Hawaii analysts
comfortable with
Fed’s gradualist approach

The central bank would have
to make a very sudden shift to
give the local market shivers

While rising interest rates might boost monthly payments for some homebuyers, any hike by the Federal Open Market Committee is not expected to put a wrinkle in plans for most Honolulu buyers.

Few anticipate the Federal Reserve's expected rate hike to significantly affect the market for the average consumer, said Paul Brewbaker, chief economist for Bank of Hawaii.

"It's likely going to be a complete non-event," Brewbaker said yesterday.

If the Federal Reserve does not signal any policy changes, it will be business as usual in the real estate industry, he said.

However, if the Fed shifts its policy statement to one more guarded about inflation, it would put economists and others on alert that the pace of rate hikes could change, Brewbaker said.

"If that happens, fortunes could be made and lost," he said. "The language changes wouldn't affect the average consumer, but it could generate a certain amount of turbulence in the marketplace."

As long as the rate hikes remain gradual, they won't impact most buyers, said state economist Pearl Imada Iboshi.

"It pretty much has been taken into account already," Iboshi said. "People aren't going to be concerned unless there's a bigger change than expected."

However, a new national poll, conducted by the Gallup Organization for the credit reporting agency Experian, reports that even a modest increase in U.S. interest rates could result in a substantial increase in default rates.

"Due to expected increases in interest rates, consumers with variable rates should be concerned especially if they are not able to handle an increase in their monthly payments," said Dennis Jacobe, chief economist for Gallup.

While rising mortgage rates could decrease the number of qualified buyers, the effect on Hawaii's real estate market is negligible as long as rate hikes stay below 1 percent, said Judith Kalbrener, president of the Honolulu Board of Realtors.

"If interest rates went up a full percentage point some people wouldn't be able to afford to buy what they are looking at now, if rates rose 2 to 3 percent a lot of people wouldn't be able to afford to buy those homes," Kalbrener said.

Low interest rates coupled with strong demand and limited supply has fueled the Hawaii real estate market. However, another slight rise in interest rates could entice prospective buyers to complete their purchases, said Candace Chase, executive vice president for Trans Pacific Mortgage Group.

"Right now, you actually have people who are participating in the market because the current interest rate allows them to have affordable payments," Chase said. "There are others who will wait until interest rates go up before they act. Because of this, even if interest rates rise, I think that we'll continue to have a strong market."

An increasing number of financial lending options such as adjustable rate mortgages, interest-only payment plans, and deferred interest products, will help potential buyers withstand rate hikes, she said.

Honolulu's active real estate market also is likely to keep lending rates low into the future, Brewbaker said.

"It's a very competitive lending environment and consumers have their choice of visiting any number of storefronts or online lenders," he said.