Our first experience with a volatile housing market and
mass foreclosures was in Texas after the oil crash, in the mid-1980’s. Ten
years earlier Dallas and the surrounding areas had a real estate boom from a surge
in oil prices and influx of people attracted to the area by the new jobs. Even
in the suburbs north of Dallas, like Plano where we lived, there were labor
shortages and high real estate prices. Track houses purchased in 1979 increased
30% in value in just 3 years.
By the mid-1980’s, the crash in oil prices was severe and
the massive layoffs included many of our friends. Houses were
rarely for sale in Plano, so it was a shock to see “For Sale” signs lining
the streets. We watched dumbfounded as the super hot Texas economy and real
estate market became a calamity. Half built skyscrapers stood idle. A huge new
shopping mall near our apartment had empty shops and tumble weeds blowing
through it. The Texas economic downturn was steep with dozens of banks going
bankrupt and thousands losing their jobs and life savings. The federal
government created a corporation to "warehouse" all the debt from
home mortgages and commercial properties until an orderly market returned to
sell them off.
We experienced the Texas boom and bust during our early
years of working, and although we were somewhat on the sidelines without the
income or down payment to buy a house, the experience left a big impression on
us.
Twenty years later when we saw the rapid rise in house
prices in Santa Cruz County we got a terrible feeling in our stomach.
Based on our experience, it was only a matter of time before the crash. But our friends and neighbors were convinced that house
prices only go up. They claimed that the 32% price increase in their houses over the
past three years, from 2002 to 2005, was only the beginning.
At the end of 2007, real estate prices in Santa Cruz County started to fall. From 2008 to 2012, house prices fell 33%. The crash crushed the buyers who had
purchased their homes at the height of the boom.
Now we are living on Oahu observing the island’s housing
boom. The average price for a single
family home is currently $725,000, a 12% increase over the past three years. Oahu’s
foreclosure rate of 1 in 3200 homes is one of the lowest rates in the US. In
contrast, Maryland, the state with the highest foreclosure rate in the nation has
a rate of 1 in 537 housing units.
The income needed to afford a $725,000 mortgage for an
average Oahu house is $290,000 a year, based on the conservative qualification criteria
of a mortgage not exceeding 2.5 times your income. In contrast, the average
salary for job postings in Honolulu is $40,000, which is 31% lower than the
average salary of job postings nationwide. In our central Oahu condo complex, a
3 bedroom, 2 bath, 2 parking spot, 1100 square foot condo is listed at $525,000
(with no amenities like a gym or swimming pool or common area).
The high cost for a house on Oahu feels a lot like California
in 2005, particularly when the low wages in Hawaii are factored in. Even so, house
prices continue to rise.
The extreme cycles of housing prices has taught us to
expect the unexpected.
