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Forbearance Plans, Are Foreclosures Next?

At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put into place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not.

Yanling Mayer, Principal Economist at CoreLogic, recently revealed:

“A distributional analysis of forborne loans’ payment status reveals that more than one third (39.1%) of all forborne loans are now 150+ days behind payment, while as many as 1-in-4 (25.5%) are 180+ days past due.”

These homeowners have been given permission to not make their payments, but the question now is: how many of them will be able to catch up after their forbearance program ends? There’s speculation that a forthcoming wave of foreclosures could be the result, and that could lead to another crash in home values like we saw a decade ago.

However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes.

What are the experts saying?
Over the last 30 days, several industry experts have weighed in on this subject.

Michael Sklarz, President at Collateral Analytics:

“We may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”

Odeta Kushi, Deputy Chief Economist at First American:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock. It is a lack of sufficient equity, the second component of the dual trigger, that causes a serious delinquency to become a foreclosure.”

Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University:

“With a greater cushion of equity, troubled homeowners have dramatically improved options: a greater ability to access funding (e.g. home equity lines) to keep paying monthly expenses until family finances might recover, improved ability to qualify for and support a loan modification, and, if push comes to shove, the ability to sell the home and monetize their increased net worth while reducing monthly payment obligations. So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.”

With today’s positive equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and walk away with their equity.

Won’t the additional homes on the market impact prices?
Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe.

We must also realize there is currently an unprecedented lack of inventory on the market. Just last week, realtor.com explained:

“Nationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.” We see this same trend for single family homes in many communities and price points here in the State of Hawaii. It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.

The pandemic has led to both personal and economic hardships for many American households.  If you are one of the million of homeowners that has taken advantage of the forbearance plans allowing you to remain in your  home without making monthly mortgage payments and not sure how you will be able to catch up on your mortgage payments, now might be a time to talk with a real estate broker and determine how much equity you have in the home.  Once you know your home’s current value,  it is suggested you talk with your lender to decide if refinancing or selling would be the best option to keep you from going into foreclosure.

Market prices have surged across the country in 2020 due to lack of inventory and Americans  holding on to their homes longer, and it is costing would-be home buyers.  Due to refi’s and COVID, homeowners are staying put. Demand has been growing, especially for larger homes due to working from home, and this has created a significant supply/demand imbalance driving inventory down. There were 1 million homes for sale at the end of 2020, down 23% from Dec 2019. In Hawaii, homes for sale are down 44% Dec’19 over Dec’20! Despite all those headwinds, U.S. home sales in 2020 surged to their highest level in 14 years.

Expect New Travel Rules to the U.S. and Hawaii

On his first full day in office, President Joe Biden  announced new travel requirements into the U.S. Aside from providing negative COVID-19 test results before boarding, all travelers coming from abroad—U.S. citizens and permanent residents included—will have to follow CDC recommendations and quarantine after international travel for 10 days upon arrival.

Anyone traveling to the States by plane “will need to test before they get onto that plane before they depart and quarantine when they arrive in America,” the president said in a press conference. The official details around the quarantine after international travel—including when it will go into effect—are under review by a number of federal agencies that deal with air travel and public health.

The executive order also asks federal agencies to consider what a vaccination certificate process—like the vaccination paperwork (called an ICVP) used for yellow fever—would look like during this pandemic. Updates from the agencies will come within the next week.

For those traveling to Hawaii, Hawaiian Airlines has begun pre-clearing passengers departing from select US mainland cities to Hawai‘i under a program that allows travelers with a negative COVID-19 test to bypass the airport screening in Hawai‘i.

This includes both visitors and returning Hawai‘i residents who meet the state of Hawai‘i’s pre-travel testing requirements to be exempt from quarantine will receive a Pre-Clear wristband from a Hawaiian Airlines guest service agent who will verify passenger documents prior to boarding.

Travelers whose negative COVID-19 test results are not uploaded to the Safe Travels app prior to departure or not made available during screening will be required to sign the state of Hawai‘i’s 10-day self-quarantine agreement.

To qualify for the pre-clear program, complete the following steps:

  1. Create a Safe Travels account for every adult on the itinerary.
  2. Add all flight and lodging information to the account.
  3. Complete the mandatory health questionnaire within the account.
  4. Upload negative test result (PDF format) from a state-approved testing partner  to your Safe Travels account. We also recommend bringing a printed copy of your negative result.

These documents will be verified during the pre-screening process prior to departure or during the screening process upon arrival in Hawaii. If your valid negative COVID-19 test results are not uploaded to the Safe Travels app prior to departure or not made available during screening, you will be required to sign the 10-day self-quarantine agreement.

The pre-clear program for Hawaiian Airlines is available at these airports:

  • San Francisco International Airport (SFO) – Currently available
  • Phoenix International Airport (PHX) – Available beginning Jan. 29
  • John F. Kennedy International Airport (JFK) and Long Beach Airport (LGB) – Available beginning Jan. 30
  • Boston Logan International Airport (BOS) – Available beginning Jan. 31

Kauai home sales nearly double in December as median price rises 28%

Kauai home sales closed out 2020 with a 73% increase in sales in December, which included the sale of Julia Roberts’ beachfront estate on the North Shore, and a 28% increase in the median price, according to statistics provided by Hawaii Information Service on behalf of Kauai Board of Realtors.

There were 71 single-family homes sold in December, which was a 73.17% increase from 41 homes sold in December 2019. The median price of those homes was $915,000, an increase of 27.97% from $715,000 in December 2019.

The highest-priced sale on Kauai in December was the sale of Roberts’ home for just under $20 million.

For all of 2020, the median price of a single-family home was $810,000, which was an increase of 22.75% from $659,900. Sales of single-family homes on Kauai in 2020, however, declined 8.61% to 531 homes, from 581 homes sold in 2019.

Condominium sales declined 18.37% in 2020 to 351 units, from 430 units in 2019, and the median price of those units declined 2.83% to $549,000, from $565,000.

For December, condo sales on Kauai declined 6.67% to 42 units, from 45 units in December 2019, while the median price dropped 28.08% to $496,000, from $689,660 in December 2019.

Change to Kauai”s Travel Restrictions Jan 5th

Kauai County will soon reinstate its participation in the state’s pre-travel testing program — at least for interisland travel.

Kauai Mayor Derek  Kawakami submitted a proposal to Gov. David Ige on Wednesday to amend the county’s Emergency Rule 23 to allow passengers traveling from other islands to bypass the mandatory 10-day quarantine with proof of a negative Covid-19 test taken at least 72 hours prior to travel. Ige approved the request Wednesday afternoon.

Transpacific travelers arriving to Kauai will still be required to quarantine regardless of testing, and would need to be in the Islands for at least three days before they would be eligible for the exemption.

The request followed Kauai’s earlier proposal — which Ige also approved Wednesday afternoon — to establish a post-travel testing option for travelers who have taken a pre-travel test and are staying at “resort bubble” properties. Per the new rule, resort bubble guests will have the option to take a Covid-19 test three days after arrival. If that secondary test comes back negative, participants will be released from quarantine.

Both of the changes will go into effect beginning Jan. 5.

“We realize the Resort Bubble program is tailored to visitors and is not ideal for our residents,” said Kawakami in a statement. “Our residents continue to be our highest priority. Now that our community has been able to enjoy the holiday season without a major surge in cases, we feel we are in a good position to loosen inter-island travel restrictions and offer more convenient opportunities to travel between islands.”

The county said in a statement that “it is not yet known when Kauai’s moratorium on the Safe Travels program will end for Transpacific travelers.”

“With [Kauai’s] low rates of disease and frontline healthcare workers and first responders beginning to be vaccinated, this is an appropriate time to allow inter-island travel with a pre-travel test, while continuing to require additional precautions for people who recently traveled out of state,” stated Dr. Janet Berreman, Kauai district health officer.

By Christina O’Connor – Reporter, Pacific Business News

Is a Low-Down-Payment Offer a Weak Offer?

Whether you are a buyer or seller, this week’s article will help shed some light on both sides of the transaction. Today’s article came from an inquiry I received this week by a disheartened buyer who wrote:
“I have placed offers on two houses and lost on both. Please let me know if my offer of 3% down looks bad against offers that may have more down payment.”

There’s a lot of misconception out there that a low down payment offer is a weak offer. An offer is not a weak offer because of the down payment. There are only weak buyers. So long as there is a contingency for ANY financing, regardless of the amount of the down payment, if an issue arises with the buyer qualifying for the mortgage, your deal is dead.

If a low down payment offer meant that a seller would pass on that offer, virtually no veteran would ever own a home. VA loans offer 100% financing. Zero down is not low-down, it’s no-down! Here’s another astonishing fact about VA loans – throughout the last 2 decades, including the financial meltdown of 2008, VA loans on homes with little or no equity had the lowest overall foreclosure and default rate. This is an important fact because you cannot equate down payment with one’s ability to obtain financing or their ability to repay that debt.

In every transaction in which there is financing, the buyer/borrower must have acceptable credit, sufficient income, verifiable assets, and the collateral – the subject property, must be acceptable to lend upon. Each one of these components is separate, but a borrower must meet the requirements for all 4 in order to obtain financing. Failure in one aspect, and it’s not going to happen.

-You have terrible credit, great income, verifiable funds, and a great house you want to buy – not going to happen.
-You have excellent credit, but insufficient income, lots of money in the bank, and a perfect property – no loan either.
-You have excellent credit, tons of income, your down payment is from money you’ve stashed over years under your mattress (unverifiable), purchasing a newly built home – not happening.
-You have perfect credit, a great job with lots of income, not only do you have verified funds for your down payment, but you have a retirement account valued at more than the loan you re applying for, but the property you wish to purchase has foundation and termite issues – you won’t get conventional financing on this one either.

While there are specialty lending programs that can address the issues above, for the purposes of today’s article, we’re focused on conventional financing. I bring up the four pillars of financing because it is important for sellers and their agents to understand that when someone makes an offer with 3% down, they may in fact be more likely to successfully obtain their financing that another offer from someone putting 20% down. It’s not just the down payment amount that’s important.

So why is an all-cash offer the strongest offer one can make? If you eliminate the need for someone to obtain financing, all the checks and review into that’s person’s qualifications are omitted. If you’ve got the cash, then there’s no one’s stopping you from moving forward.

The most important factor for a seller from an all-cash offer is that it gets them off the hook for the sales price. An all-cash offer alleviates any 3rd party scrutiny of the subject property. There’s typically no appraisal.

And the appraisal brings us back full circle as to the only issue with a low-down-payment offer: What if the property doesn’t appraise at the negotiated sales price? Even if the buyer and seller negotiate a price somewhere in the middle, the person with the low down payment may not have additional resources to bring in any additional funds.

Here’s an example:
The purchase price is $420,000 with the buyer putting down 3% ($12,600). Their loan amount is 97% ($407,400). If the appraisal comes in at $400,000 and both sides agree to meet in the middle at $410,000, here’s how the numbers change. The loan amount is 97% of the $400,000 appraised value, which is $388,000. The buyer now needs to come in with $22,000, which is almost double their original down payment.

Let’s use the same example except the buyers are putting 30% down. The purchase price is still $420,000. The down payment is 30% which is $126,000 and the loan amount is $294,000. The same situation arises with the appraisal coming in at $400,000. Both sides agree to a final purchase price of $410,000. Because the buyers have a large down payment, that amount doesn’t change. The loan amount decreases because the purchase price was reduced $10,000. With $126,000 down on a purchase price of $410,000, the new loan amount would be $284,000. $284,000 against an appraised value of $400,000 is still a loan with a 71% loan-to-value.

You don’t have that flexibility when only putting 3% down so if there are issues with the property or issues with the appraised value, your offer might be considered a weak offer.

When I have buyers and buyer’s agents concerned about a perceived weak offer, I do 2 things. First, I educate the buyer’s agents as to the strengths of the buyer and any possible issues that could possibly arise. Second, I personally call the listing agent to provide them background on my clients as well. In so many situations today, buyers decide on a low down payment because they want to buy right away, but haven’t sold their existing home yet.

The key to any successful offer is communication between buyer and seller. If the seller is made aware of the situation as to why a buyer doesn’t have 20% down, but still has great credit and loads of income, it not only benefits the buyer, but it also benefits the seller. For it would be foolish for a seller to accept an offer from someone else with a higher down payment, only to have that transaction fall apart because that other buyer had issues with their income or some other aspect of their qualification.
Compliments of Alan Van Zee President | NMLS #: 297154 Hawaii Mortgage Company, Inc.

Kauai Opts-Out of Hawaii’s Pre-arrival Testing Program

Kauai will temporarily opt-out of the Hawaii’s pre-arrivals testing program starting Wednesday, Dec. 2, at 12:01 a.m. for all travelers (including interisland travelers) arriving on Kauai. Those arriving will be subject to the 14-day quarantine regardless of COVID-19 test results. The decision was made due to the fast increase in COVID-19 cases on the mainland and the fact the pre-testing program was not fully screening or catching travel related positive cases arriving on Kauai. Often the 72-hour COVID-19 test results did not return until after a passenger arrived on Kauai, resulting in a number of positive tests among arrivals. Mayor Kawakami stated “Our travel related cases are now leading to community spread across our island. This temporary pause in travel will allow us to remain in Tier 4 as long as possible, keeping youth sports playing and businesses open as we conduct surge testing and contact tracing. I will gladly repeal the moratorium once we have the virus under control again.” Kauai saw no new COVID-19 cases on island since May, but noted a rise in positive cases occurring and the beginning of community spread on Kaua‘i after the state opened on October 15th with the Safe Travel program. Kauai-bound travelers should contact airlines and hotels to cancel or rearrange their travel plans. “Kaua‘i is unable to adequately protect itself by utilizing the Safe Travels program at this time,” said Mayor Kawakami. All other Hawaiian islands remain open under the Safe Travel program requiring a negative COVID test prior to arrival.

Hawaii New COVID Travel Rules

On Monday, November 23, Governor David Ige signed the 16th Emergency Proclamation for the State of Hawaii relating to the ongoing pandemic. As a result of the surging cases on the mainland, the 16th emergency proclamation requires that all Trans-Pacific travelers must have a negative COVID-19 test result from a trusted travel partner before their departure to Hawaii in order to bypass the mandatory 14-day quarantine. This policy went into effect on November 24.

As cases begin to surge on Kauai, Mayor Derek Kawakami announced that he has sent over Emergency Rule #23 for Governor Ige’s consideration. This rule would temporarily pause Kauai’s participation in the state’s Safe Travels pre-travel testing program and would require incoming travelers to Kauai to quarantine for the full 14 days regardless of testing and results. If approved, this rule would go into effect on December 1 and would be for both Trans-Pacific and interisland travelers.

Luxury Market Report Nov 2020

2020 has been a crazy year with unexpected outcomes that has affected everyone no matter their age.  Some changes are obvious with COVID-19 but most of the changes are subtle with the outcomes yet to be seen.  Some of these changes are apparent in the real estate market, particularly in the luxury market and rural areas.  As people are experiencing new lifestyles, working remotely, home schooling, and enjoying times together, new life values are developing.  What was once important is now taking a new direction as people are wanting to Live Who there Are and in places that provide space and comfort.

The real estate market has been very active as people moved from the congested cities to the countryside or residing in their second homes as a sanctuary.  Often these second or vacation homes locations have been revaluated to become a primary home stead with many purchasing larger square footage homes and acreage in the same areas.  The luxury market has taken off in 2020 across the country.  The Luxury Report provides an excellent resource to see what is happening in your area of the country and in Hawaii.  https://issuu.com/thereportgroup/docs/corcoran_pacific_properties_hi_luxu_50f8186f20cd46?fr=sYzkwYzIyMzM0

Enjoy reading.

Two virus test system for Kauai Traveler

Kauai County wants to start a two-test system to detect COVID-19 infections for travelers flying to Kauai. This will be a pilot program that implements additional rules and regulation specifically for Kauai.
Gov. David Ige has initiated starting Oct 15th anyone traveling to the state of Hawaii and has received a negative COVID test no sooner than 72 hours prior to arriving in Hawaii may avoid the 14-day quarantine currently in place. Kauai’s Mayor Derek S.K. Kawakami has asked the Governor to approve a second pilot test program for 72 hours post arrival on Kauai. The new post-arrival policy would require incoming trans-pacific travelers to take the pre-test as part of the state’s program to be eligible for the Kauai post-arrival test program. The mayor’s office released this statement Thursday afternoon, “This program would require all travelers – transpacific and interisland – who wish to avoid a full 14-day quarantine to take a test no sooner than 72 hours after arrival to Kauai”. The Mayor is still awaiting Governor approval.
Kauai has been relative virus free with most Kauai residents and businesses applauding this extra step to ensure safety for visitors and residents. The two-test system would allow visitors and residents to self-quarantine for 3 days upon arrival to Kauai, then take a rapid COVID test. If negative they would be released from quarantine. Kauai has purchased 15,000 rapid, same-day COVID-19 test for the second test. Travelers who have not received a negative result from a first test within 72 hours of arriving on Kauai will not be able to participate in the second rapid test, instead they will need to quarantine the full 14 days.

E Komo Mai

Welcome Back to Kaua’i

This week the Governor of Hawaii announced that trans-Pacific travel will resume on October 15th, allowing residents and visitors to return to Kaua‘i without the need to quarantine upon arrival, only if they have followed the pre-testing protocols. A pre-travel testing plan requires that all travelers coming to the State of Hawai‘i be tested for COVID-19 with an NAAT test, and show a negative test result, within 72 hours prior to departure. The State of Hawai‘i has agreements in place with CVS Pharmacies, Kaiser Permanente, Walgreens and others who will offer the tests for this pre-testing program. To begin planning your here is a summary of the most important details every traveler should know.

Before you Book:

• The pre-testing program requires a nucleic acid amplification test (NAAT).
• Arriving passengers will be exempt from the 14-day quarantine if they test negative for COVID-19 no more than 72 hours in advance
of travel.
• Tests must be conducted in a certified lab.
• If test results are not available, travelers must quarantine upon arrival to Hawaii until they receive their results.
• All travelers must be tested, including children.
• Travelers must pay for their own testing.
• No testing for travelers will take place in Hawaii or at Hawaii airports.

This program continues to evolve, and as updates become available we will be in touch. For the most up-to-date travel information please visit the State of Hawai‘i Department of Health website. Until then, I send my warmest aloha and look forward to greeting you in the very near future.