Maui County Council Considers Minatoya Repeal

In another sign of covering up for the failures of our government - post-Lahaina fire, Maui’s mayor and county council are pitting people against each other.  Instead of focusing on rebuilding and getting people back into their homes as quickly as possible, the path government has chosen is to go after short-term vacation rental owners, specifically almost 7,000 units on the Minatoya list.

 

These approximately 7,000 condos were allowed to operate with the formal written blessing of Maui’s government as short-term rentals for decades, despite being on land not designated as resort.  That agreement is known as the Minatoya List.  The council and mayor now wish to repeal the Minatoya arrangement.  It is not the fault of these unit owners that the residents of Maui (or us too in the rest of the state) face inadequate housing.  Through poor prior decisions by our political leaders and tough land use rules, every island has a shortage of thousands of homes.

 

The Maui County Council heard testimony this week on the proposal and will take up the matter again next week.  Their goal is to rescind owner’s ability to short-term rent their units.  Without sufficient income, owners would be forced to sell.  Part of Mayor Bissen’s testimony on the measure highlighted his distain for mainland owners of these units, that in his mind displace ownership by Maui residents.

 

Here’s the worst part about the government’s efforts to reclassify the Minatoya units - it will never happen, and they know it.  It will never happen because of the pesky 5th amendment to the US constitution.  We all know the part where people go into court and plead the 5th amendment against self-incrimination, but not very many people are aware of the second part of the amendment known as the “takings clause”.

 

The Fifth Amendment's Takings Clause states: "nor shall private property be taken for public use, without just compensation."  This means the government can take private property for public use, but it must provide fair payment (just compensation) to the owner.

 

If the government rezones property through eminent domain, which is completely legal, they must compensate for any loss the owner will experience.  To be clear, compensation is not only in cases where the government purchases your property, but the amendment also pertains to losses due to rezoning.  The Minatoya owners, are clearly eligible to be designated as a “class” for legal purposes and will be forced to sue the county if Maui’s politicians decide to rescind the short-term vacation rental use of those units.

 

What frustrates me the most is that both the Maui County Council and the mayor have lots of attorneys at their disposal.  Mayor Bissen is also a former judge!  Why would they pursue such an approach when a first-year law student could tell them they’d be liable for millions of dollars to the owners of the Minatoya units?  Although the loss in value would probably exceed $100,000 per unit, even that amount for 7,000 units equates to $700-million.  Maui County doesn’t have the financial resources to pay for this.

 

To add insult to injury, these Minatoya units are generally designed with resort-like features and have high maintenance fees.  If the goal is to force these owners to sell to the average Maui resident, most would not be able to qualify for financing – even at reduced values.

 

This concept, perpetuated by the government, that somehow those living outside Hawaii buying investment properties, are driving up home prices, is without merit.  People in Hawaii can’t afford homes here, period.

 

Getting rid of short-term rentals may free up units, but the damage it will do to the economy would be more devastating.  Even the UH Economic Research Organization (UHERO) recently published a study showing the economic impact short-term rentals inject into our economy.  These units need people to clean them and repair them, stock them, and manage them!  All of these jobs come from STVR’s.  The only segment of the economy that suffers from STVR’s are the traditional hotels.

 

I’ll keep an eye on this story.  Even if the council decides to cancel the Minatoya list and the mayor signs the measure, that’s just round one.  The lawsuits will be round two.

 

 

 

 

Confusion Continues for Reverse Mortgages

Last week I wrote an article hoping to dispel the myths and confusion of reverse mortgages.  It was odd that most of the comments I received that were negative about reverse mortgages came from those who didn’t read what I wrote.

 

Here is the #1 question I received: What happens when I die, and my kids can’t afford to pay back the reverse mortgage?

 

The answer is simple.  Just like a conventional mortgage, and most people die still owing – the loan needs to be paid back.  If your kids can’t qualify to refinance the conventional or reverse mortgage, they will sell the property and keep all the equity.

 

The purpose of a reverse mortgage is to provide you, while alive, an opportunity to have a better standard of living by not having a mortgage payment.  If you’re okay paying your current mortgage until you die, fine!

 

But I hear stories of too many older people struggling to meet their obligations with nothing more than a small pension and some social security while sitting on hundreds of thousands of dollars in equity in their home.

 

The story is always the same.  “I want to give my home to my kids”, they tell me.  I always tell them ask their kids one simple question: “Is it more important for you to inherit the house with more equity or that mom and dad can live a better life while still alive?”  If the kids pick the equity, find other kids.

 

Here’s one other fact you should know if you plan on giving your home to your kids and you have more than one child.  Your grown children and their families are not going to live in this home together after your death.  Maybe one will want the house, but the others will want their share of the equity.  If the one that wants the house can’t afford to pay off their siblings, the home will get sold anyway.

 

As I stated last week, reverse mortgages are not evil.  They are a tool to help you live better while still living.  If it isn’t right for you, that’s fine.  But that doesn’t make the program a way for banks to steal your home.

 

 

 

 

And now the week’s economic news…….

 

Inflation Eases

News about tariffs continued to cause volatility in mortgage markets this week, but its overall impact was minor.  An escalation in the conflict between Israel and Iran also had a limited effect.  The latest inflation data was well below the expected levels, though, which was favorable news, and mortgage rates ended the week lower.

 

The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month.  To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy.  In May, Core CPI rose just 0.1% from April, far below the consensus for an increase of 0.3%.  It was 2.8% higher than a year ago, remaining at the lowest annual rate since March 2021.

 

Although this annual rate has dropped sharply from a peak of 6.6% in September 2022, and from 3.9% in January of last year, it is still far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed.  Shelter (housing) costs continue to be a primary reason why progress on bringing down inflation remains challenging.  By contrast, used vehicles, new vehicles, and apparel posted notable price declines in May.

 

Another significant inflation indicator released this week, which measures costs for producers, also came in below the expected levels.  The May core Producer Price Index (PPI) rose 0.1% from April, well below the consensus forecast for an increase of 0.3%.  It was 3.0% higher than a year ago, down from an annual rate of 3.1% last month.  Of the two major inflation reports, investors tend to place less weight on PPI, since it reflects a smaller slice of the economy than CPI.  Going forward, investors will be closely watching to see if higher tariffs exert upward pressure on inflation levels.

 

Israeli airstrikes on Iran and retaliatory attacks by Iran had little net impact on mortgage rates this week due to offsetting influences.  During periods of uncertainty, investors generally shift to relatively safer assets such as bonds, which is positive for mortgage rates.  However, conflict in the Middle East causes oil prices to rise, increasing future inflationary pressures, which is negative.

 

 

 

Next Week

Investors will continue to look for additional information about tariff policies and monitor the situation in the Middle East.  The next Fed meeting will take place on Wednesday.  No change in the federal funds rate is expected, and investors will be looking for additional guidance about potential rate reductions later in the year.  For economic reports, Retail Sales and Import Prices will be released on Tuesday.  Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy.  Housing Starts will come out on Wednesday.  Mortgage markets will be closed on Thursday for Juneteenth.

 

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Monday and Tuesday. 

The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

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