The nation’s housing market is having its road to recovery paved with a new mortgage refinancing program, which was unveiled Monday October 24th 2011. Building upon the successes of the Home Affordable Refinance Program (HARP), the government has introduced some changes to the rules that will allow more homeowners who find themselves sinking further into debt to reduce their debt by taking advantage of much lower interest rates. Qualifications for this new program require the mortgage to be backed by Fannie Mae or Freddie Mac, and must have been originally sold to the Government Sponsored Enterprises (GSEs) prior to May 31st 2009.
The previous guidelines limited the qualifying homeowners to those who owed up to 25% more than their home was actually worth. Under the new revisions, this 125% loan-to-value (LTV) limitation cap has been removed.
There have been other program enhancements designed to address issues that have proven to restrict the program’s impact. Certain risk-based fees have been eliminated, and mortgage insurers can now automatically transfer the original loan’s coverage to the new loan. As well, Freddie Mac and Fannie Mae have eliminated the need for a new property appraisal where there is already an Automated Valuation Model (AVM) estimate provided, and certain warranties and representations on any program refinanced loan have been done away with. The final date for HARP has been extended from June 30th 2012 to December 31st 2013.
The risk of homeowners foreclosing due to strategic defaults will be lowered with the new guidelines. By opening HARP to a larger pool of indebted homeowners, borrowers will be able to get control of their household finances and will be less likely to walk away from a mortgage with negative equity. About 1 million homeowners have already taken part in the program and refinanced their mortgages, and it is estimated that another 1 million homeowners will step forward to take advantage of the program.
You can learn more about the Home Affordable Refinance Program (HARP) here.
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- Nov
- 08
Maui: Place To Live And Work
Maui is the second largest island of the Hawaiian Islands, and the 17th largest island in the United States. With a population of 144,444 (as of 2010), Maui is the third most populated Hawaiian Island. Maui’s original name was “‘Ihikapalaumaewa”. The island’s current name came from the Polynesian navigator credited with discovery of the Hawaiian Islands. According to that legend, Hawai’iloa named the island of Maui after his son, who in turn was named for the demigod Maui. Another name for Maui is “Valley Isle” because of the large and numerous valleys carved between the island’s northwestern and southeastern volcanoes.
The island’s volcanoes are just a couple examples of places tourists like to visit when they are on Maui. Also popular amongst tourists are the Haleakala National Park, the Hana Highway, and Lahaina, which is a gateway to the beach resorts of Kaanapali and Kapalua. Tourism is a huge industry for Maui, bringing in over $3.5 billion in 2007, with a majority of the tourist coming from the US and Canada.
Along with the importance of the tourism dollars for Maui, agriculture has a significant role in the Maui economy. Coffee, papaya, sugar, pineapples, and beautiful tropical flowers are some examples of Maui’s diverse agricultural exports.
More recently, government research groups and high technology companies have discovered Maui as a business environment conducive to growth in these areas. As a result, the Maui High Performance Computing Center (MHPCC) in Kihei is a U.S. Air Force Research Laboratory Center providing over 10,000,000 hours of computing time per year to the research, science, and military communities.
The high elevation, dry climate and negligible pollution offer year-round ability to observe satellites, missiles, orbital debris, and astronomical objects, making Maui an excellent locale for astronomical research and development, as well as a wonderful location for the astronomy hobbyist.
The remainder of the large Hawaiian Islands include Hawaii (The Big Island), Kaua’i (The Garden Isle), Kaho’olawe (The Target Island), Lana’i (The Pineapple Island), Moloka’i (The Friendly Island), Ni’ihau (The Forbidden Isle), and O’ahu (The Gathering Place). The Hawaiian Islands are actually exposed mountaintops of the undersea mountain range called the Hawaiian-Emperor seamount chain, which was created by volcanic activity. Located about 1,800 miles from the nearest continent, the Hawaiian Islands have always been, and will always be, a destination of choice where a person can go to truly get away from it all.
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New regulations are being proposed up by Maui County Councilors that will affect vacation rental properties. These new regulations will put into affect several requirements onto owners of short-term rental properties located on Maui.
If the proposals go into effect, owners of vacation rental properties will need to be available 24 hours a day and live within a 20 mile radius of the property they rent out. In the event the owner does not actually reside in the Maui County, the property owner would be required to have an acting property manager who would both hold an active real estate license for Hawaii and live within 20 miles of the vacation rental property.
It has also been discussed to limit vacation property owners to one permit per person. This provision may not affect owners of estate homes, however, as the council is not wanting to punish owners who have spent large amounts of money on non-residential properties.
It can be expected that the legislation will take months to create while the Maui County Planning Committee tries to establish rules, enforcement procedures and a process to allocate permits to short term vacation rental properties found in residential areas. This is not entirely unprecedented, as the council put similar policies into action several years ago for Bed-and-Breakfast establishments, but with the present scenario’s exception that Vacation Rentals can be managed by someone living off-site.
The number of properties an owner can operate has also been a discussion for the Council members. While all members side that vacation rental property owners should be limited to one permit, the council was split with respects to an exception for multi-million dollar home owners. Noting that estate housing would never be used for affordable housing, Council Member Gladys Baisa felt that such a cap on permits would hurt owners currently operating more than one vacation rental. Council Member Mike White also had concerns about the cap, as it could potentially hurt the employment of people already working at such large estate-type vacation property rentals, like housekeepers, gardeners and managers.
The cap concerns are not echoed by all council members. Council Member Joe Pontanilla said, “People who want to operate a chain of vacation rentals should stay within the resort district, where those activities are allowed. If the person owns more than one property that is in excess of several million dollars, then it’s just exploiting Maui County. It’s almost like running a hotel. You come here, buy five or six lots, put up million-dollar homes, and then apply for short-term rentals. I think that’s wrong.”
The council eventually agreed on an exception to the one permit rule for houses worth more than 7 times the average Maui home price, putting the value about $3.2 million, as it “…ensures someone doesn’t come in and just buys a bunch of houses for that purpose.” Council Member Mike Victorino said.
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If you have ever wanted to see a Maui Council Member’s head explode, talk to Maui Council Member Mike White and mention the property tax disparity between properties assessed with the agricultural property qualification versus properties without the same property tax assessment. It’s enough that “My head just starts exploding.” said Maui Council Member Mike White. By real-world example, two identical neighboring 2.8 acre parcels of land worth millions of dollars each have an inequality that requires one property owner to pay $20,000 in property tax for the year, whereas the neighbor paid a mere $150 for the same time period. Yes, that is correct. Two identical parcels of land, side by side, one taxed at $20,000, the other at $150.
So, what was the difference between these two neighboring pieces of property that allowed for such a huge discrepancy in property tax bills? The property with the substantially lower tax bill was classified as a qualified agricultural parcel due to a small pen used for horseback riding. Because of this horseback riding enclosure, the property value for tax purposes dropped from $5.3 million to a meager value assessment of $100.
Council Member Mike White first noticed the issue when he bought his own parcel of land several years ago. Having paid more than $400,000 for his piece of Olinda Maui paradise, he was surprised when he received his first property tax assessment that valued his land at only $8,800. After being elected to council, Mike White started looking into the issue and found that multi-million dollar estates, assessed with a low agricultural value, were paying substantially less property tax than modest residential landowners, thanks to an assessment system established and unchanged since the 1950’s.
To assess a property’s value using the antiquated system, neither the price of property purchase nor current market value are looked at. Instead, the estimated rental value of the land as agricultural property is considered based on the soil quality of the property’s area. This system was set up in the 1950s by University of Hawaii agronomists and the value that a said piece of property could be rented for is based on what researchers determined a farmland could be rented for. Those values were established 60 years ago and have carried over since, even after 1981 when the county took over the task of assessing properties from the State government. Originally designed to encourage and protect agriculture, the differences in value assessments and tax bills have grown over time.
How can this gap between property tax values be rectified? Council Member Mike White said that the issues needed more thought. “I don’t know what the answer is, but it’s a question we’ve got to ask ourselves,” he said.
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Efforts are on the table and being considered that would bring about changes to make it much more problematic to operate and profit from an illegal unpermitted short-term vacation rental suite in Maui’s residential areas. However, instead of heavier fines and stronger laws, the suggested course of action is to place the burden of proof that there is no illegal short-term rental operation onto the property owner, as opposed to the present system of requiring the government agency to prove there is an alleged illegal unpermitted short-term vacation rental suite available on the property.
As it currently stands, the process of investigating a complaint about an illegal rental suite operation is to have a government inspector visit the residence. If no one answers when they knock, the agent will file a “No suspicious activity” report and be done with it. However, with a simple change in current procedure requiring a bit of online research, it is very possible to find an ad for the alleged offending property and build a proper case. Though private renters traveling to Maui may be both unaware of the illegality of their stay and actually be gone from Maui once the proceedings are underway, changes allowing the government inspector’s “hearsay” as admissible evidence would make requiring the actual renters’ presence at proceedings a moot point. Removing the burden of proof from the government and placing it upon the property owner, allowing inspector hearsay to be admissible, and continuing the $1000 a day fine would go a long way to getting illegal short-term rental property owners to seek the proper channels to make their operation legal and above-the-table.
Deputy Corporation Counsel and Board of Variances and Appeals adviser James Giroux says that stronger laws and heavier fines are not needed. Rather, simply providing proof that the owners were offering short-term rentals over the specific period of time of the complaint, whether the property owners had takers or not, is all that is needed. Trying to catch renters is secondary when online ads featuring full descriptions and addresses are available to be scoured regularly. When such evidence is presented, it will be the property owner’s requirement to prove they were not operating an illegal unpermitted short-term vacation rental suite in Maui’s residential areas, removing the task of having to prove such matters from the government.
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The July statistics for Maui Sales Volume totaled 162 units sold, which breaks down to 65 homes and 97 condos sold. This represents a decline in sales volume over the total for June 2011. The median prices for homes also declined to an average of $410,001, whereas the total average value of condo sales rose to $400,000.
The average Days On Market (DOM) for residential homes was 144, and for condos it was 203. When it comes to DOM statistics, one has to consider whether or not it was NEW or OLD stock that moved, as this will skew the statistics one way or the other, as OLD inventory sales will move the average upward and NEW inventory will move it downward. Another consideration to take into account is that short sales will extend the market’s average DOM, as short sales can take 4-6 months to close.
Being month-to-month timeframe reports do not mirror longer timeframe trends, it is important to do year to year comparisons to realize the bigger picture. When comparing January-July 2011 with the same time frame for 2010, residential sales rose +4% with an average sold price of $780,238 which is an uptick of +2%, an average median price of $441,500 representing a slight downward turn of -6%, but the overall dollar volume of sold units totaled $396,361,086, a +6% upswing. This average includes a bump in last year’s sales due to the 2009-2010 Federal Tax Credit programs, so 2011 numbers may catch up in the months ahead. Sales of condos increased +1% for the same time period with an average sold price of -30% at $510,735, a median price of -23% at $325,000, for a total sales volume of $379,476,462 (-23%). Total sales for the immediate past 12 months are 835 homes and 1154 condos.
Market inventories have declined by 13-20% over the past 12 months, possibly due in part to Act 48, which was signed into law May 6th 2011. With interest rates near record lows, potential Buyers may be motivated to make a purchase if they qualify. With property prices and interest rates so low, now is the time to step up and see what the market holds for the first-time home buyer.
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Act 48 was passed into law May 6th 2011 by the Hawaii Legislature and signed by Governor Abercrombie. The intent of the law was to give lenders and property owner occupants the opportunity to negotiate the terms of the loan when payments exceed the ability to pay. The reality of what the law has brought is more congestion to an under-staffed, over-worked and under-funded court system. By example, effective immediately upon the passing of Act 48, Fannie Mae directed that all its foreclosures must be commenced as judicial foreclosures, and any non-judicial foreclosures that have not proceeded to sale are to be dismissed and converted to judicial foreclosures. as one can imagine, this immediately caused the backlog to grow, and it will only become worse as the days move forward.
There are two types of foreclosures a lender may pursue: Judicial and Non-Judicial. The main difference between judicial and non-judicial foreclosure proceedings is that a deficiency judgment against the borrower can happen, but this would not be the case under a non-judicial foreclosure process. Non-judicial foreclosures have two forms, Part 1 and 2. Part 1 is a fast, low cost option for lenders that does not require court or judicial proceedings. Unfortunately, Act 48 has put the brakes on Part 1 until at least July 1st 2012. Part 2 non-judicial also bypasses the need for a judicial proceeding but was not widely used as it required the borrower to sign and return a conveyance document. However, Act 48 did away with this signature requirement, and Part 2 non-judicial proceedings may still go ahead.
The immediate issue with respects to the fallout of Act 48 will be the sudden reduction in bank-owned property available to the market. We have already seen a huge reduction in the number of such listings in the Hawaii MLS and this will only become more so. Existing inventory will be bought up by those buyers looking for bottom of the market pricing. As the inventory becomes more scarce, the prices will go up for the available bank-owned properties.
Act 48 was a good idea on paper that felt apart in a real world application. An already over-taxed court system has now become even more plugged up, delaying judicial foreclosures by up to 5 years. Delinquent homeowners can rest easy knowing it will be a long time before anyone comes knocking to make them pay or leave. The options for lenders to collect on their dues have been limited by Act 48 and will be further hampered by the court system’s backlog. With no budget to remedy the staffing issues of the courts, foreclosures will sit stagnant for years on end until a proper solution to this present situation is figured out and put into action.
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The July 2011 Sales Volume for Maui Land Sales is a lot like it was for June 2011. The number of lots sold is the same, at 13, with a median price rise to $400,000. The average Day On Market (DOM) was 242. DOM numbers are based on the average DOM of properties that SOLD, so if predominantly Older inventory made up the majority of sales, the indicator would be moved upwards, whereas Newer market inventory would result in moving the indicator downwards. These DOM numbers are derived from information provided by the Realtor’s Association of Maui, who calculate Days On Market from List Date to closing Date (not Contract Date), and include the 60 day average required for escrow. Another consideration, when applicable, is that Short Sales usually require 4-6 months to close, which would extend the market’s DOM.
To gain a greater insight of the marketplace’s longer timeframe trend, it is important to look beyond a month-to-month comparison and do a year-to-year comparison. With that in mind, it is also necessary to consider that Land sale statistics may not be a reliable indicator of the market, as the sample size is typically small. That said, there was a decrease in Land Lot sales in January-July 2011 compared to January-July 2010, coming in at -5%. The average price of a sold lot was up +18% at $620,277, whereas the median price fell -27% to total $330,000. Overall total dollar volume was up +13%, coming in at $50,862,751. When looking at a full 12 month trend, there were 123 Land Lot sales in the past year.
With interest rates at some of the lowest rates ever seen, there has never been a better time for a first time Buyer to get into the market. Workshops are available that will teach the first time Buyer how to get their first piece of the market by familiarizing them with the process. Many owners never thought they would qualify before attending a workshop and discovering that ownership is within their ability to achieve. If you are looking to get into the market for the first time, attend a workshop and see what options and possibilities are available to you.
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The June sales statistics for Maui land sales had an UP and a DOWN. The DOWN was a slight decline in total volume of land sales at 13 units sold, but with an UP median value of $299,000 for those sales. The average DOM for land units on the market is right in the middle of home (141) and condo (147) sales at 145 DOM for land units.
Comparing the land sales statistics from Jan-June 2011 with Jan-June 2010 shows that Land sales decreased by -3%, with an average price jump of +20% at $643,744. The median price was down -30% for a value of $315,000, finishing up at a total dollar volume of +17%, or $44,418,351. Keep in mind that Land sales property class samples are too small to provide a truly reliable indicator.
For the past 12 months 124 units of land found new owners.
More detailed information is available at the Realtor’s Association of Maui’s newsletter, which was used as the source of this article’s information.
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The June sales statistics for Maui real estate are in and, as expected, there have been some UP and DOWN.
In the Maui real estate’s UP department, sales of residential properties gained for a total of 81 homes sold at a home median price of $429,000, a value that also represents an upswing. The average Days On Market (DOM) for homes was 141 days, though this statistic can sway either way, depending on whether homes that have been on the market for a long time sell more than newer listings in a given time range.
On the other end of the scale, condo sales took a dip, finishing at 101 sold units at a median price drop of $295,000, a slight decline. The average DOM for condos was 147 days, according to the Realtor’s Association of Maui (RAM), which calculates DOM from Date of Original Listing to Closing Date. [Because of this formula for calculating, the DOM also represents about 60 days of escrow, and Short Sales can add up to 6 months to the individual unit’s DOM, skewing the overall average of the marketplace’s DOM.]
Comparing the Residential sales statistics from Jan-June 2011 with Jan-June 2010 shows that residential home sales had a boost of +4%, but at a slight value decline of -4%, for an average home SOLD value of $732,569. The median price of $445,000 is indicative of a -5% decline in value over the year, but the total dollar volume sold fell a mere -1%, settling at a value of $324,528,034. (2011 sales numbers will most likely catch up as the year goes on, as this number represents a jump the previous year due to the 2009-2010 Federal Tax programs.)
With respects to Condo sales for a year to year comparison, there was a decrease of -3%, with an average SOLD value of 4527,534 (-30%), and a median price of $325,000, a -24% decrease. The total Condo dollar volume fell by -33%, tallying up at $320,259,146.
For an overview of sales for the past 12 months, there were 830 residential units sold and 1125 condos changed hands
A month-by-month year-by-year breakdown comparison chart of the unit sales numbers is available at the Realtor’s Association of Maui’s newsletter, which was used as the source of this article’s information.
While Residential and Condo sales have shown an increase over the past six months, the next few months will determine whether or not this will be an ongoing trend. With interest rates remaining at an all-time low, potential Buyers may convert if they can qualify. With interest rates threatening to start inching upwards, pre-approval for Buyers will allow them to shop with the assurance of a secured loan ready to go.
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