Mason and Jessica Thompson, who just left Germany on a military transfer, were excited about their move to Oahu and thankful that their arrival was in the midst of a housing slump so that they could realize their dream of homeownership.

The couple decided to focus their single-family home search where they could get the most bang for their buck, so they chose Ewa Beach, which was ground zero for foreclosure and short-sale activity on Oahu last year. Currently, more than 42 percent of Ewa Beach's active listings are short sales or foreclosures, and prices have dropped about 30 percent from the height of the last up cycle, said Stephany Sofos, a Honolulu-based real estate appraiser.

“;All those new homes that were going for $450,000 to $500,000 10 years ago are now going for $410,000 to $450,000,”; Sofos said. “;It's a great time to buy there.”;

That is if you can find anything, said Mason Thompson, who has looked at about 25 properties with his wife since arriving on the island in December.

“;If you are looking for something under $625,000, there's just not a lot of inventory,”; Thompson said. “;I think we missed the peak of the inventory.”;

The couple, who are temporarily living at the Hilton Hawaiian Village while they look for a permanent home, have made offers on two short sales. However, they are not confident that either deal will close before their military-issued temporary housing allowance runs out.

“;We're not desperate yet; we can see desperate in the horizon,”; Thompson said, adding that he and his wife want to find something before the first-time homebuyer tax credit expires and he gets deployed to Iraq.

It might be a distressed market, but the Thompsons and others have found that finding available inventory is more challenging than they had anticipated.

“;Our search has been kind of disastrous,”; Jessica Thompson said. “;We're very hopeful, but we didn't expect it to be this difficult.”;

Prices have been dropping in Ewa Beach for some time, but starting last November sales began to pick up, said Allyson Blackard, broker and co-owner of Hawaii Real Estate Online.

“;We're at or near the bottom because there is so much competition for offers,”; Blackard said.

While homes in Ewa Beach are going for sometimes $100,000 to $200,000 less than what the previous owner paid, Blackard said she thinks the drop is a phenomenon of the last market rather than a lasting slump.

Many Ewa Beach buyers paid top dollar for properties during the last cycle and then saw their equity depreciate from the effects of regional traffic woes, sagging consumer confidence, global economic downturn and tougher lending standards, she said. Also, the region was popular with military buyers, and many of them were forced to transfer in the midst of the down cycle, Blackard said.

Ewa Beach's reputation as an affordable place for new homes attracted a lot of young couples, who could only afford the payments using creative loans or by working more than two jobs between them, Sofos said.

“;If Mr. and Mrs. Hawaii no longer have 3.2 jobs, how are they going to afford their payments?”; she said.

While there are some resort developments in Ewa Beach, the region is primarily a working-class neighborhood, and real people are the ones that have been damaged by this cycle, said Howard Dinits, a Realtor with RE/MAX Resort Realty in Wailea, Maui.

“;During the last cycle, you had predatory lenders trying to turn renters into owners and get them into loans,”; Dinits said.

By the end of 2009, 636 Ewa Beach homeowners were in some stage of foreclosure, said Daren Blomquist, marketing communications manager for RealtyTrac, which tracks nationwide foreclosures. One out of every 22 households in the Ewa Beach ZIP code was in distress last year, Blomquist said.

Some neighborhoods in Ewa Beach were harder hit than others, said David Kucic, a Realtor associate with RE/MAX Honolulu, who lives in Ewa Beach and specializes in the region.

Most of Gentry's Montecito Tuscany neighborhood was built and sold in the 2005-to-2006 time frame, so almost all the houses listed in that neighborhood now are short sales, Kucic said.

“;Of the 17 homes that have been sold or are currently on the market, nine are short sales, and one is owned by the bank,”; he said.

Fifty-two out of 101 recent sales in Haseko's Ocean Pointe were short sales or foreclosures, Sofos said.

“;Buyers are eager, but it's a challenge finding them homes,”; said Kucic, who is trying to help the Thompsons navigate the market.

While RealtyTrac expects the nation's foreclosure problem to peak by year's end, the problem could take longer to work itself out in Hawaii, Blomquist said.

The U.S. Treasury Department program, called Home Affordable Foreclosure Alternatives Program (HAFA), which is designed to streamline short sales, is still pending, Blomquist said. And, modification programs are fighting a lost war, he said.

“;They are designed to address people who got into bad loans, but they don't address people who are unemployed,”; Blomquist said.

More needs to be done to help distressed Oahu homeowners try to save their homes or get them sold as short sales before they fall into foreclosure, said John Riggins, owner of Leeward Oahu-based John Riggins Real Estate.

“;Many don't have their properties advertised in the multiple listing service,”; Riggins said. “;It's as if the homeowners, lenders, attorneys and real estate agents are like deer in the headlights and doing nothing.”;

There are buyers who want to buy specific types of properties; however, many of those properties are in the pre-foreclosure, auction or lender-owned process, Riggins said.

“;Lenders need to approve short sales faster, and when they foreclosure, they need to list the property for sale and get it sold,”; he said.

While some real estate professionals believe Ewa Beach's real estate prices have bottomed out and that the worst of the foreclosures are over, Sofos said she anticipates further contractions this year.

“;When you have no jobs and your taxes are increasing, you are creating a very difficult situation for your citizens,”; she said. “;There is no way that all of these people will be able to get themselves on their feet.”;

Worse yet, distressed sales affect pricing across the broad spectrum of the market, Sofos said.

“;Everyone has to compete with the lowest-priced inventory,”; she said. “;Distressed properties bring other sales prices down.”;

Kucic said he's worried about what will happen to sales and prices in Ewa Beach when incentives expire and interest rates rise.

While short-term declines will occur, Sofos said she expects Ewa Beach will fare better in the long term.

“;The roads have been improved, there is good recreation, the houses are very nice and the setting is in a well-planned-out urban development,”; Sofos said.

Kucic said he was disappointed to see the value in his Ewa Beach home drop after it had shot way up. That said, he finds comfort in knowing that he enjoys living in the suburbs and is in it for the long haul.

“;I love it out here,”; Kucic said, adding that he's putting in a pool and a Jacuzzi.

Times are tough now, but in a few years Ewa Beach buyers probably will see their properties appreciate through the roof, Blackard said.

With any luck, the Thompsons said they'll be part of this group.

Other options

Homeowners who are behind in their mortgage may have several options for avoiding foreclosure. Those in default should check with a Realtor, lender or financial adviser to see if any of these options would apply:

» Forbearance: The lender can agree to add missed payments to the tail end of the mortgage

» Loan modification: Getting the lender to reduce the interest on the loan for a period of time or agreeing not to implement an adjustable rate hike.

» Short sale: The owner owes more than the market and the lender agrees to lower the mortgage balance and pay the sales cost

» Deed in lieu of foreclosure: The owner deeds the property to the lender, thereby reducing foreclosure costs and avoiding a promissory note or deficiency judgment.

Source: John Riggins Real Estate