billso.com

The other big university on the island of Oahu - and just to be clear, I don’t work at UH.

Related posts on billso.com

• 17 July 2008: State of Hawaii deletes email after 60 days
• 4 January 2008: Copper thieves kill Sugar Bowl cablecast
• 7 November 2007: New leaks close Hamilton Library
• 28 June 2007: Magoo’s is pau tomorrow
• 25 August 2004: Banner software implementation problems cause havoc at UH-Manoa
• 2 August 2004: Frear Hall sits dormant on UH-Manoa campus
• 16 July 2004: UH-Manoa has no short-term fix for dorm crunch
• 15 July 2004: Oahu students get low priority for UH-Manoa housing

Aloha’s cargo pilots may walk off the job. Their union, the Air Line Pilots Association (ALPA) wants Aloha Airlines to reassign senior pilots to cargo flights, while the airline wants to use the current cadre of 25 or 30 cargo pilots. ALPA claims its contract with Aloha requires the airline to consider the entire 250-pilot pool.

This conflict may ground the Aloha’s cargo flights, which are still operating while the bankruptcy judge prepares to auction off the business. A walkout or contract dispute may delay or destroy the planned sale of Aloha’s cargo business. The Seattle-based parent of Superferry opponent Young Brothers is the only confirmed bidder, with a US$13 million offer. See this article in today’s Honolulu Star-Bulletin for more details.

Check’s in the mail

Aloha Airlines flies the US mail flights to and from Maui and the big island of Hawaii. Aloha also delivers fresh bread and other perishable foods between the island, according to this Honolulu Advertiser article:

According to the latest available state statistics, in 2006 there was 47,000 tons of non-mail air cargo transported from Honolulu to the Neighbor Islands, and 22,000 tons from the Neighbor Islands to Honolulu.

Mail added another 16,500 tons to the Neighbor Islands and 2,200 tons to Honolulu.

State of shock

A long-term disruption in interisland shipping may trigger more layoffs at other companies, further weakening the state’s economy. As this article in the Star-Bulletin discusses, home prices have continued to drop on Oahu. Here’s a disturbing quote from today’s Advertiser article, and I hope it is not prophetic:

The economists doubt home prices will fall more than a few percentage points unless there’s a shock to the state economy that reverses job and income growth, creates a population exodus or boosts interest rates sharply.

The headline in this morning’s Honolulu Advertiser is another indication that the real estate market has changed. As I mentioned on August 13, the local mortgage lending market has been affected by the national mortgage crisis.

Perceptions alone can be enough to change a market

It’s more the perception of a mortgage crisis than anything else that is driving the changes in the local housing market. Subprime loans make up between 10 and 19 percent of the local market, compared to 20 percent of the national market. Interest rates on jumbo mortages haven’t changed dramatically either, according to the Advertiser. If sellers drop their prices, there may be enough interested, qualified buyers to support the historical sales volume.

Many small local lenders have shut their doors over the last few weeks, and some buyers are being asked for much larger down payments. In Hawaii, a typical down payment is 10 to 20 percent of the selling price, and that’s a problem:

Cash requirements, while perhaps relatively small in some Mainland markets, are amplified in Hawai’i where O’ahu’s median single-family home price in the second quarter was $665,000 — fourth highest in the nation. O’ahu’s median condo price was $328,000, topping the $223,800 national single-family home median price.

Borrowers with poor credit, and any borrower who wants to make a low down payment, are turning to local banks for mortgages, as more of the national mortgage firms scale back their operations.

Housing costs are a major factor when recruiting qualified IT professionals

Hawaii doesn’t produce enough skilled workers to satisfy the state’s needs. When companies, organizations and local government can’t outsource an IT position or service to the mainland, recruiters have to find prospects who can afford to live here. In the last month, that part of the applicant search become much more difficult. There are plenty of qualified IT professionals who could have moved to Hawaii earlier in 2007, but who cannot afford a mortgage here now. Rental prices and occupancy rates are still high in Hawaii, also.

It’s no wonder that Google is building new data centers in North Carolina and Iowa. The housing costs are reasonable in those states, and there’s plenty of available electricity and bandwidth to support these facilities.

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.