News and Insight

For the Weekend of December 6^th, 2025

Hawaii’s Most Read Mortgage, Real Estate, and Finance Publication for 18 Years

 

Volume 18 – Issue 12

Eliminating Property Taxes - Part 2

I first want to thank everyone that took the time to read my last newsletter but then when the extra step and replied.  I am sure you are all bombarded with oodles of emails and newsletters from all forms of experts.  For you to hold my writings above those, I am greatly appreciative.

 

In my last newsletter I wrote about Florida’s proposal to eliminate property taxes for owner-occupants.  I was against eliminating property taxes because it seemed like a gift to the retired 65+ crowd that would unfairly impact the younger generations just starting out.  I also expressed my disdain for the system Hawaii uses where the government can simply say your property is worth more on paper and collect more money while at the same time smile at you and say they aren’t raising property taxes.

 

The best subscriber reply I received pointed out something I wanted to include but left out unintentionally.  That suggestion was for the federal government to do away with capital gains taxes on the sale of your primary residence.  The current rules allow an individual to avoid taxes on the first $250,000 of gains.  A married couple gets $500,000.  That seems like a lot, and it was generous when enacted in 1997.  But jump forward 28 years, and especially here in Hawaii, that $500,000 exclusion still leaves most homeowners facing large tax burdens when they sell.  There are many people right now throughout the state that would want to downsize by selling their current home but choose to hold on because of the taxes the sale would generate.

 

I feel it is unfair and downright stealing when the government taxes us throughout our lives on our assets, then taxes us again when we finally dispose of them.  Estate taxes are another form of theft.  Estate taxes are what you owe if you have a sizeable amount of assets when you die.  Since 1997 the government has increased the threshold for the value of an estate before those taxes are owed.  In 1997, your estate would have to pay taxes upon your death on the value of your assets that exceeded $600,000.  With the enactment of Trump’s One Big Beautiful Bill, the new exclusion is $15-million for an individual and $30-million for a married couple.

 

The federal government should abolish capital gains taxes on the sale one’s your primary residence.  And if they don’t want to eliminate them completely, come up with a system like estate taxes where you get a cap of $15-million over your lifetime.

 

Also this week, Florida released their details on eliminating property taxes and the proposal is making me change my mind that it may not be such a bad thing, despite a warning from the Florida Policy Institute (FPI).  According to the FPI, property taxes generate roughly $55 billion annually and provide around 18% of county revenues, 17% of municipal revenues, and up to 60% of school-district funding in many areas. The group warns that eliminating property taxes could force a dramatic increase in other revenue sources — in some estimates, raising the state sales tax from 6% to as much as 12%.

 

Why I think it may be a good idea in Hawaii is what Governor DeSantis said in his rebuttal of what FPI stated.  Let me know if you think this sounds a lot like what we have here in Hawaii:

 

"The majority of our revenue for property tax is from non-Florida residents because people have second homes … and we have lots of commercial property.  So the revenue from homesteads ends up being about 30% of the total property tax revenue…”

 

"Think about it – can you have a situation where every five or six years government is increasing their budgets 50% or 60%?  Now, part of it was, we did have a boom with COVID, everyone was rushing to Florida, which caused property values to go up…" DeSantis pointed out.

 

Hed went on to point out "But how is it that you buy a home for $350,000 and then, four years later, they tell you it's worth a million dollars and you gotta pay more in property tax?  It's not right."

 

I never followed Florida’s real estate market, but it sure sounds a lot like Hawaii.  Lots of second homes from people living elsewhere.  Tons of commercial property.  Many people bought in Hawaii during COVID when they were allowed to work remotely.  And lastly, Hawaii has seen huge increases in home values as a result.

 

The devil is always in the details.  I’ll report more as this proposal moves through the Florida legislature.  But if the elimination of property taxes doubles Florida’s sales tax (very different from Hawaii’s general excise tax) to 12%, that would make Florida’s sales tax equal to Hawaii’s current 4.5% GE tax.

 

 

 

 

Maui Vacation Condo Update

Bill 9, the proposal to downzone a majority of the island’s vacation condos, has cleared another hurdle.  With only 8 members on the county council, due to the recent death of a sitting member, the remaining 8 voted 5-3 to advance the bill to its second reading.  At that future meeting of the second reading, testimony will again be heard from those for and against.  If the bill moves forward from there, it has a final reading, then off to the mayor who has openly supported seriously impacting Maui’s economy in favor of a pipe dream that poor people will purchase expensive condos.

 

Maui will continue to be the epicenter for legal action.  First the gaggle of attorneys for the victims of the Lahaina fire, then representing the owners of short-term vacation rentals impacted by Bill 9.

 

 

 

 

New Conforming Loan Limits for 2026

Fannie Mae and Freddie Mac announced this week that once again the conforming loan limits, the maximum dollar amount of mortgages they will buy from lenders, will increase over their 2025 levels.  Despite another solid year of home values increasing nearly 5% on average, loan limits will increase 3.5%.  For Hawaii, the new conforming limit for a 1-unit property is $1,249,125.

 

It is customary for VA and FHA programs to follow.  They’ll report their new limits in the next couple of weeks.

 

 

 

 

And now the week’s economic news…….

 

Inflation Eases

The last couple of weeks were relatively quiet for mortgage markets.  With the end of the shutdown, the flow of key government economic data has gradually resumed, including the delayed PCE inflation report for September.  There were no major surprises in the data, however, and mortgage rates ended slightly higher.

 

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator.  In September, Core PCE was 2.8% higher than a year ago, slightly below expectations, down from an annual rate of increase of 2.9% in the prior month.  Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021.

 

Two significant economic reports released this week by the Institute of Supply Management revealed mixed results.  The ISM national services sector index rose slightly to 52.6, close to expectations, and the highest level since February.  Meanwhile, the national manufacturing sector index fell to just 48.2, the lowest level since July.  Readings above 50 indicate an expansion in the sectors and below 50 a contraction.  This was the ninth straight month that the manufacturing index was under 50, while the services index has generally held above that level.  Although manufacturing makes up just roughly 10% of the economy, it is an important indicator of economic activity.  Higher tariffs on foreign goods may provide a lift to domestic manufacturing companies over time and help close the performance gap with services.

 

The latest survey on consumer sentiment published by the University of Michigan revealed that consumers remain concerned about the impact of higher tariffs and the economic outlook.  Still, the index rose from the lowest level since June 2022 last month to 53.3, above the consensus forecast of 52.0.  The component of the report on consumer inflation expectations showed that the five-year average outlook fell to the lowest level of the year, which was good news for mortgage markets.

 

 

 

Next Week

Looking ahead, the next Fed meeting will take place on Wednesday, and most investors anticipate that the Fed will reduce the federal funds rate by 25 basis points.  There is a wide range of expectations for the outlook for monetary policy next year, however, so investors will be paying very close attention to guidance from officials.  With the end of the shutdown, the schedule for the release of delayed government economic reports continues to be gradually updated.  The JOLTS report on job openings is scheduled for Tuesday.  The Producer Price Index (PPI), a monthly inflation indicator, is scheduled for Thursday.

 

 

 

 

 

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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