Isle building experts see few lending woes
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Financial experts who spoke at a developers' forum yesterday said Hawaii's economy is in a good position to withstand fallout from the recent collapse of the subprime lending market -- but they also warn that the state's strong ties with California put it at risk if it that mainland state were to fall into a recession.
Roughly a third of Hawaii's tourists are from California, which is greatly exposed to the subprime market, and is also where the state gets many of its second-home buyers.
Meanwhile, the liquidity crisis also could cause slowdowns in existing commercial projects and new development here, particularly in the residential resort market.
However, construction of affordable housing and commercial projects in Hawaii remains strong, they say, while military developments also provide a buffer to the mainland private-sector woes.
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Local banking experts expect Hawaii to remain resilient in the face of what is being described as a nationwide liquidity crisis, though the state will likely see a slowdown in residential sales and development.
The recent collapse of the subprime lending market will likely have a limited effect on Hawaii's housing market, since local banks for the most part steered clear from subprime mortgages, according to financial experts who spoke yesterday at a Hawaii Developers' Council membership luncheon.
However, they warn that Hawaii's overall economy could be seriously affected if the housing slowdown causes a recession in California, which is greatly exposed to the subprime market.
Roughly a third of Hawaii's tourists are from California, which is also where the state gets many of its second-home buyers, said Sumner La Croix, an economics professor at the University of Hawaii.
"If the California economy turns down big time, there will be serious problems here in Hawaii," he said.
Economists have lowered their forecasts for economic growth in 2007 and 2008 and the probability of a U.S. recession has clearly risen because of the meltdown in residential lending, he added.
"Every forecast that I've looked at believes that the risk of recession is heightened, and the problem for us is we're tied into the U.S. economy," La Croix said. "When you're right in the middle of a storm, a policy misstep (on the national level) and California downturn could affect things."
The liquidity crisis also could cause slowdowns in existing commercial projects and new development, particularly in the residential resort market, said Curtis Chinn, executive vice president and chief credit officer for Central Pacific Bank.
Banks are seeing a march back to traditional mortgages, which have tighter qualification standards compared to subprime mortgages that typically offered loans to lower-income residents with borrowed down payments, no mortgage insurance and initial deep discounts on interest rates.
"If investors get nervous about the liquidity credit crunch we may see a slowdown in those types of projects," he said. "We'll see a potential slowdown in some of our real estate, but not anything that will cause a recession because we have other things that will provide new money into the economy."
Construction of affordable housing and commercial projects remains strong, while military developments also provide a buffer to the mainland housing slowdown, he added.
"We have a lot of various projects that could hold our economy up even if there's a slowdown in absorption," Chinn said.
