On Top of the Aloha Beat BLOG

As lenders scurry to fend off the continuing foreclosure crisis, Fannie Mae, one of the three government entities who purchases mortgages in the secondary market, announced a new approach last week. RENT YOUR HOME! Not to someone else, but to yourself.

The Deed for Lease program lets homeowners transfer the deed back to their lender and then sign a lease to remain in the home. The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens.

One question arises is how, if you have a second mortgage, you are going to be released from any subordinate liens, in other words, a 2nd or 3rd mortgage. I can see that perhaps so people can regroup within a year and get back on track, but given the sheer number of defaults, I am not sure this program is going to make much of a difference.

Homeowners must show they can afford market rent, but that payment cannot be more than 31% of the borrower's pre-tax income. Leases may be up to 12 months, with the possibility of renewal or month-to-month extensions. If the property is sold, the new owner picks up the lease. 31% is the government's number for maximum loan payment in a modification that is acceptable to the parties as well. So if my gross income is $4000, I cannot have a payment greater than $1240 dollars.

Certainly for many with adjustable mortgages, this formula will create a number that is seemingly more affordable. Time will tell.

Homeowners who have ADU permits to build additional structures, but have not had the ways or means to act upon it, got a reprieve from the County of Kauai last Friday. Draft Bill 2322, which was passed by a 4-0 vote by the council’s Planning Committee Wednesday, would push the deadline for obtaining building permits for ADUs — formerly referred to as “‘Ohana Units” — from Dec. 15 of this year until the same date in 2014, but the extension would only apply to those who already have a facilities clearance form in hand or submitted, and would not open the process up to any new applicants, council members said.

Mayor Carvalho is expected to sign the bill into law shortly. This five year extension will more than likely according to local sources, be the final extension of this bill.

Read the full story in this week's Garden Island newspaper.

A separate bill that would allow previously existing TVRs (Transient Vacation Rentals)  to continue on ag land until the government concludes its Important Ag Lands study was deferred, at the request of the Office of the County Attorney, until Nov. 10.

Sometimes doing a short sale comes with additional challenges. The borrower needs to get relief from the deficiency in many cases in order to get the full advantage of the short sale. When the bank plays hard ball, the borrower loses and so does the bank.

Interesting interview with head of Zillow about the state of foreclosures and where we may be in this real estate market cycle. Thanks for the tip. Knowledge is power.... Thanks Spencer

Many people who travel to Kauai seek a retreat on the North Shore in remotes places like Hanalei and Wainiha. Some tourists have heard that Poipu is the dry sunny side of the island and Poipu is where many vacation rentals and hotels are, so that's where they stay. BUT, what about the West Side? Today's Garden Island paper has an editorial piece that will give you a little insight into Kauai's west side and what we mean when we talk about the west side of Kauai.

Where does west Kaua‘i begin, and what does that geographical reference include?

If you’re talking to Rhoda Libre-Hayton, who chairs the Kaua’i Westside Watershed Council, it encompasses the area referred to as the Kona District of this island.

The trek is definitely “down-home, country-style, and rural-to-the-max” as one can eventually get all the way to Polihale if one stays at sea-level or if one opts to head up for higher ground to the Koke‘e mountains, the crown jewel of Na Pali Coast. In turn, west Kaua‘i is a mixture of honored traditions and innovative transitions as well as being a series of random delights that range from serene to spectacular.

POLIHALE BEACH at Kauai's west end - Awesome ocean and beach

Read the full Kauai west side introspective here

Jeff's comprehensive post provides a lot of food for thought. As i begin my CDPE pursuit, there are many short sellers who i can help get out of this mess more unscathed than if they just sat there and did nothing about the foreclosure process and having negative equity in a property.

Today's paper had a thoughtful article by Walter Lewis commenting on the appeals process regarding the valuation of Walter's property on Kauai. It is really quite a dichotomy to be a real estate professional whose success is somewhat tied to the work of appraisers who in this market are more conservative than ever. More often than in prior years contracts are cancelled due to a property not appraising for the contract price. At the same time, the county has raised the assessed value of most condos on the island. And despite the fact that the market has corrected 15-20% in most neighborhoods, island-wide the assessed value is only down 3%.

As Walter Lewis  pointed out,
This year was a banner year for the number of appeals by Kaua‘i taxpayers with nearly 1,000 filing exceptions to the amounts of their assessments. Steve Hunt, who is handling over half of the appeals, informed me that in over 15 percent of the cases that he was given, adjustments were made to the assessments, certainly an improvement from the taxpayer’s standpoint from the 2 percent rate that has been applicable in Board of Review hearings.

Read Walter's entire commentary here:

I spent time with a condo owner earlier in the week who did not achieve as good of results as Walter. In her condo complex in Princeville, the value of the land went up significantly. The county boasted that their new system had succeeded in creating a better balance of values between buildings and land. I find it hard to believe that the assessors can raise the value in such a declining market.

Another comment Walter makes:

Property taxes provide over 60 percent of the revenue for our county and are essential for its financing. But fairness to taxpayers is also fundamental and the 2 percent success rate for taxpayers in the Board of Review process is disquieting.

When the county releases its new assessments for 2010, there is certain to be a problem if values actually rise again. The county not only needs to consider it's balance sheet, but also the fiscal wellness of it's citizens too.

This diagram below over simplifies the Short Sale Process. It's important to know that any one of these stages can take weeks to occur. The main point of this post is so that you understand the Short Sale Process and temper your expectations with the knowledge that the timeline is pretty much out of your (and everyone else's) control. A great exercise in surrender, that's what I'd say.

One thing to note. With many banks these days, the loan modification department and short sale department are one and the same. This means the these folks are swamped. As one Home Rescue consultant described it to me, "Imagine your local Costco totally empty. And all there is are desks and piles of paper. That is what some of the bank's short sale/loan mod departments look like.  The grey box in the center of the diagram can take months. It can take months to even get a response from the bank and then if the price offered has to be renegotiated you can go back around in that circcle for quite some time.

Wanna know more about Kauai short sales. Wanna know about great buying opportunities here on Kauai. I can send you a list of all the ofreclosure and short sales. Just drop me a note or check my blogs frequently.

New Listings:

1. 5796 Noni St., Wailua Homesteads. This is a 5 bedroom 2 bath home 2 story home.  The home has nice curb appeal and is in an excellent location near Sleeping Giant (Nonou) mountain. The home is a good example of a home remodel gone bad. Check out a video walkthough by Hawaii Life's Susie Kunkel.  Owned by American Home Mortgage Servicing Inc. MLS#226761 

 Price Changes:

1. Banyan Harbor G-80, Lihue. A 2 bedroom 2 bath fully furnished condo with partial ocean view.  New price $224,0000. MLS#225936
2. 4740 Hokuloa Place, Eleele. 3 bedroom 2 bath home for $289,900. Garage has been turned into a family room. MLS#225781.
3. 5086 Napookala Circle, Princeville $727,800 MLS#224854. An amazing location on the Makai golf course in Princeville. Over 16,000 sq. ft. Some of my buyers think the home should be leveled! Ouch... Owned by Bank of America..

Buyers often request which bank owns the property. Dealing with each bank can be vastly different whether you are purchasing a Kauai REO or a Kauai Short Sale

You can search the entire state of Hawaii at the Hawaii Life website, and even set up your own account there.

Upcoming listings include some units at the Waipouli Beach Resort. This project, located across the street from the Kauai Village Shopping Center, was sold at the height of the market. It's an amazingly high quality construction, with the utmost in amenities. However, with super high maintenance fees, the market would not sustain the original developer prices. With the start of REOs in this complex, I anticipate the prices are going to adjust rapidly just as they did with other similar projects like the Aston Island on the Beach and the Hilton Kauai Beach Resort. If you want a deal at Waipouli Beach resort, keep your eye on the market. Here is a list of all the units for sale at the Waipouli Beach Resort today.

Night Shot from Waipouli Beach Resort in Kapaa.

Our Kauai Board of Realtors as a service to the community publishes articles in our local paper, the Garden Island. This weekend’s article in the business section has been adapted to give you a good sense of how our Kauai real estate market is doing through the first half of the year. Normally, the Kauai real estate market is a seasonal one. That is, our market tends to spike in the winter time when the “snowbirds” come to the tropics, and spike during the summer months when tourists vacation with their families while their children are off of school. Not sure if those same tendencies still apply to our current state of affairs, but the numbers don’t lie, that’s for sure.

As the first half of 2009 has just passed, we thought it would be timely to review real estate activity on Kauai. As to be expected in light of the global economic downturn, the results are down in every category versus the same time frame for 2008. Please keep in mind that the Kauai real estate market is an insulated one with a relatively small sampling section, therefore a high or low dollar sale, a new condominium project or subdivision, or a foreclosure in a condotel project (we recently had a large one) can dramatically affect the statistics.

Kauai Year-to-Date Transaction 2008 vs. 2009

Kauai Year-to-Date Sales Volume in Dollars 2008 vs. 2009

Kauai Year-to-Date Median Sales Price*

*Median Sales Price on Kauai represents the midpoint between the most expensive house and the least expensive house sold in an area during a specific
time. The Median Sales Price is often regarded as an indicator of the strength and the direction of a real estate market.

To emphasize where Median Sales Price values are in relation to previous years, enclosed are Median Sale Prices from 2004 – 2007 in the same time period.

Kauai Year-to-Date Median Sales Price 2004 - 2007

These charts above are based on Information which is provided by Hawaii Information Services, the company which runs the multiple listing service for Kauai and Hawaii, the Big Island.

Using the Median Sales Price as a barometer, the property values on Kauai are now comparable to 2004 values; Condominiums are closer to 2003 Values ($271,469). Regarding broader generalities, the State of Hawaii appears to be tracking closer to what is currently happening on the mainland as opposed to previous trends where there was a 6-9 month lag from what occurred on the mainland until it affected Hawaii. Of course similar to our climates, there are many micro-markets that ebb and flow according to the supply and demand of units on market. Another observation is that Hawaii’s market is also a bit healthier than some of the mainland markets, such as Southern California.

The increase in Hawaii in Median Sales Prices did not rise as high or as sharply and consequently the decrease in Median Sales Prices has not been as steep or dramatic…we have experienced lower highs and higher lows. Hawaii’s two-leading Banks, Bank of Hawaii and First Hawaiian Bank are strong and stable. According to Bank Director’s Magazine “The 2008 Bank Performance Scorecard: America’s Top 150 Banks”, Bank of Hawaii was the 4^th highest rated bank in the U.S.

In terms of foreclosures, the State of Hawaii has generally been in the bottom 10 of the 50 States, ranked 36^th in April and that number spiked in May which caused Hawaii to be ranked 15^th among the 50 states. There were 816 foreclosures in state of Hawaii in May according to a recent RealtyTrac report. With one in every 374 housing units receiving a foreclosure filing during the month, Kauai County posted the highest county foreclosure rate in the state amongst the five major counties. RealtyTrac statistics includes commercial properties, which include condo-tels and timeshares in the foreclosure data, and sometimes includes properties multiple times in the three-phase foreclosure process. As I alluded to earlier in the post, there were 145 residential units and 16 commercial units at the Hilton Kauai Beach Resort that were auctioned at a public foreclosure auction on May 6^th that dramatically skew the Kauai foreclosure numbers. iStar Financial, the primary lender at the Hilton Kauai Beach Resort, bid $15 million, outbidding several other bidders. The up tick in Kauai’s foreclosure numbers can also be attributed to mainland buyers and investors defaulting on resort properties/2nd homes purchased over the past few years.

In terms of mortgage delinquencies (percent more than 30-days past due) Hawaii was 45^th among the 50 states according to the Mortgage Bankers Association (Q4 2008). If you factor the condo-tels in, Hawaii may be climbing the ranks in that stat.

In addition to the decline in the Kauai Median Sales Prices, the other dramatic impact to the real estate market on Kauai is in the number of transaction. The numbers of transactions were down 50% between 2005 and 2007 and decreased another 36% in 2008. There were 1,768 total sales on Kauai in 2005 and we are currently at a run rate to have 508 total transactions in 2009 or 28% of the number of transaction that occurred in 2005. That’s a slowdown to be sure.

Currently there are 1 in 14 residences for sale that are in escrow followed by 1 in 16 condominiums and 1 in 16 land parcels.

Total Kauai Properties for Sale as of 7/1/2009

Total Kauai Properties in Escrow as of 7/1/2009

In as much as the Kauai real estate market has adversely affected Sellers of properties, the construction industry, escrow companies, Realtors, and lenders, it has created a boon for Buyers. You would have to go back to 2002 or 2003 in many instances to find the types of values that exist in today’s market. Motivated Sellers, relatively low interest rates, first-time homebuyer programs, and Seller financing in some cases all equate to a great opportunity for property buyers. That’s the overview of the market for the first half of 2008. Again, thanks to the Kauai Board of Realtors for collating this information.

What’s next? We are in uncharted territory where some of the most accomplished economic experts are having a difficult time forecasting future trends. It does appear though that there are economic indicators and signs that perhaps the worst is behind us and the market is flattening out a bit.

If you would be interested in seeing how your neighborhood is faring contact me at ron@hawaiilife.com and I’ll be happy to generate a comparable market report for your specific property type and location. And of course, the most current list of Kauai foreclosures and short sales is available on an island-wide basis, or by general geographic region, i.e. North Shore, South Shore, Eastside, etc.

Looking forward to the second half of the year as great values abound and there’s so much opportunity for qualified buyers to own their piece of paradise.