The Best We Can Do?

I sincerely wish to congratulate DR Horton on their latest development effort in building homes Hawaii’s Gen Z and Millennials can supposedly afford.  DR Horton’s Ho’opili, along with Castle & Cook’s Koa Ridge, are Oahu’s last great hope of providing homes to its residents.

 

When the state approved the development of Ho’opili and Koa Ridge, critics complained that the state was being too aggressive in eliminating productive farmland to make way for homes.  The argument for building up to 50,000 new homes was an easy one.  We have a severe housing shortage, not only on Oahu, but throughout the state.  We were promised that allowing for these developments would be our children’s only hope of ever being able to buy a home and remain here in Hawaii.

 

But the dream of affordable homes for sale is still an elusive one for most residents.  DR Horton’s ‘Ahakea project is being heralded as a model for more people to finally get onto the housing escalator of our island’s severely overpriced housing market.

 

 

This is ‘Ahakea.  Starting at “just” $695,850 for an 880 sqft 2-bedroom, 2-bath detached townhome.  So you don’t have to do the math, that’s $790 per square foot.  While the developer has done a great job of maximizing every space possible and laid out the rooms and storage as efficiently as possible, that price per square foot is crazy.  I don’t want to blame the developer, but I don’t know who to blame.  $700,000 for a box in Ewa is not the answer to the housing needs for starting families.  Yet ‘Ahakea is supposedly the most affordable housing project – not subject to income restrictions on Oahu.

 

For a newly married couple wishing to purchase this home, they would for most financing options be required to put 5% down.  That’s $35,000.  At the current 30-Year Fixed rate of 6.375% with an APR of 6.550%, their total payment including the mortgage, taxes, insurance, and HOA fees will set them back roughly $4,700 per month.  If that couple has no other debt, like credit cards or student loans, they will need a combined income of $115,000 per year to qualify.  If they have debt, they’ll need more income.

 

You’ve got dirt, you’ve got materials, and you have labor.  Why does $700,000 buy you so little in Hawaii?  The land didn’t cost much.  Double the cost of materials from what they are on the mainland.  Labor?  We don’t pay our laborers more than on the mainland – probably less.  Yet go to any home search website for any city you want and look at homes listed for $700,000.  Except for some crazy places like New York City or San Francisco, what you’ll find is significantly a better value.

 

Is this the best we can do?  Who should we blame?  Let’s start with our political leaders.  Hawaii is no longer affordable for most of its residents.  Most young couples will not have the ability to buy a home and start planting roots.  This didn’t happen overnight.  It has been getting worse every year since I’ve been alive - sadly now in my 6^th decade as a local born Keiki O Ka ’Aina.  We are running out of time and running out of land.  We have no new industry on the horizon, and current wages are insufficient to afford our out-of-control home prices.  At some point, our kids will be forced to leave.  What we’ll end up with is a population of those unable to leave, remaining poor, to be the workforce for the remainder of those economically able to survive here.  Our elected leaders should do nothing else this next legislative session except focus on how to build real affordable homes for the people.

 

I cannot emphasize enough, the secret to a great society is simple.  When people have the opportunity to marry, have children, buy a home, and start planting roots knowing that their kids can one day do the same, many of the social ills we face will disappear.

 

Our politicians are politicians.  They respond to those that complain the loudest.  We have collectively sat on our hands and let our politicians off the hook.  That’s why we ultimately must blame ourselves.  We are the ones that continually vote to reelect the same people time and time again.  The party affiliation doesn’t matter.  We have never forced those we elect to come up with the bold answers to our greatest need – affordable housing to own – non to be a lifelong renter.  We are 12 months away from the 2026 elections for state officeholders.  Going to a fundraiser?  Campaign worker or candidate knocking on your door?  Ask them what bold steps they are going to take to keep our kids in Hawaii.  If they don’t have an answer - and they won’t, maybe we need new people to represent us.  Talk to your friends and neighbors.  Find someone new that is willing to run for public office.  And if you find that person, volunteer on their campaign.

 

Together we can solve our problems.  We can and should expect better.  Our kids are counting on us.

 

 

 

 

And now the week’s economic news…….

 

Government Inflation Data

With the government releasing the key CPI inflation report on Friday despite the shutdown, there was little activity in mortgage markets earlier in the week.  The inflation figures were a little lower than expected, but the reaction was limited.  As a result, mortgage rates ended the week nearly unchanged, remaining near their lowest levels of the year.

 

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 September, Core CPI rose just 0.2% from August, below the consensus for an increase of 0.3%.  It was 3.0% higher than a year ago, down from 3.1% last month.

 

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.  Originally scheduled for October 15, the Bureau of Labor Statistics released this key report because it is used to calculate Social Security cost-of-living benefit adjustments.  No other government data will be released during the shutdown.

 

 

 

 

 

 

 

 

In September, sales of existing homes rose 2% from August, close to expectations, to the highest level in seven months.  The median price of $415,200 was up a slim 2% from last year at this time but was 53% higher than prior to the pandemic.  Inventories remain at just a 4.6-month supply nationally.  However, inventories were 14% higher than a year ago.  According to the chief economist of the NAR, "improving" housing affordability mostly due to lower rates is contributing to increasing sales, and first-time homebuyers made up 30% of sales in September, up from 26% last year at this time.

 

Lower rates also have provided a nice lift for mortgage applications in recent weeks, especially for refinancings, according to the Mortgage Bankers Association (MBA).  Applications to refinance rose 4% from last week and were up 81% over one year ago.  While that figure may seem impressive, 81% higher than virtually no refinances 12 months ago, still isn’t saying much.  Purchase applications dropped 5% from the prior week but still were up 20% from last year at this time.

 

 

 

 

 

 

 

 

Next Week

Looking ahead, investors will continue to watch for additional information about tariffs.  The next Fed meeting will take place on Wednesday, and investors anticipate that there will be a 25 basis point reduction in the federal funds rate.  The next European Central Bank meeting will take place on Thursday.  With the government shutdown, it likely will be another light week for major economic data.  Consumer Confidence will be released on Tuesday.  Third quarter GDP is scheduled for Thursday and Core PCE inflation for Friday, but both reports are expected to be delayed.

 

 

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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