DENNIS ODA / DODA@STARBULLETIN.COM
House hunters Bryson Carr and his wife, Nicole, play with their 7-month-old daughter Mariah.
Cash crunch hits
would-be home buyersDespite rising prices, experts
say Hawaii homes are affordable,
with a 20% down payment
When mortgage interest rates dropped last year to the lowest levels in 40 years, Hawaii's would-be home owners scrambled to secure their version of the American Dream.
But with steady price increases and hot competition for shrinking inventory, shoppers are finding the dream of homeownership is increasingly illusive.
Bryson Carr, a Navy petty officer, first class, and his wife Nicole, a student and mom to 8-month-old Mariah, have been in Hawaii for about four years. They are both in their early 20s.
They live in military housing. Prior to that, they lived in a two-bedroom condominium at Ewa Beach's Palm Court, which they say they could have bought at what now seems a bargain price.
"Toward the end of 2000, our landlord offered it to us for $80,000. Now it has sold for $160,170," Carr said.
While hindsight may be 20/20, the Carrs say at the time they were more interested in finding a single-family home, and they were sick of the traffic on Fort Weaver Road.
"When we first arrived, I thought we would get a regular house with a garage," Nicole Carr said.
But with ever-rising home prices, they are running up against decisions about price vs. size, the Carrs said.
DEAN SENSUI / DSENSUI@STARBULLETIN.COM
What does the Oahu median home price look like? This three-bedroom, one-bath Pearl City home is listed at $399,000, just under the January median.
Now back to looking at townhomes, they recently missed out on a place in Makakilo even though they offered full price. The seller chose someone who could put down $6,000 and offered $1,000 over the asking price.
The Carrs, like many Hawaii residents, are short on a down payment, even though their credit is easily good enough to qualify for a mortgage.
Property appraisals are presenting a problem for the Carrs and others who are short on cash.
In such a fast-moving market, single-family home and condo appraisals have difficulty keeping up with the prices sellers are getting.
When the appraisal comes up short of the selling price, more sellers are now asking buyers to make up any difference between the selling price and the appraisal, creating an even bigger problem for buyers short on cash.
Last month, the median sales price for a single-family home reached a record $400,000 on Oahu. The median annual income for an Oahu family is $65,700, according to the most recent figures from the U.S. Department of Housing and Urban Development's economic and market analysis division.
Real Estate analyst Mike Sklarz acknowledges the problems people like the Carrs face. Looking at Oahu's January home sales numbers, Sklarz said even though the median sales price for a condominium was $187,000, the weighted average for all condominium sales during the month was much higher.
"It works out to about $268,000 as a composite of all the units that were sold," he said.
That said, Sklarz believes homes are still more affordable than they have been in years, based on an index he has developed that tracks market conditions back to 1981.
Sklarz's index takes median household income compared to median home prices. It factors in prevailing interest rates, applies the traditional three-to-one, income-to-debt formula used by banks to qualify buyers and it also assumes a 20 percent down payment.
"Based on the traditional measure of affordability we are within the highest levels in the last 25 years," said Sklarz, chief valuation officer for Fidelity National Financial Inc.
"The issue is down payment, it's not the qualifying on traditional measures of affordability."
Homeownership rates have always been lower in Hawaii than the national average, about 55 percent over the past 10 years in contrast to the national average of 65 percent.
But the drop in interest rates made the dream of home ownership in Hawaii seem an attainable goal for many people who had previously been shut out of the market. It was also an opportunity for people who had seen their home's value dive with the burst of the Japanese bubble in the mid-1990s to sell without losing money.
Home prices on Oahu began to climb out of the doldrums in early 2000.
On the neighbor islands, the upward trend began about two years earlier when out-of-state buyers, mostly from the West Coast, began thinking about Hawaii as a locale for retirement or a second home.
On Maui, median home prices topped $500,000 several months ago. HUD's calculations indicate the median income for a Maui family is $60,700. The Federal Housing Administration mortgage limit for a home on the island is $289,750 as of this month. Federally backed FHA loans, which require a 3 percent down payment, are designed for buyers who cannot qualify for conventional bank loans.
For Kauai residents, it's a similar story. While the median family income is $56,100, last month the island's median sales price for a condominium was $362,000, not far behind the single-family home median of $384,450. The mortgage limit for a home on Kauai is $342,000.
On the Big Island, the median sales price for a single-family home in January was $235,000, though prices have traditionally varied widely depending on the area. The FHA mortgage limit is $211,850 while the median family income is $50,400.
Mike Flores, HUD's acting field director in Honolulu, acknowledges the state's difficult real estate conditions.
"What we are recognizing is that Hawaii's market conditions make this more challenging," he said.
Flores said HUD is taking steps to tackle the special difficulties Hawaii buyers face, including the lack of a down payment.
Several weeks ago, HUD announced it will offer an FHA mortgage with 100 percent financing, but it's likely the product won't hit the market until next year.
Banks and other lending institutions also are coming up with more creative solutions that address the cash crunch. Sklarz said some would-be buyers may want to choose a traditional mortgage financed at 80 or 90 percent and take a second mortgage to cover the remaining 10 or 20 percent.
There are also down payment assistance programs, said Kendall Hirai, executive director of the Hawaii Homeownership Center, which opened last October.
The center helps would-be home buyers come up with strategies to become successful homeowners and alerts them to various assistance programs.
"We are helping people gain access to affordable products they may not know about," Hirai said.
Some programs have income limits, he said. Some will provide matching funds for a down payment or closing costs.
For example the qualification for one of the programs is income of 80 percent of the area median for a family of four. It's a three-to-one match in funds up to $5,000, Hirai said. The individual counties, which also have access to federal housing funds, have their own down payment housing assistance programs.
Buyers with little or nothing to put down face the additional monthly cost of mortgage insurance. Hirai's office is working with a mortgage insurance company to offer a more affordable product for the first-time buyer.
Meanwhile, for the Carr family, the search for a home continues.
They know they aren't alone.
"What we realized is that a lot of contracts fall out. Yet there are people who are really qualified who miss out. Sellers are just going after the highest offer," said Nicole Carr.
