saw competition.”

Virtual Here to Stay

COVID-19 has also driven the move to a largely virtual process in Kauai real estate. Virtual tours, virtual showings, and remote closings here to stay. But we have the technology to accommodate this trend and make it highly practicable.

“Before the pandemic, many of us enjoyed perusing online, looking at different homes for sale in our area. But with social distancing in play, virtual formats have become a new normal, with many real estate agents utilizing live stream features on social media for open houses, and more emphasis placed on virtual tours, videos, and photographs in home listings.”

What It All Means

Slowly increasing rates, inflation, rising prices, drastically low inventory, and virtual transactions – what does all this mean for buyers and sellers in the Kauai real estate market? It means that both buyers and sellers will be facing some unique challenges. And it also means that the services of a good local agent will be more critical than ever. So if you’re a Kauai real estate buyer or seller, contact us today at 808-634-4518.

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