THE VERY FIRST TIME

CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM Khamseng Sourakakone leaves a two-bedroom home in Mililani where backup purchase offers are being accepted. Sourakakone is a first-time buyer looking for a home with his wife, Maria Mercado, and their friend Andres Mendez.

Bidding wars erupt
in seller’s market

Some properties are attracting
20 offers, leaving many first-time
buyers out of luck even with
a substantial down payment

IT'S SUNDAY AFTERNOON, and the search for the American dream is in full swing.

A young married couple -- with a friend and a Realtor in tow -- are making the weekly rounds on Oahu to check out open houses.

A pregnant woman rests with her kids in a Mililani condominium while her significant other makes a bid for a much larger home nearby.

A husband and wife, resigned that they're going to have to settle for a smaller house than desired, press on after having an offer rejected that was above a seller's asking price.

Welcome to Hawaii real estate's version of "The Amazing Race."

"It's really tough," said Century 21 Realtor Celeste Cheeseman, who is making the rounds with first-time home buyers Sgt. Khamseng Sourakakone, his wife, Maria Mercado, and their friend Spc. Andres Mendez.

"We've been looking at townhouses and single-family homes. Hopefully, they'll get lucky. The problem we're running into is the majority of people -- if they sold their bigger homes -- are downsizing to condos or townhouses. They all have a bunch of cash to put down, and they're bidding 20 grand over the listing price and getting it."

No question, this is a seller's market. You either can pay a lot now or a lot more later. And it's even worse for first-time homebuyers who in many cases have little or no down payment. Although cash-strapped, first-time buyers can get into a home through creative lending programs, sellers have the luxury of sifting through multiple offers and selecting those with the highest bid or largest down payment.

Many first-time home buyers, limited by their earnings, down payment or debt level, opt for condos under $250,000 or single-family homes in the $400,000-to-$500,000 range.

When Sourakakone and his buddy Mendez returned from Afghanistan two months ago, they soon realized what other homeseekers have known for months: Buyers are facing an uphill battle.

Initially, the longtime housemates each had planned to buy a condo in the low $200,000 range. But the two of them, along with Sourakakone's wife, decided to switch plans once they saw how little they could get for the money. So they pooled their resources to put in an offer for a single-family home. After that offer was rejected, they reversed course and once again began seeking separate condos. An offer Sourakakone and Mercado put in for a $165,000 condo in Wahiawa was recently accepted. The same day, Mendez had his $170,000 bid for a condo in Mililani rejected.

"It's tiring," Mercado said of the house-hunting experience.

CRAIG T. KOJIMA / CKOJIMA@STARBULLETIN.COM It's breakfast time for the Robinsons in a Pauoa rental they are leaving for a Makaha home they bought for $218,000. Lenore feeds breakfast to her daughter, Ashlyn, with Sean and Kylie at her side.

Realtors say first-time home buyers are scouring Mililani, Waipio Gentry, Ewa Beach, Kapolei and Waikele due to those areas' lower housing prices. But the relatively small available inventory also has spurred bidding wars that, according to some Realtors, have attracted 20 or more bids for some properties. Money also talks loudly in this market, with sellers preferring offers accompanied with down payments over offers contingent on 100 percent financing.

Consequently, first-time homebuyers have to either lower their expectations or stretch their budgets. In some cases they reluctantly do both.

Sean and Lenore Robinson extended their commute when they bought a $218,000 house in Makaha after being unable to find a house to their liking near town where Sean works in marketing and sales management for an import company. Although Lenore is a stay-at-home mom with the couple's two preschool children, Sean is facing the unenviable commute from the Leeward side. His compromise is to take the bus -- a mode of transportation he'll soon begin when escrow closes and they move to Makaha.

"I've never ridden it yet, but it's going to be like an hour and 20 minutes' commute on the express bus each way," Sean said. "I'll drive when I need to for an appointment or whatever. I've commuted before in different cities, but never really in Hawaii. I'm not really looking forward to that part of it. That's why I'm taking the bus, because I really don't have the patience to sit in traffic."

Lenore said she and her husband never would have been able to afford even the Makaha home without $6,000 that her husband's parents had gifted to them as a real estate investment for him. As a result, they were able to put down 3 percent, or about $6,500, for the Makaha house.

"Had they not done that, we would not have been able to buy the house," Lenore said. "It would have been very difficult for us to come up with the money."

No matter if it's a single-family home or a condominium, you're still talking big bucks in Hawaii when it comes to fulfilling the American dream. In March, single-family houses on Oahu were fetching a median price of $550,000.

For condos, the first-time home-buyer's alternative, the median price was $230,000. But tack on monthly maintenance and association fees of $200 to $300, and even the condos don't look as appealing.

Fortunately, the mortgage-lending business has evolved today to the extent that first-time homebuyers still can get a piece of the action even with little or no money down, less-than-perfect credit, or if they're self-employed borrowers who traditionally have had a hard time qualifying for mortgages.

"Just because of the way things are in Hawaii, down payments always have been kind of a challenge for our buyers," said Leonard Loventhal, executive vice president of Hawaii HomeLoans. "So a lot of first-time buyers fully leverage their transaction and put down as little as possible. Typically, you're going to experience higher payments, and sometimes in these instances, you will have to pay private mortgage insurance as part of their mortgage payment. Then you're going to have your homeowners' insurance and real property taxes that are paid for separately."

CRAIG T. KOJIMA / CKOJIMA@STARBULLETIN.COM The Robinsons get household items ready for the move.

Loventhal said most buyers still are taking out 30-year fixed-rate loans. Others, he said, are opting for interest-only programs, adjustable-rate mortgages and sometimes the combination of simultaneous first and second mortgages. The latter financing arrangement allows the buyers to avoid private mortgage insurance by taking out a first mortgage for 80 percent of the loan and the second mortgage for 20 percent of the purchase price.

"This creates a 100 percent financing scenario without mortgage insurance," Loventhal said.

Even for those fortunate enough to be able to afford a 20 percent down payment, the monthly outlay for principal and interest can seem overwhelming considering that the median income for a Hawaii family in 2005 is expected to be $67,750.

A person purchasing a median-priced $550,000 home at a 6 percent, 30-year fixed interest rate and putting down 20 percent would pay $2,638 a month for principal and interest, according to Harvey Shapiro, research economist at the Honolulu Board of Realtors. Similarly, buying a median-priced $230,000 condo at 6 percent interest and 20 percent down would cost $1,103 a month.

Sgt. Jarod Busch, who returned from Iraq 2 1/2 months ago, and his wife, Tonja, have been looking for condos in the $240,000-to-$265,000 range and have had to lower their expectations.

"There's a lot of smaller places for our price range," Jarod said. "Usually, you'll find two bedrooms and one bath. At first it's not what we expected, but as we've looked around at different places, it's what I expect now because prices are so high."

The Busches found one place they liked for $250,000 earlier, put in a bid for $251,000 and got beat out.

"You have to offer over the list or you're not going to get it," Tonja said. "We got outbid basically on that one place, and now the same property we bid on before, there's another place there for $265,000. In a month and a half, it's jumped $15,000."

Shortly thereafter the Busches' Realtor notified them of a condo in Mililani that was listed on a Thursday for $239,000 and had an open house scheduled for the following Sunday. However, the day after the listing, the owners accepted an offer, and by Monday the property was in escrow.

"I was like, dang!" said Tonja, who with her husband is prepared to pay about $6,000 in closing costs and finance the purchase price.

For Connie Baysingar, who's due to give birth next month, she's reminded how much houses cost in Hawaii whenever she goes back to Illinois each summer to visit her sister.

"The houses there are beautiful," she said. "You can buy a four-bedroom house, brand new, 3,000-square-foot living area, and with a basement, too, for like $200,000."

And how much would a $500,000 house in Hawaii go for in Illinois?

She laughed, "They don't have $500,000 houses there."

Tonight on KITV 4 News at 10 ...

Watch a true Hawaii adventure unfold: searching for a first house in the hectic Oahu market. KITV's Paul Udell follows Sabrina and Rick Tran, a young couple searching to escape from their rented apartment in Makiki. We'll see what they have learned in six months of searching. Their Sunday excursions were an eye-opener even for this reporter who has studied the market.