Monday, January 30, 2006

Pacific Coast Slowing; Defaults Rising reports that the Pacific Coast is beginning to shift to a buyer's market:

"We're seeing reduced price appreciation in the Pacific Northwest, and Alaska although population growth and job growth there remain strong," said president Alexis McGee. She added that while the pace of home price increase in Hawaii had slowed slightly, annualized price appreciation year over year was still above 20%.

Also, defaults are on the rise:

She said that several overheated California markets were beginning to correct with prices declining slightly in the North, and slowing sales and less price appreciation in the South and that defaults were rising.

"A great many risky loans were issued in California as home prices reached the stratosphere," Ms. McGee pointed out. "Interest only and option ARMs were used by many buyers to qualify for homes they could not otherwise afford. That means trouble in the near and intermediate future."

Isle Teacher Pay Comes in Dead Last

Worried about the public school system in Hawaii? You should be.

The Star-Bulletin reports that teacher salaries were the lowest out of 50 metropolitan U.S. cities when adjusted for cost of living.

Hawaii's average public-school teacher salary of $45,467 for that period -- the most recent complete set of data -- ranked 26th in the country, according to the conservative National Center for Policy Analysis,which compiled the inaugural study.

However, Hawaii's high cost of living reduced that figure to an effective $27,048, dead last in the survey, it said.

I don't think anyone expects to get rich when they become a teacher, but dead last?

Hawaii Flunks Report Card in National Study

Hawaii Reporter carries a piece referencing the results of a Corporation for Enterprise Development study. Hawaii received an "F" grade in the categories of Business Vitality and Development Capacity. Translation?

Hawaii’s residents face some real challenges such as scarce quality full-time jobs, a low homeownership rate, and a relatively high crime rate. However, the state should be commended for its efficient and responsible use of energy and environmental resources.


Two of the most difficult development challenges facing Hawaii are its poorly maintained physical infrastructure and its unusually high energy and urban housing costs.

Tuesday, January 24, 2006

Hawaii Residents "Trading Off" Lifestyles for Homes

The Housing Bubble 2 examines a report at MSNBC that Hawaii residents are "trading off" lifestyles for expensive homes:

"Mortgage payments are eating up a bigger share of many household budgets in Hawaii. Families on Oahu, for example, are expected this year to spend nearly half of their monthly salaries on mortgages because of higher housing costs, the highest level since the early 1990s."

"Most banks say families should ideally spend 25 to 30 percent of their gross income on home payments. 'Mortgage payments across the state are running at 42 to 44 percent of monthly salaries,' said Steve Higa, president-elect of the Hawaii Association of Mortgage Brokers. 'People are managing because they don't spend much on anything else.'"
Check out the revealing comments as well.

Exotic Mortgages on the Rise in Hawaii

No money down? No problem!

Can't afford the payments? Get an interest-only loan!

The Honolulu Advertiser claims that such previously rare mortgages are rising in popularity:

It's clear why home buyers are attracted to the new mortgage types. Higher prices — the median price of a single-family home was $640,500 in November — and slightly higher mortgage rates have made it impossible for many families to buy a home using a standard 30-year fixed-rate loan with a 20 percent down payment.

Traditional financing leaves you with a monthly payment of $3,347 on a median-priced home at current interest rates, according to Mortgage Plus, a Fort Street Mall mortgage broker. The monthly payment grew by $846 in the past year alone.

The nontraditional mortgages include 40-year loans and interest-only mortgages that can feature either fixed or adjustable interest rates. They generally carry higher interest rates than conventional loans.

There are even Hawai'i buyers taking out so-called "option ARMs," or mortgages under which the borrower can choose to make payments that are less than the interest that's owed. In that instance, the amount of loan increases, or goes into what's called negative amortization.

Prices continue to rise on Kauai

The Kauai Garden Island News reports that 2006 sales are brisk on Kauai:

This year, there has been a flurry of sales in the first two weeks, with agents at Century 21 All Islands (with offices at Princeville, Kapa'a and Koloa) closing 15 sales in the first week of this month alone, said Kenneth W. Kubiak, vice president in charge of Kaua'i operations.

The lack of inventory, Kubiak said, even with new projects like the Villas at Puali in Puhi, Regency at Puhi and Plantation at Princeville, remains a concern. That lack of inventory keeps prices high on those properties that are for sale, oftentimes effectively pricing many residents right out of the market.

43% of first-time home buyers put no money down

As adjustible rate loans start creeping up, many first-time home buyers will find themselves upside down, according to USA Today:

As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors.

The trend is potentially ominous. The real estate market is cooling in some areas, and rates on adjustable-rate loans are creeping up. As a result, some no-money-down buyers could owe more than their homes are worth.

Home Prices Drop in Metro O'ahu, Windward O'ahu, Hawaii Kai and North Shore

According to the Honolulu Advertiser, prices are dropping in the high-end areas of Oahu:

O'ahu single-family home prices showed significant declines in nearly all of the island's most expensive neighborhoods during the last quarter of 2005 — another sign the state's blazing housing market is cooling.

Prices keep rising in other areas, however:

In contrast, the six least-expensive markets on O'ahu — where median prices were all under $600,000 — showed price increases in the fourth quarter compared with the third quarter.

The Realtors board said those six markets were Central and Leeward O'ahu, the 'Ewa Plain, Makakilo, Waipahu and Pearl City (see map on A8 for how the board defines each region).

These are the areas in which many first-time home buyers concentrate their efforts.

Oahu Q4 Prices drop for first time in 8 years

According to the Star-Bulletin:

The number of previously owned homes sold on Oahu fell 11.4 percent in the fourth quarter compared with the same period last year, ending more than eight years of quarterly increases.
The "good" news is:

Harvey Shapiro, research economist at the Honolulu Board of Realtors, said the board is not concerned about the decline in volume because sales previously had risen for 33 straight quarters. The drop in the number of sales does not validate any predictions of bursting bubbles, he said.

"This doesn't speak at all of a bubble," Shapiro said. "The bubble (that) people have been talking about is prices."

So, Mr. Shapiro is saying that the level of inventory won't affect prices? What's this supply and demand I keep hearing about?

No bubble? At least one BoH economist thinks so

One Bank of Hawaii economist thinks that there is no bubble:

"But it's a serious problem in a state that has essentially a lower-paying service economy when housing costs this much."
Eh, no worries. If you're a bellhop making $10/hour, you can just get a no-interest loan! Don't get left behind!

Bank of Hawaii Economist Paul Brewbaker also has predicted that housing prices will not collapse in the manner of the 1990s bubble and will probably rise more. And Harvey Shapiro, the economist for the Honolulu Board of Realtors, feels the same way.

"We expect somewhat lower sales in 2006 but a continuing pattern of price increases," Shapiro said. "Even with fewer sales, the level of activity will remain near record levels. Prices will grow approximately 10 percent to 15 percent."

Think prices will continue to rise in 2006 and beyond?

O'ahu Home Prices Slip in December 2005

From the January 5, 2006 issue of the Honolulu Advertiser:

The transition from seller's market to buyer's market is under way.

Hard braking was finally applied to O'ahu's seemingly run-away real estate market in December. Sales of single-family homes dropped 24.5 percent, the biggest decline in nearly 10 years, while the inventory jumped 47 percent.

Hawaii Housing Bubble Following Mainland?

The San Francisco Chronicle reports on the cooling housing market in Hawaii:

Typically, Hawaii's real estate market lags the mainland's by six to 24 months and is often more difficult to read because of the relatively high number of homes owned by out-of-staters, experts say. In November, the median price for a home on Oahu was $418,000, well below a peak of $569,000 in August and 8 percent below the year-ago median.