Mortgage Market News and Insight

For the Weekend of June 21^st, 2025

 

Hawaii’s Most Read Mortgage Publication for 17 Years

 

Volume 17 – Issue 40

Unaffordable Affordable Housing

I was watching the local news this week with the fetching Mrs. Van Zee, when a story came on about community pushback for a housing development on a sliver of land behind the North Shore Marketplace.  The community voiced concerns over the usual items like traffic and the conversion of more agricultural land to residential.  The most vocal critique was over the proposed schedule of rents for the so-called “affordable units” the project would provide to the community in exchange for market priced units and commercial space.  The proposed rent for an afforbale 2-bedroom townhouse is $3,800 per month.  While the north shore of Oahu is strewn with homes that rent for a thousand a day or more during the surf season, the resdidents of what we call “country” believe that level of rent is anything but affordable.  You can’t call something affordable just because the price is lower than other options in the area.

 

You’d be surprised that the rules regarding the classification of projects as affordable for rent and for purchase must follow strict federal guidelines based on income.  That’s where I believe the disconnect for Hawaii’s residents begins.  While Hawaii residents make a decent income on average, the high cost for everything else here erodes our true available income for housing.

 

Federal, State, and County governments all over the US are focused on getting people into housing – be it a rental or eventual homeownership.  It all starts with HUD - Housing and Urban Development.  Each year HUD publishes data on what’s known as the Area Median Income.  AMI data is compiled by dividing a county into small areas of population so that an affluent area won’t skew the data for a neighboring area of lower income.  These slices of demographic information are known as census tracts.  These census tracts usually encompass 1,200-8,000 residents.  Oahu has 244 census tracts, while the entire state has 351.

Let’s look at a census tract that covers an area of Salt Lake, near the airport:

 

It is amazing what data the government now has at its fingertips, and you can access it too.

 

For this area of Salt Lake, the median household income for its residents is $126,886, versus the Island of Oahu median of $129,300.  Again, this is for a household and not for an individual.

 

HUD has determined that to be classified as affordable housing, no more than 30% of your income can go towards housing plus utilities.  To be classified as affordable housing, the renters/buyers cannot make more than 80% of the AMI.  This is where the math gets weird.  You can’t just take 80% of $129,300.  I have no idea how HUD calculates this:

Low Income (80% AMI)

• 1-person: $85,150
• 2-person: $97,300
• 3-person: $109,450
• 4-person: $121,600
• 5‑person: $131,350
• 6‑person: $141,100
• 7‑person: $150,800

 

For a family of 4, the income threshold is $121,600, or $10,133 per month.  Under HUD’s guidelines that family cannot spend more than 30% of that income on housing and utilities.  30% of $10,133 is $3,040.  But wait, we now have to back out utilities.  Let’s use $350 per month for electricity, $100 per month for water/sewer, and $50 per month for phone/internet.  The utilities total $500 per month.

 

What you’re left with is $2,590 for either rent or a mortgage payment.  There are only a handful of rentals on Oahu for a family of 4 that’s affordable by definition – all on the leeward coast.  And without getting too deep into the data, if you were to look at the AMI for where those homes are available, the income is lower.  That would make even a $2,400 rental in Waianae higher than the affordable limit.

 

Let’s do a quick mortgage game with that payment.  I will not include a mortgage insurance payment - because the result is going to be bad enough.  At a rate of 6.750% for a 30-Year Fixed mortgage, $2,590 will allow you to borrow $400,000.  Are there any places for sale on Oahu that a family of four could live in at that price point?  I did find one property for sale in Waianae that has 3 bedrooms and 1 bath for $335,000.  But it looks like it needs some work!

 

It is estimated that Oahu alone is short 50,000 housing units.  And here’s a tip for the housing people at both the County and the State - learn from the mistakes other big cities have made.  Don’t focus all your energy on building rentals.  People in rentals can’t adopt a sense of ownership and take pride in their home and neighborhood.  The result is rental units getting destroyed by tenants that don’t care.  Crime in these areas is higher too.  A great example is Kuhio Park Terrace in lower Kalihi.  If the city were to clean up those units and turn them into affordable units for sale versus rent, you’d see an immediate change to what’s going on there.

 

Homeownership is the single best way for someone to gain wealth.  Renting does nothing to help a person better themselves financially.  Homeownership is also the primary issue facing everyone in our state.  You want to keep our kids from moving to Vegas and Oregon?  Give them the ability to own a home, here at home, and they will never leave.  This priority is something we should all demand from our elected representatives.  If you want to see change, demand those that represent us do something about it.

 

What can they do to fix the housing crisis?  I’ll tackle that next week.

 

 

 

 

And now the week’s economic news…….

 

Consumer Spending Slows

The Fed meeting on Wednesday revealed no significant surprises.  Consumer spending slowed more than expected, but its impact was minor.  Mortgage rates ended the week with little change.

 

Ahead of possible price hikes due to new tariffs, retail sales surged in March and remained elevated in April.  Investors were anticipating some pullback in May, but the actual decline was even larger than expected.  Retail Sales in May fell 0.9% from April, more than the consensus forecast for a drop of 0.6%.  Weakness was seen in motor vehicles, building materials, and the appliances/electronics sector.

 

 

 

 

 

 

 

 

 

 

 

While the headline number for the latest home building data was disappointing, the details of the report removed some of the sting.  Overall housing starts in May dropped 10% from April to the lowest level in five years.  However, the unexpected weakness was entirely due to volatile multi-family units, which plunged 30%, while single-family starts rose slightly.  Single-family building permits, a leading indicator of future construction, dropped 3% from April.  A separate survey of home builder sentiment on housing market conditions from the NAHB unexpectedly declined to the lowest level since 2022.  Builders reported that uncertainty about tariffs and rising costs made it difficult to price their homes.

 

As expected, the Fed made no change to the federal funds rate on Wednesday, leaving it at a range between 4.25% to 4.50% where it has been since December.  The meeting statement was similar to the prior one, emphasizing the high level of uncertainty about the economic outlook due to changes in government policies.  The statement also elaborated on the challenge facing the Fed, since higher tariffs could lead to increasing unemployment and higher inflation.  If both outcomes take place, lower rates would be the proper course to boost the labor market, but higher rates would be called for to fight rising prices.  The latest forecasts from officials raised the outlook for inflation this year and lowered it for economic growth.  These closely watched projections also called for two 25 basis point rate cuts later this year, the same as three months ago.  However, officials anticipate just one additional reduction in 2026 and one in 2027, down from two per year in the prior set of forecasts.

 

 

 

Next Week

Investors will continue to look for additional information about tariff policies and monitor the situation in the Middle East.  For economic reports, Existing Home Sales will be released on Monday and New Home Sales on Wednesday.  Consumer Confidence will come out on Tuesday.  Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday.

 

 

 

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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