Hawaii's foreclosure activity increased a staggering 503 percent in March from the same period last year; however, almost half the active foreclosure filings in the state were at rentals or vacation homes, according to data released today by RealtyTrac.

Hawaii homeowners who were in the process of losing their homes rose to 724 in March, which means that one out of every 700 housing units in the state experienced some form of foreclosure activity last month.

Limited inventory and a lower percentage of subprime loans kept Hawaii's housing market somewhat insulated from the wave of mainland foreclosures that began more than two years ago, but the market is now feeling additional pressure from troubled investors and second-home owners, said Daren Blomquist, RealtyTrac's marketing communications manager

About 46 percent of all active foreclosures in Hawaii have owner mailing addresses that do not match the property address, which indicates they are rentals or vacation homes, Blomquist said. Nationwide, the percentage is only 30 percent, he said.

“;The connection is that a lot of people with second homes or rentals in Hawaii are struggling with their own homes,”; Blomquist said.

Hawaii's trouble spots for March support this trend, he said.

Waikoloa, a luxury resort market on the Big Island, led the foreclosure rate across the isles during the first quarter, and Kailua-Kona had the highest number of foreclosures in March, Blomquist said

Some of Oahu's resort markets , especially on the west side where new inventory is growing, have begun to see dramatic price declines, said John Riggins, owner of John Riggins Real Estate. He's representing a Kapolei couple that must sell their home for less than they owe because the property value has dropped since they bought it for about $490,000 in 2006.

“;The last sale in their neighborhood was around $460,000,”; he said.

Kapolei led Oahu's neighborhoods for the highest rate of foreclosures for the quarter just ended, Blomquist said. And, nearby Ewa Beach recorded the highest number of foreclosures for the month.

Ko Olina also has seen foreclosure activity, short sales and price drops, Riggins said. For example, a single-family home in Ko Olina, which sold for $1.4 million in 2005, is due to close next month for $888,888, he said. Another nearby single-family home that fetched $1.3 million in 2005 sold for $985,000 in February.

“;A large percent of these owners were from California, Nevada and Arizona where they have had some of the largest foreclosure rates,”; he said.

Foreclosure hurts Hawaii regardless if the homeowners are from the state or not, said Nani Medeiros, executive director of the nonprofit Housing Hawaii.

Foreclosures decrease Hawaii's property values, destroy neighborhoods and decrease the state's tax base, resulting in lost jobs and support services, Medeiros said.

Housing Hawaii projects the state will see 5,600 new foreclosures this year and that as many as 18,600 homes could be lost through foreclosure over the next four years, causing price declines for some 167,942 homes throughout the isles.

“;The mainland's foreclosure cycle has been ongoing for about two years and we think that we are only seeing the start of it in Hawaii,”; said Medeiros, who has served as a housing and homeless adviser to Gov. Linda Lingle.