For Sunday, February 20, 2011
POSTED: 1:30 a.m. HST, Feb 20, 2011
QUESTION: Hawaii home prices are recovering from a modest downturn after a big spike. Have present conditions significantly altered the economics between renting and buying?
ANSWER: We haven't really seen rents decline, and maybe with people losing their homes, there's even more competition to occupy the better rentals. But recently the leveling of prices, when you combine that with the record-low interest rates, they've created a very favorable purchase market.
Q: A recent Trulia analysis concluded that it makes more sense to buy in 36 of the biggest 50 U.S. cities, including Honolulu. The analysis was based on median rental and purchase prices for two-bedroom apartments, condominiums and townhomes listed on Trulia.com. The methodology boiled down to this: Owning is better than renting if the purchase price is no more than 15 times one year's rent. For instance, a $300,000 condo would be worth buying if rent is at or above $1,666 a month, or $20,000 a year. Is this analysis too simple?
A: Numbers are numbers. A typical mortgage payment with the taxes, insurance and maintenance (is) about $1,842. The median rent in Honolulu for a two-bedroom, two-bathroom condo is about $2,000. So buying versus renting is very advantageous towards buying.
We're very strong advocates for home buying. For the vast majority of people, this will be the best way to accumulate wealth over time. But home ownership is not for everybody. What the numbers don't necessarily show is the lifestyle factor. Two families making the same amount, say $5,000 a month, will not end up with the same net amount after expenses. There is the lifestyle, the spending habits or just life's choices — private school versus public school. These are the self-evaluative processes we go through (with clients). Over time they make their own decisions.
Q: Of the number of people who come to you for assistance, how many end up buying?
A: Since we opened in late 2003, we have garnered 2,100 families as members, and of that number just under 800 now have successfully become homeowners or closed on (new) mortgages. That's 38 percent. Of that just under 800, 64 percent of them, when they first came to us, were at 80 percent or less of the area median income, which means that they probably would not have qualified for any traditional type of mortgage financing at the time. Whether it took months or even years, if they're committed to it, we'll work with them. We're pretty successful.
Q: A lot of people who own homes are struggling to keep them. Foreclosure is a huge problem. Is renting versus owning something that they unfortunately need to revisit? Are the considerations different?
A: That's a very good question and a highly emotional one, too. In February of 2009 we implemented (free foreclosure prevention counseling). The majority of these people, I might add, are not our original members. They should seek qualified assistance from a professional, whether it's an attorney, real estate sales person, lender or nonprofit — whoever they're comfortable with. But make sure that they're credible and in a trusting relationship. There are a couple of really accessible sources. One is Aloha United Way's 211 (hot line). Or www.hud.gov. They would direct people to approved nonprofits. What we would do right up front is try to run through the available options that they have in front of them at the moment, whether it is a short sale, giving back the property (to the lender) or bankruptcy. Whatever it may be, we try to make them aware of the available options before trying to direct them in one direction. Our main focus after that would be to assist with an application for a loan modification, assuming they qualify under the federal program, Making Home Affordable. Our counselors are trained and certified to do that analysis, and once qualification is confirmed then we begin putting together that application package and it's very, very similar to doing a loan application.
Q: What have been the results with your foreclosure prevention program?
A: Since February 2009, 484 families have gone through the intake process for this service. As of Jan. 31, 58 have received a modification or forbearance agreement. Ten had foreclosure action put on hold. Remember, this process can be a lengthy one as lenders each have their own rule overlays, hence the outcomes are not under our control.