The US mortgage crisis and Hawaii

Yesterday’s Hon­olulu Adver­tiser ran a story about the pos­si­ble local effects of the sub­prime mort­gage crisis.

The arti­cle ran above the top fold of the front-page, which was a sur­prise. For the last 5 years, almost every hous­ing mar­ket head­line I’ve seen in the Adver­tiser and the Star-Bulletin has been relent­lessly upbeat and pos­i­tive. Local res­i­dents and main­land investors have been snap­ping up old and new prop­er­ties at a furi­ous pace across all the major islands. Inter­na­tional investors are also a big part of the local mar­ket, as Hawaii is still an attrac­tive place to own a sec­ond home.

Of course, both papers have reported about our traf­fic woes. West Oahu is choked in grid­lock, as local gov­ern­ments strug­gle to widen roads and add essen­tial ser­vices, even as new hous­ing devel­op­ments continue.

I’ve been read­ing Ben Jones’ Hous­ing Bub­ble Blog for the last 6 months. He posts quotes and dis­cus­sion from main­land news­pa­pers, and the bad news has been com­ing for a while. It’s well-written, and I highly rec­om­mend it.

The Advertiser’s arti­cle focused on sub­prime mort­gages, but the impli­ca­tions are clear. This morning’s New York Times included a story about the tight­en­ing mar­ket for jumbo mort­gages – home loans that are above Fred­dieMac and Fan­nieMae limit of US$417,000. One New York buyer was quoted an 8% rate on a mil­lion dol­lar loan a few days ago. When he decided to accept the offer three days later, the rate had risen to 13%. This quote comes from the Times, and also appeared in the Hous­ing Bub­ble Blog:

“In Cal­i­for­nia, it has shut down the pur­chase mar­ket,” said Jeff Jaye, a mort­gage bro­ker in the Bay area. “It has shut down the refi market.”

If rich peo­ple are hav­ing trou­ble get­ting loans for main­land prop­er­ties, the Hawaii mar­ket will cer­tainly be affected. The Fed­eral limit for con­ven­tional mort­gages is 50% higher than main­land lim­its, so a jumbo mort­gage in Hawaii for a single-family home starts at US$625,500. Accord­ing to Bankrate.com, today’s quote for a Hawaii jumbo mort­gage is 7.09%, slightly higher than the main­land rate of 6.97%.

A quick cal­cu­la­tion reveals that the monthly pay­ment for a min­i­mal Hawaii jumbo 30-year mort­gage would be US$4199.34.

The hous­ing mar­ket has been a key fac­tor in Hawaii’s eco­nomic growth dur­ing the Bush admin­is­tra­tion. How­ever, dur­ing the last month I’ve seen more and more cars and trucks with tem­po­rary mag­netic signs adver­tis­ing home buy­ing ser­vices. That’s a sign that refi­nanc­ing is becom­ing dif­fi­cult to find in Hawaii.

I’ve also seen bal­cony ban­ners on at least 3 down­town Hon­olulu high-rises adver­tis­ing units avail­able for sale. It’s star­tling to see these sales pitches as I drive down the free­way, and it’s anec­do­tal evi­dence that Hawaii’s hous­ing mar­ket is changing.

Tagged as: California, economy, Hawaii, Honolulu, housing, mortgage, new-york, real-estate, USA