Hawaii’s real estate market is currently in the middle of a big swell: Foreclosures and REOs. Surfers know that swells send waves in sets. We may have punched through the first two big waves of Hawaii’s real estate market woes (speculators have left the market, and the barrage of subprime mortgage defaults), but there are more waves to come:
Hawaii foreclosures were up 134% in October. We’re still seeing a large number of homeowner’s whose mortgages are higher than their properties current market value. Negative Equity, as its often called, leads to mortgage default and then the inevitable listing of that property for sale as an REO (‘Real Estate Owned) by the foreclosing lender.
Moody’s Economy has been quoted as saying that currently 15 million U.S. homeowners have negative equity, and that number is forecast to reach as high as 25 million by 2011. Mark Zandi, Moody’s Chief Economist, was quoted yesterday saying that “Foreclosure Sales will increase, and home values will resume their decline by early 2010…”
The next wave is the resetting of the Pay Option ARM loans that largely were originated between 2004 and 2007 and were for a 5-year term. The chart to the right shows the dollar volume of the loans that are set to reset in the coming years. Compared to the Subprime meltdown (the first wave of the set), these Option ARM and Alt-A loans that are scheduled to reset through 2011 are occurring in a real estate market that has already been subjected to declining values. A large number of these mortgages are expected to default, thus adding to the growing number of foreclosures and REO inventory.
Surfers will often whistle loudly or yell “Outside!” to alert other surfers of a set coming. We’re providing this information in that context. We want our clients to be aware of the impact that these events are causing in Hawaii’s real estate market. We don’t want our sellers to get “caught inside”, and we want buyers to be aware of the opportunities that Bank REOs represent. As Hawaii REO Agents, we’re prepared for the waves of inventory.