Hawaii ranks No. 7 for mortgage risk


POSTED: Tuesday, December 23, 2008

Declining home values and economic instability have pushed Hawaii's mortgage risk into the seventh worst slot among all 50 states, according to a national index released yesterday that evaluates the mortgage finance and securities business.

The latest mortgage risk survey from California-based First American CoreLogic also ranked Honolulu 14th highest out of 34 urban regions measured in the company's October LoanPerformance Home Price Index (HPI), which is used by investors and members of the mortgage finance and securities business to assess real estate mortgage collateral risk.

The company, which supplies data to industry giants such as Fannie Mae, Freddie Mac and clients such as top banks and foreclosure specialist RealtyTrac, rated only California, Nevada, Arizona, Florida, Rhode Island and Wyoming higher for risk than Hawaii.

Rising unemployment, coupled with declining home-price appreciation, the credit crunch and the downturn in the global economy has made it impossible for Hawaii's market to sustain its previous high levels, said Sam Khater, a senior economist with First American CoreLogic, which tracks 45 million mortgages or 85 percent of all mortgages in the U.S.

The run-up in Hawaii's single-family home values, which saw prices double from August 2003 to August 2007, was unsustainable, Khater said.

“;Previously it had taken 14 years for home prices to double in Hawaii, so that gives you an idea of the magnitude of this boom,”; he said. “;Incomes could not keep up with the rise and, as a result, there were run-ups in exotic mortgages,”; Khater said.

Evidence suggests that the use of subprime and alt-A mortgages in Hawaii accelerated after 2003 along with prices, Khater said.

“;Alt-A and subprime mortgages constitute 19 percent of all mortgages in Hawaii - that's slightly higher than the U.S. average of 17 percent,”; he said.

A real estate bubble formed in Hawaii and peaked by August of 2007, he said.

“;Since then, the bubble has begun to deflate and burst,”; Khater said.

While the share of Hawaii's homeowners in a negative equity position has grown to 6 percent versus 18 percent for the U.S., First American Core Logic has forecast more turmoil for some island homeowners.

“;Hawaii has more of an equity cushion, but that cushion is rapidly declining as prices continue falling at a rapid rate,”; Khater said. “;Since August, home prices in Hawaii have declined 16 percent on a cumulative basis.”;

In comparison, home prices across the country declined 10.4 percent in October compared to a year ago, according to First American CoreLogic's latest HPI report.

According to the HPI, home prices have maintained a steady annualized depreciation rate of between 10 and 11 percent for nine months in a row and it is estimated that the decline will narrow to 9.6 percent in November.

“;The consistent deceleration over the past two months, with November indicating the same trend in price declines, is encouraging because it could portend the trough in price declines,”; said Mark Fleming, chief economist for First American CoreLogic.

However, the rapid contraction in the economy, deteriorating labor markets, the large inventory of unsold homes and increasing defaults suggests that home prices will continue to decline at a moderate pace across the U.S. in 2009, Fleming said. The surge in FHA lending, which typically has a lower than average sales price, could also drive values lower, he said.

Falling equity in Hawaii and elsewhere could cause further stagnation in the market, Khater said.

“;When home equity is under pressure,”; he said, “;homeowners tend to be more cautious in their confidence and in their spending and their outlook.”;

A lack of buyer confidence could cause Hawaii prices to fall an additional 6 to 10 percent by midyear 2009, according to Bill Chee, president and chief executive at Prudential Locations LLC. In some neighborhoods, price drops could exceed 15 percent, Chee said. 


Top states for mortgage risk

Hawaii was ranked the seventh worst for mortgage risk by First American CoreLogic in its October LoanPerformance Home Price Index, which is used by investors and members of the mortgage finance and securities business to assess real estate mortgage collateral risk.


RankState 12-month % change










10. Ill.-8.40%

Source: First American CoreLogic


Honolulu rankings

As Honolulu's property values and economic fundamentals have declined, the city has steadily climbed up the rankings of metro areas measured by First American CoreLogic's LoanPerformance Home Price Index. After posting eight straight months of positive growth, Honolulu's HPI turned negative in June 2008. Honolulu's ranking out of 34 metro areas.

MonthRank12-month % change
October 200814-13.12%
September 2008 14-10.61%
August 2008 14 -9.63%
July 2008 21 -6.73%
June 2008 28 -.89%
May 2008 31 +2.61%
April 2008 34 +7.15%
March 2008 34 +6.38%
February 2008 34 +10.68%
January 2008 34 +11.82%
December 2007 34 +13.81%
November 2007 34 +17.10%
October 2007 34+17.91%

Source: First American CoreLogic