What Happens to Oahu Home Prices During a Recession?

With some economists suggesting the U.S. economy may experience a mild recession in the next year, many homebuyers and sellers may be wondering what a possible slowdown in the economy could mean for Oahu home prices.

Using historical market data dating back to 1980, Locations' research shows why a meaningful drop in Oahu home prices is unlikely—regardless of fluctuations in the economy. 

What is a recession?

A recession is typically defined as at least two consecutive quarters of declining gross domestic product (GDP) growth. However, any shrinking of the economy along with higher unemployment can be classified as a recession. When a recession lasts a long time, it’s called a depression.

How do recessions affect the housing market?

There have been five major recessions between 1980 and 2008, and nationwide home prices have declined in four of those recessions. On Oahu, home prices barely budged during these periods, with the exception of the Great Recession of 2007 to 2009. In fact, for most of these recessionary periods, Oahu home prices actually increased during and after the recession. Oahu home prices also fared better than U.S. home prices overall in every case but one (the 1981 recession).

Following the Great Recession, home prices on the U.S. continent dropped by almost 20 percent. However, on Oahu, home prices declined by less than seven percent and bounced back faster, too. It's important to remember that a recession is just one economic factor that can affect home prices.

“Ultimately, supply and demand dynamics dictate the outcome for prices, and these variables will differ based on geography.” says Odeta Kushi, deputy chief economist at First American.

Will Oahu home prices drop if there is a recession?

It's not likely that Oahu home prices will fall if there's a recession next year, says John Jacobson, lead research analyst for Locations. “A far greater number of people want to buy a home on Oahu compared to the number of new homes for sale and existing homes from sellers moving or leaving the islands. Low inventory for sale makes any meaningful drop in prices highly unlikely.”

On Oahu, the number of homes for sale is especially low. As reported by Locations in the November 2023 Oahu Real Estate Market Report, there were just 3.3 Months of Remaining Inventory (MRI) for single-family homes—that means that if no new homes were to come on the market, the existing supply of homes would sell out within a little over three months. A balanced market—one that doesn’t give buyers or sellers an advantage—has about six Months of Remaining Inventory. When MRI falls below six months, market conditions favor sellers.

Finally, new home construction has lagged for decades further adding to the supply shortage. Jacobson noted that new home construction on Oahu is held back by a lack of available land and a burdensome permitting process. “Low inventory is one reason why the Oahu housing market has been less affected by recessions and even depressions than other U.S. markets,” said Jacobson.

Oahu home prices likely to keep climbing

While the pace of the housing market has slowed from its peak in 2021 to 2022, Jacobson expects Oahu home prices to continue to climb next year—a view that's in line with national housing price forecasts. "Oahu home prices will continue to rise over time, and home values will continue to increase—whether the overall economy is doing well or not," he said.

With an average annual appreciation of more than five percent over the past 45 years, Oahu residential real estate has always been, and continues to be, a wise investment. So, if you're thinking of purchasing your first home or moving to a new neighborhood in the next 12 months, don't try to time the market. A recession probably won't bring down Oahu home prices, and as mortgage interest rates come down home prices could shoot up as more buyers enter the marketplace.

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