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As the spring homebuying season begins, mortgage rates continue to fall for the third consecutive week, averaging 6.32% for the week ending March 30, according to data from Freddie Mac. Despite the drop, rates remain elevated compared to last year’s average of 4.67%, and low inventory continues to be a challenge for prospective buyers.
Economic uncertainty has contributed to the decline in mortgage rates, which has brought borrowers back to the market. The Federal Reserve recently raised interest rates by a quarter point to address stubbornly high inflation and risks to financial stability, which led to market adjustments and the possibility of stricter lending requirements. However, the Fed’s actions do not directly dictate mortgage rates; they tend to track the yield on 10-year US Treasury bonds, which are influenced by the Fed’s actions and investors’ reactions.
The recent decline in mortgage rates has boosted borrower demand, with applications for home purchases and refinances increasing for four consecutive weeks, as per the Mortgage Bankers Association. While still below levels from a year ago, lower mortgage rates and slower home-price growth have improved buyers’ purchasing power this spring.
Homebuyers are sensitive to mortgage rate fluctuations, and they will be keeping an eye on any further dips this spring as an opportunity. As home prices show signs of stabilizing or even dropping in some areas, pent-up housing demand is evident with every gain in affordability. During the prime spring buying season, buyers will be searching for well-priced, ready-to-move-in homes.
Instability in the banking sector adds unpredictability to the mortgage outlook, with inflation and the Federal Reserve’s next steps being the main factors affecting mortgage rates and the housing market. If financial instability concerns fade, the focus will shift back to inflation, with mortgage rates likely to move accordingly. The Mortgage Bankers Association predicts mortgage rates will fall to 5.3% by the end of 2023 as the economy weakens.
During this spring homebuying season, prospective buyers are advised to keep a close eye on mortgage rates and act opportunistically, making offers quickly when they see a dip in rates or when they expect an imminent rate increase.
Here in Hawaii
The real estate market on the Big Island of Hawaii has experienced a significant decrease in the number of sales from February 2022 to February 2023. For instance, residential sales dropped by 42.54%, vacant land sales by 45.16%, and condominium sales by 43.53%. The sales volume also followed a similar pattern, with residential sales decreasing by 49.06%, vacant land sales by 40.02%, and condominium sales by 21.37%.
These declines in the number of sales and sales volume can be partly attributed to the changing interest rates. As interest rates rise, borrowing money for mortgages becomes more expensive, which typically leads to a slowdown in the real estate market. Potential homebuyers may become more hesitant to enter the market, and those who are already in it may choose to refinance or adjust their loans to accommodate the higher rates.
In particular, the Big Island of Hawaii may be more susceptible to these changes due to its unique real estate market. The island features a mix of residential, vacant land, and condominium properties that cater to a diverse range of buyers. As a result, fluctuations in interest rates can have widespread consequences across different segments of the market.
For example, the Puna district saw a decrease of 40.43% in residential sales and 44.04% in vacant land sales, while South Hilo experienced a staggering 68.15% drop in residential sales. Similarly, North Kona’s residential sales declined by 55.81%, while its vacant land sales remained unchanged. These numbers suggest that rising interest rates have had a noticeable impact on the Big Island’s real estate market.
Moving forward, if interest rates continue to rise, it is likely that the Big Island’s real estate market will experience further slowdowns in sales and sales volume. Homebuyers may become increasingly cautious, and property owners might find it more challenging to sell their properties at desired prices. On the other hand, if interest rates stabilize or decrease, the market may rebound as borrowing costs become more affordable, and potential buyers regain confidence in the market.
In conclusion, the interest rate environment plays a significant role in shaping the real estate market on the Big Island of Hawaii. As interest rates change, so too will the island’s market dynamics, with the potential for both positive and negative consequences depending on the direction rates take.
What Could Happen
The current state of interest rates can have a significant impact on real estate market predictions, including the predictions made based on the provided data. Here’s how interest rates might affect the predictions:
Mortgage rates: When interest rates are low, mortgage rates tend to be lower as well. Lower mortgage rates make it more affordable for potential homebuyers to take out loans, increasing demand for homes and possibly leading to higher home prices.
Affordability: Lower interest rates can improve overall affordability for homebuyers, allowing them to purchase homes at a higher price point. This can lead to increased demand for residential properties and potentially higher sales volume.
Investment in real estate: Low interest rates may incentivize investors to invest in real estate since the return on investment might be higher compared to other investment options. This could lead to increased demand for vacant land, commercial properties, and multi-tenant facilities (MTF).
Construction and development: Low interest rates can encourage developers to take on new projects due to the lower cost of borrowing. This can lead to an increase in the construction of new residential and commercial properties, which could affect the supply side of the market.
It’s important to note that interest rates are only one of many factors that can influence real estate market predictions. Other factors, such as local economic conditions, population growth, and changes in housing supply, can also have a significant impact on the market. As a result, it’s essential to consider a comprehensive set of factors when making predictions about the real estate market.
About the Author
James T. Morrison, R(S)
James T. Morrison is a Realtor with Knutson & Associates, and part of the Papakea Collection Sales Team. You can email him directly at JTM@Jamesmorrisonhawaii.com or call or text him directly at (808) 339-8249
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papakeacollection
March 10, 2026
