Subprime struggles fewer in Hawaii

HONOLULU ADVERTISER   September 16, 2007

BY LISA SCONTRAS

Custom Publishing Group

Despite the instability that is dragging down Mainland real estate markets, the Oahu housing market continues on a steady path, according to Bill Chee, CEO at Prudential Locations and 30-year veteran in the real estate industry.

“In Hawaii, we’re less affected than the Mainland because we have fewer of these exotic mortgages,” says Chee.  “Hawaii is a little bit more conservative and so people here are looking to hold homes for a longer term — so there aren’t as many people who opted for exotic loans.”  Chee, who in 2006 accurately predicted a 10 percent decrease in the number of transactions for 2007 along with single-digit appreciation, is hopeful that the movement of prices will continue slowly upwards in spite of the decrease in sales volume even while the small sector of sub-prime mortgages struggles.

“The market is behaving exactly as we called it a year and a half ago,” says Chee. “This is the best scenario in terms of letting the market rest after a long, very strong run. It’s balancing itself.”

A broad look at the national housing figures also indicates a stabilizing forecast, and relatively healthy sales volume.

Lawrence Yun, NAR senior economist, said this week that unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September.

“There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines,” said Yun. “However the jumbo loan market is beginning to settle, and FHAinsured loans are helping to fill the subprime vacuum. The volume of existing-home sales this year will be better than 2002, which was the second year of the housing boom.”

Continuing to give the Hawaii market an advantage over the typical U.S. city is the international appeal and a broader pool of buyers from which to draw.

“Every neighborhood’s value is based on the number of buyers,” explains Chee. “Take a look at a neighborhood like Waikiki. Waikiki appeals to people in Asia, it appeals to people in Canada and it appeals to people in California. So you can tell when you look at a market in transition, if it has more buyers, it’s much more stable.
And that’s true with any type of market.”

Pricing strategies are more important than ever as a way to generate buyer interest. Being overly optimistic with an asking price is a big mistake some sellers make.

“If you ask too much for your home, you become known as the ‘overpriced home’ — even if you lower your price later, you’re still known as the ‘overpriced home,’” Chee warns. “A year later, you may actually be priced under the market, but you can never shake the stigma of being the ‘overpriced home.’” Instead, Chee shares a success tactic his top agents are using.

“Some of our agents are using the strategy of listing below the market and generating so much action that it still drives the price up,” says Chee. “It’s really all about the amount of activity you can generate on your home. There are still a lot of buyers out there and interest rates are still at historic lows.”

As to the severity of the subprime fallout on Oahu? According to Chee, it’s impact is relatively small — conventional mortgages are still king here.

“If you’re someone whose credit is marginal or you have no credit at all, you will not be able to enter the market,” says Chee. “But it doesn’t have much impact on the conventional borrower.”

Harvey Shapiro, research economist at the Honolulu Board of Realtors, says “Additionally, there are expectations of a Federal Reserve rate cut at their September 18 meeting, an event that could bolster demand for housing nationwide.”

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