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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.