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Why Does Hawaii Have Fewer Foreclosures?

Money House I sat in a Broker's Forum last week. One of the speakers was the economist from Bank of Hawaii, Paul Brewbaker.

He said something I did not expect to hear. Well let me start by sharing a little background for my surprise first. For the last year or so, bankruptcies have been up nationwide in most markets. Hawaii has consistently been among the lowest. In my practice I rarely see buyers doing sub-prime, ARMS, stated income/ stated assets, 1% negative amortization or such. I assumed that in Hawaii we had fewer foreclosures because we write less subprime loans.

After sharing his statistics and projections for our market Paul made a comment that blew my mind. We in fact have as many subprime mortgages as the other markets. We have even more than some parts of the country, that the most foreclosures. That blew my mind.

So why is that? Is it cultural? Are the people in Hawaii just better at paying their bills?

When you consider:

The average wage in Hawaii is lower than many parts of the country.
The median price of a home is higher than all but a couple of markets.
The cost of living is among the highest.

What else could it be?

Possibly we do a better job of putting people in loans they can afford
We match up our buyers with the appropriate loan program.
We have less mortgage fraud.
Our appraisals are closer to reality.
We are not as influenced by bad practices from other places, because we are so removed.
Our local lenders are better at what they do.
We have less out of state loan officers doing long distance hit and run lending.

So the next question:

Is it fair to our buyers that they will have fewer mortgage products and stricter lending requirements because of the abuse from other parts of the country?

Posted by Randy L. Prothero - Hawaii REALTOR® on 02/15/2008 12:46 AM

Comments (46)

mortgages, subprime, hawaii

Originally posted at: Hawaii Randy's Real Estate Opinions: Why Does Hawaii Have Fewer Foreclosures?

This post has been included in Hawaii Information

46 Comments on Why Does Hawaii Have Fewer Foreclosures?

FEB

2008

Hi Randy

Ther seems to be a more stable environment in Hawaii.

Would you agree?I think I have a referral coming your way in a couple months

sincerely

tom braatz

Seems to me that part of it may be the steady stream of international capital, as well as a more stab;e economy based on tourism. Even when tourism is down in other parts of the world, people ALWAYS got to Hawaii. :)

Tom - Our market has been more stable. Let me know how I can help them. Thank you!

Marlene - We lost a lot of military troops to Iraq and Afghanistan and tourism has been off. Yet we seem to keep plotting along.

One idea a friend gave me tonight was that he reminded me that in Hawaii we have more multi-paycheck households than anywhere else. Both husband and wife work sometime 2 jobs each and then the grandparents or other family members also live with them and have income. Because of the high cost of living and lower wages many families have to do this to survive.

Randy,

Interesting assumption...maybe you had less mortgage fraud and the appraiser were appraising correctly unlike here where we have one if not the worst statistics when it comes to that.

Neal - It does seem like the areas that are heavy in foreclosures are also the same areas where I read the most stories about mortgage fraud rings.

I do my do diligence when helping a buyer prepare an offer. We know what the property is worth before they decide to write an offer. My buyers are not over paying for their properties or getting socked with bad loans.

The unfortunate part is that even if your buyer did everything right, they are still effected by what the other buyers and sellers may or may not have done wrong down the street.

Randy that would not be fair to your buyers at all. Interesting that you have the lowest numbers...maybe it's because your area is so beautiful that people will work harder to keep it??? I don't know but that could make sense????

Monika - I think you may have a point. Most people in Hawaii are working harder much harder to get their home, so they are better prepared and it has so much more value to them. So the suggestion that it may be cultural, may have some merit.

Randy,

Sounds like the people there are just more responsible. The subprime debacle should never have happened. Lots of people buying homes that really could not afford to.

Because they are happier on the beach? happier with the weather? Can't get off the island? If I was there, I would be happier too! Great Place to live, lucky you!

I suspect that all of this has to be put in context of what is the percentage of home owners to renters. Also offshore owners are often cash.

But, by any measurement, it's a stable market. Our market is stable too when compared with other areas.

In fact, when I read some of the posts about defeults, etc., I know that we don't face those types of problems.

Randy I was surprised to find out how many Subprime Loans Connecticut had. At the end of last year we had about 70,000, that is far more than I expected.

As far as for the reason why Hawaii has less foreclosures, I would suspect it is because:

"Possibly we do a better job of putting people in loans they can afford"

"We have less out of state loan officers doing long distance hit and run lending."

And very likely because "people in Hawaii are better at paying their bills".

Good observation. I believe that maybe you have local lenders who know their clients and the market.

Mike - It just reminds me so much of the Dot Coms a few years ago in several ways.

Mary - We have a saying here,"Lucky we live Hawaii."

Lenn - It will be interesting to see how the experts explain why some areas have so many more defaults than others. I can understand places like Michigan where they are hurting because of one industry, but what is California, Florida and Las Vegas's reason?

George - Those reasons do sound logical to me anyway.

Gary - I did see several of the large mainland owned brokerages close down. The closed because of their mainland divisions, not the local operations. Our local primary lenders all seem to be quite solid.

I think that you all must be very ethical in HI. I am glad to know it still exist in some markets. I think that this really great to here.

Glad to hear that is not as much as an issue there. It is definitely not any fun to have to help someone sell their home at a loss or move from a home they own and are loosing into a rental. I have clients I have helped do this and have encouraged them to follow some basic credit repair steps and we are on track to get them to be homeowners again in a year or 2 depending on their situation. They will be great buyers when they are ready though and have been wonderful sources for referrals in the meantime.

what about stability? are the wage earers more stable than in other parts of the country?

What's fair about this whole mortgage mess? You and I both know that no matter what bandaids the Feds put on this foreclosure mess, it's going to get worse at some point. And it's the good borrowers and taxpayers who will be footing the bill. Not just Hawaiians but all of us who pay our bills on time. (harumph, i need to get off my soapbox-it's bedtime EST!). =)

Mary - We have our share of unethical, but it appears to be a smaller percentage than many places.

Charity - I am working with a couple of clients myself who are in areas that prices went down a little and they need to sell. Not fun at all. Fortunately they have been making all of the payments and have stellar credit.

Justin - We have next to no unemployment.

Leigh - I hope they make examples of those who did not play by the rules. They are costing a lot of people a lot of money.

Hi Randy,

Interesting info. I was surprised by "average wage in Hawaii is lower than many parts of the country", is that because of the large military influence?

And I would certainly hope that people who make more prudent choices would not be penalized by those who didn't, yet I doubt that's the situation.

FEB

2008

Lynda - We have a service industry economy; mostly tourism. Not as many high paying jobs.

FEB

2008

Our minimum is supposed to go up shortly. In any event, there may be plenty of reasons why we have fewer. Like you said ....both or all adults who live in one household work and contribute. We do have to work harder for a mortgage with less sq/ft home (I should know that hehe) and like for just Gary and I .....he works full time and part time with his pc repair...I work part time in our office as well as sales. So in our case we work two jobs each. Shadow just sits back and cruises....lol!

FEB

2008

It helps that most married couples both work. I think our market is very different from the mainland situations because we have families living in a house that don't just consist of mom, dad, and the kids. We have households here that consist of grandma, grandpa, mom, dad, uncles, aunties, kids, and grand kids. I pick the brain of most locals I meet and have always found that the ohana here in Hawaii is the key.

Sally - A large percentage of households in Hawaii are similar to yours. Many others are multi-generational.

Rob - I agree that Ohana is a factor.

FEB

2008

I'd be interested in knowing the exact numbers for our state. Is it on B of H's website? We sure are seeing more REOs and short sales on Kauai. I saw a property on the North Shore yesterday reduce its price to 1.15 Million when the bank was already owed over 1.5 Million. THAT is a very short sale. Of course, the neighbor islands are more of a vacation market compared to your market that is more of an urban market and all the military clientelle you have.

We had Paul Brewbaker speak to our regional group yesterday for the Honolulu Board of REALTORS. I am trying to get the powerpoint from it.

Randy, is it influenced by the fact that there are so many retirees there? I imagine there's less overbuilding and speculating on new homes, like there was in Nevada and Arizona.

There is plenty of speculation on the neighbor islands, but mostly of homes over 1.5 million. Since the downturn in the market, the neighbor islands only have REAL buyers, retirees, 2nd home purchasers, and people purchasing to retire in the future, and local purchasing first homes or moving up or down according to needs.

Randy, Brewbaker's presos are often on the B of H site. Let me know if you get it or send a link to it if possible. Great meeting you and Sally today.

It's so beautiful, why would anybody ever want to leave?

FEB

2008

Eric - I do not think we have as many retirees as Arizona and Florida. According to the stats we do have a lot of development, but not as overbuilt as other parts of the country.

Ronnie - i think for the neighbor islands the dollar exchange rate has been the blessing. When I was on Maui it seemed like the Canadians where buying like crazy. I am expecting a copy of Paul's presentation after he has a chance to scrub out anything confidential. Great meeting you, also congratulations on your C21 Award.

Cindy - That is true.

FEB

2008

Randy, one thing is for sure, Canadians are buying while their dollar is so strong. In terms of retirees, my notion is that the state of Hawaii is of course competing with all other warmer climate areas like arizona, florida, mexico, the caribbean, for retirees. And, the cost of living in Hawaii is the highest of all the competing areas. So someone needs to love life in the islands to make this their choice. There is no shortage of competition and qualities like health care are important to many people as well.

Ronnie - Good points.

We live in paradise most of those areas have warm weather.

I think you're lucky to live in Hawaii for the same meteorological reasons as we have in San Diego! We've seen un uptick in Canadian shopping as well due to the strength of the Loonie. I don't know how difficult it is to move money into the US to purchase property due to the Patriot Act. That had shut down large downpayment international transfers in the past....anyone know whether that is still a problem?

Out here in my area of Cape Cod, most of my Buyers are second home Buyers. Thus, the majority of them have good incomes, good credit, good assets, etc. Thus, the foreclosure rate here in Provincetown is also very low compared to many other areas.

Same is true in Hawaii Rick, although I must admit, I am seeing plenty of short sales and REOs and more each month. That will certainly assist in bringing prices down as comps will be heading down. How are prices on the Cape right now?

Prices are holding up. Only in a few isolated cases where a Seller needs to sell, are the prices below market. But, there are many other closed sales that keep the comps up.

Overall, prices are flat. Inventory is high. Average DOM is 90-180. But, most sellers do not need to sell- which is why inventory is high while prices are holding.

Rick, sounds similar to the neighbor islands of Hawaii. Inventory is high, prices are going sideways and in some areas trending down. In Some of the condo complexes which sold primariy to investors only back in '05 and '06, the only units selling are units which are selling BELOW the original developers prices. So much for flipping, eh?

John - I haven't heard of there being much of a problem from Canada. Most of the transactions I am aware of were financed locally.

Rick - Price and inventory levels vary on Oahu from community to community and types of properties. In general the days on market are reasonable and prices holding. There are a few communities not doing as well.

Ronnie - I am also seeing more short sales in a couple of communities. Fortunately they are still in a small minority.

FEB

2008

ah, it is Hawaii! Who wouldn't want to be there......

Kelly - I am sure that plays a part.

FEB

2008

Randy I think perhaps supply and demand are a factor. Over on Maui we never did have vast tracts of new homes built creating an over supply. There is always pent up demand, so if a home is priced right, it will usually sell quickly. I think we do have better lenders too, as you know we always like to work with the local lenders who can get the job done right, and they have their own appraisers who behave correctly.