On Mar 25, 2007, at 3:03 PM, Maddog wrote:
Hawaii's real estate market actually looks a lot better than other
areas. Since real estate is a regional business and not a national
business I would tend to think you might see a small dip rather
than "the sky is falling" . In comparison to the national averages,
Hawaii's subprime loans are far below what they are on the mainland.
You do understand that the rapidly expanding default rate of the
subprime loan market is what will pull the rug out, right?
Do you mean that the number of subprime loans are lower than on the
mainland, or that the loan-to-value ratios are lower, or... what?
Just what do you mean?
S&P says subprime originations (nationwide0 last year were $421
billion. The MBA says all originations were $2.5 trillion. If you
trust both data sources, that means 16.8 percent of mortgage volume
(nationally) consisted of subprime loans last year. That's dollar
volume, not the number of mortgages. I suspect that subprime mortgage
balances are smaller than average, so the number of borrowers is
north of 17 percent.
And then there is the issue of the very definition of 'subprime'.
People have told me it's loans with FICO scores of 620 or less.
Others have told me it's 660 or less. But I've seen loan matrices
that count loans as subprime with FICOs above 660 but loan-to-value
ratios of 95 percent plus, or with low/no documentation, or both.
People outside the industry might count those as subprime and people
in the industry are more likely to call them Alt-A.
What is your definition?
What makes matters far worse is that all this wildly reckless
'subprime' lending has been in the service of a suburban sprawl-
building juggernaut that will itself represent another layer of
grotesque liability for Hawaii. The crash of the house-selling
bubble, based on absurd asset inflation for slapped-together houses
on the wrong end of H-1, is coinciding precisely with a permanent oil
crisis that will only exacerbate the locational disadvantages of
houses built in the newest and furthest suburbs.
The good news is that when gas prices hit $5/gallon (or more), the
traffic problem on the H1 will solve itself. The bad news is that
nearly all of Oahu's electricity is generated by ... oil, and nearly
everything we consume on this island is brought here by ship or
plane, both of which consume .. oil during transport. Its going to
get a LOT more expensive to live in Hawaii in the next five years.
Saudi Arabia's oil production was down 8% in 2006 (compared to 2005)
even while the number of rigs in the field skyrocketed.
http://www.theoildrum.com/node/2325
I don't see a market crash. I see the possibility of a small
downward trend as the condo market must absorb what was recently
built but single family homes are averaging 62 days on the market
which is also far below the national average and our housing
inventory is at 6.2 months compared to the national average of
above 8 months.
OK, but in May 2005 it was 2.0 months, and in September of last year
it was 5.4 months. I smell a trend, do you?
And the paper doesn't seem to agree with you:
http://the.honoluluadvertiser.com/article/2006/Sep/28/bz/
FP609280333.html
and this says 70 days: http://the.honoluluadvertiser.com/article/2007/
Mar/06/bz/FP703060329.html
quoting: "The median number of days homes spent on the market hasn't
been as high as 70 since 1999."
Not only that but new townhomes and tract projectrs are conducting
lotteries to enable folks to buy homes. With 30 homes to be built
more than 300 people are showing up at these sales. Demand is still
pretty strong here.
That must be why the builders are offering freebies.
http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/20061126/
BUSINESS04/611260305/1071
quoting:
---
To be sure, many new home projects are not luring buyers with
freebies, but to see incentives emerging at a few projects
underscores the shift under way in the local real estate market that
in the last few years had developers turning away buyers.
The number of new-home sales this year is still up because of several
high-rise condominiums that are nearing completion.
But weaker demand is evident in O'ahu's resale market, where sales of
previously owned homes fell 17 percent in the first 10 months of the
year compared with the same period last year.
---
So to answer your question about prices here stabilizing and
rising, no I don't think 2020 is a good prediction. There were a
lot of factors that contributed to the stagnation here amoung them
the crash of the Japanese economy. With that a lot of money was
pulled out of Hawaii and the sound of air escaping Hawaii's economy
could be heard for years. The economy here has been fairly strong
and looks to slowing some now but not stopping nor going backwards.
I think real estate will remain strong here.
http://starbulletin.com/2006/12/01/business/story01.html
Meanwhile, Honolulu county's median household income is $60,739 (2005
dollars), this is 19.1 percent higher than the median in the US,
which is $49,133.
The median owner-occupied home value in Honolulu County for the year
2005 was $457,700. This versus a median home value of $167,500 for
the rest of
the nation in that year.
If, by some miracle (in a land of negative savings) someone with an
income of $60,000 had managed to save enough to make a 20 percent
down payment ($91,400) on the aforesaid median-priced house and got a
30-year mortgage for the remainder ($365,600)) at 7 percent interest,
his monthly payment would be $2432. Add to that $250 a month in local
property and school taxes and insurance and that brings it up to $2682
That adds up to $32,184 a year in house payments. Let's say the poor
bastard pays $11,000 a year in combined income tax and FICA
witholding. That leaves him with a grand total of $16,816 for
everything else. Then there's the yearly cost of owning a car,
including installment payments, insurance, gasoline, and maintenance:
around $8,000 a year. Oh yeah, if he's a prudent fellow, he's got
health insurance, let's say a practically useless high-deductible
policy costing $3,000 a year. That leaves approximately $112 a week
for groceries, laundry, the collection plate at church, and
everything else. (Too bad he can't afford cable TV and the Internet.).
Of course, the scenario above was based on the most conservative type
of mortgage. If Mr. Median Income had gotten a creative (sub-prime)
mortgage, let's say a no money down, interest only, payment option,
adjustable rate mortgage, he would have been a little more solvent
until the interest rate ratchets re-set. Then after enjoying the
place for a year or two, he'd either have to sell it pronto, or
default on his payments. And because all his payment option
shortfalls would have been back-loaded onto the principal, the
mortgage obligation could be over $400,000 now.
This is a bummer, selling into a down market, especially after paying
the Realtors their 6%.
Of course, sooner or later under conditions of perpetually rising
house prices, houses would have to be priced out of everybody's range
except for Donald Trump, Paris Hilton, Oprah and a handful of other
lucky, beautiful people who dwell in the perfumed ethers above the
pathetic lumpenprole median zone.
Getting back to the subject...
The "software publishers" industry lost the largest amount of
employment in terms of percentage, during the last five years, losing
65.8 percent of the jobs from 2001 to 2006. This job classification
declined faster than the industry sector across the State of Hawaii,
where the loss was 63.7 percent. The losses in the "software
publishers" industry in Honolulu County vastly outpaced the US in
terms of percent of decline of industry employment, since the US (as
a whole) lost 12 percent in this sector during the same period.
By any measure, thats "failure".
Top 5 Industries in terms of job loss (percentage) Honolulu County
(2001 - 2006):
1. Software publishers (65.8 percent decline)
2. ISPs and web search portals (61.1 percent decline)
3. Glass and glass product manufacturing (53.4 percent decline)
4. Emergency and other relief services (52.2 percent decline)
5. Waste collection (49.8 percent decline)
Total county-wide industry employment has increased by 9.7 percent
from 2001 (2nd Quarter). The figures for Honolulu County are less
than the job growth in the State of Hawaii as a whole, which saw a
gain of 11.0 percent from the 2nd Quarter of 2001. The gains the area
experienced were greater than than the gain experienced overall in
the US of 2.6 percent.
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