There are now 89 houses for sale in HPP

[Punatang]

Has this ever happened before?  There are 87 89 86 88 90 91 92 94 95 90 87 93 89 houses available to purchase in HPP.

Herr Chunkster gently alerted me to the fact that we, here at PW, are way too focused on cookie cutter, new build houses. So, I did a search. 

The best priced one has geometry and is $164,500 https://www.zillow.com/homedetails/15-19...7609_zpid/ (note - this one was removed on the day of posting)

The highest price is 1.7M and not even any exciting geometry really.  https://www.zillow.com/homedetails/15-78...8668_zpid/

Then there are a whole bunch in the middle.

https://www.realtor.com/realestateandhom...e/pnd-hide

Seems like a chronic overabundance of homes for sale in just one subdivision. Can anyone shed any light on this?  Any help understanding any of this is greatly appreciated.

[terracore]

1) People want to buy them, but the interest rates are too high.

2) And some of those people live in LZ1 or LZ2, where their homes won't sell because buyers can't get insurance and also because interest rates are too high. So they are stuck.

Some people selling in HPP can't lower their prices because if they did, it wouldn't cover their first and/or second mortgages.

Even if we DID want to move to HPP, which we don't, there is no way we could trade our existing 3.x% mortgage for a 7% one.

Basically, everybody is stucked. This has been the case for well over a year on the mainland, and it's finally caught up to us.

Here's a quick breakdown of a 3% and 7% interest rate on a $500k home:

Monthly Payment Difference

At 3% Interest Rate: $2,108.02
At 7% Interest Rate: $3,326.51

This means that at a 7% interest rate, the monthly payment is $1,218.49 higher than at a 3% interest rate.

Total Payment Over the Loan Term

At 3% Interest Rate: $2,108.02 × 360 = $758,887.20

At 7% Interest Rate: $3,326.51 × 360 = $1,197,543.60

The total cost difference over 30 years= $438,656.40

Of course, lenders only look at "monthly payments". And they would be almost 58% higher today than they were a few years ago on the same $500,000 house. Has your income gone up 58% a month? Mine hasn't.

Conclusion

If someone can afford a $500,000 home at a 3% interest rate, they could only afford approximately a $234,713 home at a 7% interest rate, keeping the monthly payment the same at around $2,108.02. Have the HPP home prices dropped 50+%? No, so they are sitting on the market. Can sellers afford to drop the price? And then.... trade their 3% mortgage for a 7% mortgage and then what... buy a $100k home somewhere? No, they can't afford it.

Meanwhile, the cost of homeowners insurance in LZ2 has gone up approximately 1,100%. Has your income gone up 1,100%? Yeah, mine neither.

Basically, our housing market had been insulated from what is going on everywhere else because of cash buyers. People who don't need to pay the bank $1.2M for a $500k house. But those cash buyers seem to be running out of cash.

Not to overwhelm with information (I know, too late) the way that home payments work is that they are front-loaded with interest. To simplify it, your first mortgage payment is 100% interest and your last payment 30 years later is 100% principal. Each month it changes a little bit to where those two figures get closer to each other over 360 recalculations of compounding interest. So after a full year of making home payments, you haven't paid 1/30th of your principal, you've paid almost none of it! The principal-heavy payments are closer to the end of the loan* So homeowners can't turn around and sell a home they just bought without getting kicked in the teeth unless it's value has appreciated substantially to reflect their $20k (or whatever) they ate in closing costs to get the loan.

* This is why its important to make as many additional principal payments as humanly possible. Even just making a few a year, especially during the front end of the loan, can shorten the loan life dramatically.

[HereOnThePrimalEdge]

When I bought my first house I had an 8% mortgage.
The interest was tax deductible.
A few years later home prices had doubled and mortgage rates fell to 4%.

If I had waited to buy my home the price and down payment would have cost me twice as much.
Instead, I was able to get a 4% mortgage rate on my original purchase price.

In real estate like in comedy, timing is everything.

[terracore]

Exactly. That's why people were buying homes in the 80's at 18%. Hoping they could refinance later.

And there was downward pressure on home prices, due to all the people who couldn't afford home ownership and/or got foreclosed on.

[HiloJulie]

"Here's a quick breakdown of a 3% and 7% interest rate on a $500k home:

Monthly Payment Difference

At 3% Interest Rate: $2,108.02
At 7% Interest Rate: $3,326.51"


Microsoft Excel has a great formula - the @PMT one

Attached is a simple spreadsheet. Just input the total principal, interest rate and term - in months - up to 360 and it gives you the breakdown for each month of interest being paid versus principal being paid - as well as the total interest that will be paid as well as the total of all payments.

Yes, it's an Excel file but its cootie free - I wrote it!


  PW.xlsx (Size: 24.96 KB / Downloads: 0)

ETA: For ANY mortgage for 360 months once the interest rate hits 5.30403987882272%, you will be paying dollar for dollar of principal and interest over the 30-year term - so a 500k mortgage at 5.30403987882272% interest would require you to pay 500k in interest over the 30 years - or "ONE MILLION DOLLARS" in total.

[Punatang]

That is amazing that you wrote that program HJ!  This probably has less bells and whistles but will also give you a monthly or yearly breakdown.

https://www.mortgagecalculator.org/

under the CALCULATE button you will see "show amortization tables"  easy peasy.

********************************

Terracore for Mayor!  It's not too long and the energy you put into your thoughtful musings is very much valued.  I always agree with most of what you share but I'm not quite sure I see what you see vis-a-vis sales in LZ2.  I need more information.  Does anyone know how many single family homes are in HPP and how many are in the Puna LZ1&2 areas combined?

********************************

Edge you are a savvy & wise Pueo.  You probably have multiple trines and life is just a breeze.  In the long run RE always goes "up" because our fiat illusion of money keeps going down.  Don't worry though.  It's transitory.

[Durian Fiend]

...Basically, our housing market had been insulated from what is going on everywhere else because of cash buyers. People who don't need to pay the bank $1.2M for a $500k house.  But those cash buyers seem to be running out of cash.

Could it also be that the rising prices locally have dampened their enthusiasm for a cash buy, or even priced them out of the market?  I guess it's essentially the same thing.  They haven't run out, just don't have unlimited funds.

[Punatang]

If prices were rising, that would be my guess.  However, prices are dropping.  Someone with enough cash to buy a home in Hawaii likely has a level of economic sophistication which compels them to avoid depreciating assets. The smart money is in observation mode.

As much as I dislike saying it, this could be part of the reason we see the majority of the activity in the under $400,000 prices.  Less exposure to critical information.

[HereOnThePrimalEdge]

Here are all the properties on Big Island with offers right now, listed as contingent.  If you click advanced search on the page you can break it down by town to subdivision, etc.

https://www.alohaliving.com/search/search/?idxid=HawaiiInformationService&island=3®ion=Puna&city=&subdivision=&Project=&form=&tenure=&contingent=C&minprice=0&maxprice=9999999999999&minbeds=0&maxbeds=999&minbaths=0&maxbaths=999&minarea=0&maxarea=0&sorttype=price&sortdir=desc

[terracore]

Financing and insurance in LZ1 is possible, sort of, but prohibitedly expensive. This puts a lot of downward pressure on prices because it's pretty much looking for cash-only buyers who have not only enough cash for the purchase, but also enough to walk away from a total loss without it being a life-changing event.

It's a little easier in LZ2, but both financing and insurance are usually currently limited to $450k, which effectively puts a ceiling on prices. And people who were paying $500ish a year for insurance a year or two ago, are now paying $500/month. Many of them WANT to move to where the more affordable insurance is, but they are trapped for the reasons I mentioned above. Many of them are now using lender-provided insurance, which only covers the bank's interest. It's a double-whammy in LZ2 for potential buyers because the insurance cost is factored into what a lender considers their "monthly payment". Basically the 7% halved how much people can afford, and the increase in insurance costs halved that again. So the payment on a 2020 era mortgage buys 1/3 as much house in 2024 (just ballparking). This, again, lends itself towards a cash-buyer's market.

I'm surprised I haven't seen any cash-out insurance policies being peddled in Hawaii. They are becoming more popular in places like California and Florida. Traditional insurance is based on the premise of "making one whole". i.e. if your house burns down, the insurance covers your interim housing, removal of the debris, rebuilding, and replacing your belongings. It's like it never happened! A cash-out policy is more like life insurance. If you suffer a catastrophe, it pays a set lump sum to help you start over. It's not about a complete restoration of where you were before the loss. And similar to a life insurance policy, no claims adjusters are required. Either the person is dead or they aren't. Either the fire happened or it didn't. The policies have clearly defined set thresholds of what triggers a payout. These policies might be a good addition for someone who is paying lender's insurance.