Hawaii's Ecomony Truning Around??? (fit in, apartment, rental)

[cynmkolohe]

From today's headlines:
Hawaii economy likely to be rough for at least 2 more years | HonoluluAdvertiser.com | The Honolulu Advertiser
...according to the most recent forecast from University of Hawai'i economists.

[VanHa]

I Believe that Hawaiian economy goes the way tourism goes. If the tourists come back the economy will improve. So the the first indicators of any type of turnaround will come from hotel occupancy numbers. Tourism will be the lead indicator while employment figures will be the lag indicator. So I hope that we are doing enough to attract traditional tourism as well as the non-traditional groups that have not been exposed to Hawaii yet!

[pj737]

Originally Posted by HankDfrmSD

Here is information about two houses - one in Califoria and one on Hawaii. I do not own either, (now) but I am very familiar with both neighborhoods. I have enough information about these two houses to believe the data presented.

The intersting thing to me is the price chart for each. The California chart peaked in 2005 and has been dropping ever since. The Hawaii chart peaked in 2008.

23931 Del Amo Rd, Ramona, CA 92065 - Zillow

395 Auwinala Rd, Kailua, HI 96734 - Zillow


Hank

I don't know about that. According to Zillow, my property in town peaked in 2006. The properties I've seen in Kailua also peaked at about the same time. I wouldn't put any credibility to a chart depicting one home... or zillow for that matter.

[pj737]

Originally Posted by kaimuki

Just my two cents! I have been spending a lot time researching the housing market on Oahu. My wife works in escrow, so I get a little bit more info from her too.

As much as we hope for a bottom, I don't even think we are even close to one with the Oahu housing market. We didn't get where we are now in just one year, it took roughly 7 years, didn't it. It started in 2001 and really went crazy from 2004 to 2005. Although the local lenders didn't underwrite a ton of Alt A mortgages, they did underwrite a bunch of jumbo, 100% financing, no doc loans. These are very risky too.

http://hicentral.com/pdfs/annsales.pdf

If unemployment continues to rise, it will have a major impact on housing prices. Our two biggest industries are getting hammered, tourism and construction. Prices have to come down, the vast majority in Hawaii really can't afford the home they're in right now, nor can they afford to buy at current prices.

Before we can even talk about a bottom, a lot has to be repaired on the Federal level. Our banking system is broken and until we fix this, Hawaii, just as parts of the Mainland, will struggle. Also, keep in mind that President Obama's plan will do nothing to help those who bought a house for 725+K. How many buyers bought homes on Oahu for over 725+, a ton.

My bold prediction is we will see a median price for single family homes at 350-300K within 3-4 years on Oahu. It could be sooner. The only thing that's keeping real estate transactions going is the super low interest rates. The problem is banks and mortgage lenders are tightening up their underwriting, so many who qualified before (basically anyone who could breathe) cannot now. Of course, I don't like to see people losing their homes, losing their equity and being upside down. Its very, very sad, but a correction is needed. My wife and I nearly closed on a house in Pearl City back in Oct. of 2006, lets just say we are so glad we didn't.

If I'm wrong, I'll be happy to take all of the heat from everyone. I don't like doom & gloom posts or people, and I hope I haven't come across as such. I'm a realist, but that doesn't mean I think we are heading into a full-blown Depression in Hawaii. The world is not going to end like some say.

If the only thing keeping prices going is interest rates why are many parts of the mainland in freefall?

Prices are much more stable here for many reasons. Largest reason is that we have the least amount of debt attached to our homes...second only to New York. Only 5.6% of mortgaged homes are underwater in Hawaii. This when the national average is over 18.8% and places like Nevada are seeing over 50% of all mortgaged homes underwater. That is in part because of our huge Asian population which, culturally, believe in a low or no-debt lifestyle. Hawaii is home to the highest percentage of homes owned mortgage free (free and clear) at 42%. Nationally, the average is much less at about 32%.

Another reason is that most homes are passed from generation to generation - often with small or no mortgages. This "multi-generational" society where children often take care of their elderly parents keeps more people in one home, thus allowing income from multiple earners to go towards one mortgage.

Of course this doesn't mean many homes here aren't overpriced. Pain will be felt most in areas that saw the most increase since 2000. Fair to say... most homes here are worth DOUBLE what they were in 2000 but not more than that. If today they are worth more than double 2000 prices you should expect a nice haircut on home valuations. On the Waianae Coast, for example, I have seen condos that once sold for $30,000 in 2000 skyrocket to over $200,000 by late 2005. These condos are now selling for about $100,000 and will likely fall another 20% or so - that's nearly 60% off from their peak prices. Also, areas with new developments including Ewa Plain and Kapolei (and some parts of Hawaii Kai) will get hit hard. These areas saw many 100% financing deals occur and many of these buyers are underwater as their neighbors foreclose and their home values plummet. A 40% haircut in these areas is not out of the question. New high end condos in town have miraculously held up pretty well considering maintenance fees have skyrocketed, but they will likely end up dropping a nice chunk as $700K for a two bedroom w/$700 maintenance fees isn't affordable by many these days. Kailua is another frothy market that saw tremendous speculative investment from California natives (Californians just LOOOOOVE Kailua). That place will likely take a nice beating too, 30% from peak.

However, there are still homes out there that are selling for what they were in 2005 and 2006. Modest condos in the urban core of Honolulu, where maintenance fees remain consistently low, are still selling very well and very close to their "peak" valuations. Look for areas with long term well-established high Asian concentrations (Chinese, Japanese, Vietnamese, Korean, etc) like Nuuanu, Punchbowl, Makiki, Punahou and Manoa, as these are the areas least likely to be affected significantly by a downturn. These areas are also most likely to see gentrification (which will lead to price growth in the future when the economy turns around) as homes are handed down to children and they improve their properties as they deem fit.

Having said this, I don't think SFH prices will drop to $350K or anywhere near that figure. SFH prices would have to drop to $530K to meet the same affordability index back in 2000 when homes were, historically, most affordable. And we are almost there. In other words, with today's interest rates, homes are ALMOST as affordable today as they were back in 2000 when prices for homes were considered (by most) as "undervalued". Of course this time around we are faced with a global economic crisis that will likely last for several years so prices could drop even further. My prediction is that SFH valuations will stabilize at about $500K. Condos at about $275K. But as noted earlier, many locations, primarily areas outside of the urban core, will suffer significant price drops. People that are worried that increasing interest rates will erode home equity are, in my opinion, worried about nothing. Interest rates will likely increase as a result of a recovering economy. With as much liquidity as our govt is injecting into the markets, expect inflation to be a guaranteed thing. Inflation will increase rates but will also increase the value (by devaluing the dollar) of everything from gold, to silver to... you guessed it - real estate.

[alohakat]

Here is a fantastic interactive map of the loan situation across the nation, by the Federal Reserve Bank:

Dynamic Maps of Nonprime Mortgage Conditions in the United States

As of January, it shows 45.8% of subprime Hawaii mortgages as being ARM's and subject to reset and 44% of Hawaii Alt-A paper being ARM's (note the little bullet to change from Alt-A to subprime view in upper right of chart, then scan over state of Hawaii to see figures). 9.5% of Hawaii subprime are 90 days delinquent and in danger of Notice of Default and 4.3% of Hawaii Alt-A loans (Alt A = "almost A paper" roughly) are 90 days delinquent. 10.5% of Hawaii subprime loans are in foreclosure and 5.1% of Hawaii Alt-A are in foreclosure. And so on.

18.1% of the subprimes in Hawaii are resetting this year, and the question is in what neighborhoods do those properties sit. Those are the neighborhoods subject to price drop, because those loans are less than 81% average LTV as of January and dropping (in other words less than 20% equity), with much harder loan requirements and lower incomes, and most will not be able to refi. This is what will drive down pricing.

Lastly, the reason this problem will continue beyond this year: only 18% of subprimes are resetting this year, and that leaves more than 80% of Hawaii's subprimes still to reset and flood the market.....And only slightly over 3% of Hawaii Alt-A's are resetting this year (!) leaving nearly all the Alt-A still to try and refi in a declining market with harder underwriting.

[pj737]

Originally Posted by alohakat

Here is a fantastic interactive map of the loan situation across the nation, by the Federal Reserve Bank:

Dynamic Maps of Nonprime Mortgage Conditions in the United States

As of January, it shows 45.8% of subprime Hawaii mortgages as being ARM's and subject to reset and 44% of Hawaii Alt-A paper being ARM's (note the little bullet to change from Alt-A to subprime view in upper right of chart, then scan over state of Hawaii to see figures). 9.5% of Hawaii subprime are 90 days delinquent and in danger of Notice of Default and 4.3% of Hawaii Alt-A loans (Alt A = "almost A paper" roughly) are 90 days delinquent. 10.5% of Hawaii subprime loans are in foreclosure and 5.1% of Hawaii Alt-A are in foreclosure. And so on.

18.1% of the subprimes in Hawaii are resetting this year, and the question is in what neighborhoods do those properties sit. Those are the neighborhoods subject to price drop, because those loans are less than 81% average LTV as of January and dropping (in other words less than 20% equity), with much harder loan requirements and lower incomes, and most will not be able to refi. This is what will drive down pricing.

Lastly, the reason this problem will continue beyond this year: only 18% of subprimes are resetting this year, and that leaves more than 80% of Hawaii's subprimes still to reset and flood the market.....And only slightly over 3% of Hawaii Alt-A's are resetting this year (!) leaving nearly all the Alt-A still to try and refi in a declining market with harder underwriting.

Note that these figures were obtained before TARP and HASP govt programs has been fully implemented (HASP programs are still not fully implemented). The freefall in prices and sharp increase in foreclosures will likely abate. Remember... many of those that got into ARMs were locked into ultra low rates near 4% during a time when prevailing 30-yr rates were at 6-6.5%. But prevailing 30-yr rates are below 4.5% today. So these people, along with govt programs to assist them, will allow them to refi into 30-yr loans at conforming rates and at up to 105% of their home's value. When you factor in govt programs and today's historically low rates, the gloom and doom theory is losing its punch.

And specifically regarding Hawaii.... Check out this chart -

http://mrmortgage.ml-implode.com/wp-...by-state-1.png

Notice how only 5.6% of all mortgaged homes in Hawaii have negative equity? The AVERAGE national rate is well over 3 times that at a whopping 18.3%. And compare that to states that are taking a dump now - Nevada (47.8%!!!), Michigan (38.6%), Arizona and Florida (29.2%) and California (27.4%).

Again, Hawaii is at 5.6%... that's laughable when compared to other states. Is 5.6% really enough to trigger an enormous spike in foreclosures and subsequent cascading freefall in prices? Think about it.

Of all the states shown, only New York homeowners had fewer homes under water (4.4%). This chart only reflects homes with mortgages, NOT free and clear properties. Hawaii also has the highest number of F&C properties in the nation. 42% of all homeowners own their properties free and clear, which is 28% more than the national average (33%). This means of ALL real estate in Hawaii, only 3.2% of owners are underwater.

Here is another chart with an updated figure to the above stats -

http://1.bp.blogspot.com/_pMscxxELHE...NegativeEquity

Here is a map showing loan performance -

LoanPerformance HPI


No, I'm not a realtor. I'm just stating my opinion based on REAL data and my expectation that rates will continue to stay low until the economy turns. Many homes in Hawaii are subject to price corrections (to about double 2000 valuations) but the gloom and doom is way overstated.

[Ellwood]

Originally Posted by VanHa

I Believe that Hawaiian economy goes the way tourism goes. If the tourists come back the economy will improve. So the the first indicators of any type of turnaround will come from hotel occupancy numbers. Tourism will be the lead indicator while employment figures will be the lag indicator. So I hope that we are doing enough to attract traditional tourism as well as the non-traditional groups that have not been exposed to Hawaii yet!

VanHa, I totally agree with you. We are on the mainland, but visit HI every year for several weeks. We didn't travel to HI this year due to the airline costs and the deals in the Caribbean.

I can't comment on HI RE costs (ups or downs), but after recently visiting the Ft. Myers area in FL, the foreclosure bargains are unbelievable. On the mainland, there are so many homes being foreclosed up and down the east coast, people losing their jobs including the domino effect (i.e. nanny let go because employee lost her job), students forced to work and drop out of college for a time, retailers closing stores, etc. that I think vacations are a luxury that can't be considered in the foreseeable future.

[VanHa]

Originally Posted by Ellwood

VanHa, I totally agree with you. We are on the mainland, but visit HI every year for several weeks. We didn't travel to HI this year due to the airline costs and the deals in the Caribbean.

I can't comment on HI RE costs (ups or downs), but after recently visiting the Ft. Myers area in FL, the foreclosure bargains are unbelievable. On the mainland, there are so many homes being foreclosed up and down the east coast, people losing their jobs including the domino effect (i.e. nanny let go because employee lost her job), students forced to work and drop out of college for a time, retailers closing stores, etc. that I think vacations are a luxury that can't be considered in the foreseeable future.

HI Ellwood,

I think that Hawaii has a unique economy that is very different than the norm. Hawaii's tourist industry, I believe, drives the economic engine of the State. No tourists means revenue and no jobs, no jobs equals no pay, no pay contributes to you losing your home and/ability to spend on luxury items. And on goes the circle of Hawaiian life! The real question for Hawaii is how will we be able to get the tourists back so that we can "grease" the economic engine to hum again?

Tourists from the mainland are critical to Hawaiian survivability, even though that a few of us are willing to admit that (which is typically why we "lag" after the mainland's economy....if the economy on the mainland does well....so will we....and if they do poorly....so will we in due course). We are so reliant on the tourist trade that we begin to count how many planes land at the airport and go into a deep depression if the hotel vacancy rates are low. We can talk about the HI RE all we want, but if the tourists don't come back we will all be living in tents on the beach! Fortunately I do think that mainland people will start having confidence in the economy and things will return to the "new normal".

As part of human nature we all get tired of feeling scared and we will want to spend on comfort itmes...including vacations etc....I still say see you in 12 months....Aloha!

[Ellwood]

Originally Posted by VanHa

We can talk about the HI RE all we want, but if the tourists don't come back we will all be living in tents on the beach! Fortunately I do think that mainland people will start having confidence in the economy and things will return to the "new normal".

As part of human nature we all get tired of feeling scared and we will want to spend on comfort itmes...including vacations etc....I still say see you in 12 months....Aloha!

VanHa, I sincerely would love to return to HI again. We have been spending a few weeks every year for the past 12 years. Nothing compares to the beauty of the islands, the people and the culture.

[VanHa]

Originally Posted by Ellwood

VanHa, I sincerely would love to return to HI again. We have been spending a few weeks every year for the past 12 years. Nothing compares to the beauty of the islands, the people and the culture.

Hi Ellwood,

I would love to see you back....there is nothing more rewarding for people who call Hawaii home than to have others appreciate what we got. We typically take what we have for granted and it's good sometimes to see Hawaii through other people's eyes regardless of our ecomomic problems.

Have an Aloha day!