Thursday, March 20, 2008

Hawaii Real Estate: What is Really going on??

Realtors and Home Mortgage brokers in Hawaii have been congratulating themselves on the low foreclosure rate in Hawaii and the housing prices holding rather than slumping as they are on the mainland. "I think fundamentally it's kind of different here because the different ethnic groups have more of an obligation here to make the payments people here are not willing to just walk away," said Donald Lau, president of the Hawaii Mortgage Brokers Association.

But the reality is that Hawaii had a 142% increase in published foreclosures in Feb 2008 over Feb 2007 and there is no reason to believe that this trend will not continue. Hawaii’s foreclosure rate is only low compared to other states, based on RealtyTrac’s measurement, the measurement of choice by the Hawaii Mortgage Brokers Association. But Hawaii’s unusual foreclosure laws in most cases create no public record of the foreclosure or intermediate events such as default notices, auction notices, and bank repossessions which RealtyTrac and use to count foreclosures.

The drastic downturn in Hawaii real estate prices in the early 1990’s, mostly due to the collapse of the Japanese economy, resulted in Hawaii rewriting foreclosure laws to expedite the process and minimize abandoned properties. Two primary aspects of foreclosure law in Hawaii are unique from most states on the mainland: 1) there is no recourse for the original property owner after a foreclosure goes through. In other states, like California, the original property owner can reclaim the property for some period of time after the foreclosure adding risk to foreclosure buyers; 2) Hawaii has streamlined the foreclosure process so that the owner can give up the property without requiring legal intervention (non-judicial foreclosure). As a result, the transaction is almost completely transparent and unable to be counted. Recently, a bill was proposed to the Hawaii legislature to provide transparency into non-judicial foreclosures, which today have no way of being tracked.

Banks and mortgage companies such as Countrywide, Citibank, Indymac, Chase, Fannie Mae have their Hawaiian repro properties stashed on individual web pages or in some cases spread out among many realtors that are advertising the repros (REOs, short sales) along with other properties. Hawaii Information Service has changed their format seemingly to mask the number of for-sales in heavy hit regions of Hawaii. Zooming into their new google-map shows that a couple of dots near Kona represent a massive number of fire sales.

Hawaii is also being impacted by demographics. It has the greatest percentage of elderly of any state in the US. The elderly in many cases need to sell their homes and this will likely drive down the cost of housing. At the same time the young people in Hawaii are moving to the mainland in record numbers.

The reality is there is no way of knowing Hawaii’s foreclosure rate or comparing it to other states. What we do know is that foreclosures are happening and Hawaii is not as insulated from slumping prices and oversupply as realtors’ may lead you to believe.

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