Compliments of
Alan Van Zee
President | NMLS #: 297154
Hawaii Mortgage Company, Inc.
Company NMLS #: 232582
Alan Van Zee is one of the top producing Mortgage Originators in the state, originating over $2,000,000,000 to date. He has written and published this weekly newsletter for the past 16 years. It is the most widely read mortgage publication in Hawaii.
Hawaii Mortgage Company celebrates its 24th anniversary providing mortgages to the people of Hawaii and is proud to continuously earn an A+ rating from the BBB of Hawaii.
Mortgage Market News and Insight
For the Weekend of August 24th, 2024
Hawaii’s Most Read Mortgage Publication for 16 Years
Volume 16 – Issue 47
Governor’s Insurance Emergency Proclamation
I’ve written extensively about the horrific insurance problem affecting just about every person that owns a home or condo here in Hawaii. Renewal rates, if your policy is renewed, have skyrocketed. And if you are buying a home, good luck finding insurance if that home has a roof 15 years old, or older.
On August 7th, Governor Green signed an emergency proclamation attempting to address the problem – but only for condominium projects. None of the actions within the proclamation will provide any immediate relief to Hawaii’s condo owners. If there’s no immediate relief, what does this “emergency” proclamation call for?
Sets up a joint executive and legislative task force to monitor the insurance market, implement short-term fixes and recommend emergency changes or legislative proposals.
I love this line from the press release:
This emergency proclamation will lead to providing additional options…
That’s government speak for help won’t be here for a while. And if you think about it, you first set up a task force, then they meet, then they study, then they make recommendations, then hopefully there’s some action. In the world of government, that’s not a quick process – especially if the recommendations are for legislative changes.
Taking a page from Hawaii’s history of insurance issues, what the government wants to do is allow two existing programs to write insurance policies for condominium projects that can no longer obtain a policy from the open market. Those two programs are the Hawaii Hurricane Relief Fund (HHRF) and Hawaii Property Insurance Association (HPIA).
The Hawaii Property Insurance Association (HPIA) is an unincorporated association of insurance companies in Hawaii, created originally by the 1991 Hawaii State Legislature to provide basic property insurance for persons unable to purchase homeowners coverage in the private market due to the ongoing volcanic activity in Lava Zones 1 and 2 on the Island of Hawaii.
Their own website offers this ominous warning:
As the insurer of “last resort”, the HPIA premium is one of the highest in the State for the types of policies issued and therefore a diligent effort should be made to obtain coverage in the voluntary market.
After hurricane Iniki in 1992, many of the insurance companies that offered hurricane policies in Hawaii pulled out of the market for a few years. Homeowners were stuck. In 1993 the Hawaii Hurricane Relief Fund (HHRF) was established to write policies until the private insurers returned to the state. The fund ceased writing policies in 2000.
The fund got its capital from the policies they wrote, plus a tax was levied on all real estate transactions, and a surcharge of 3.75% was placed on all lines of property and casualty (except auto) insurance including workers’ compensation and liability insurance. Those sources provided an ample amount of money to operate the fund.
Hawaii hasn’t had another hurricane since Iniki. The Hurricane Relief Fund had hundreds of millions of dollars sitting there because there weren’t any claims. The government raided the fund in the past to pay for shortfalls funding other programs. The best research I’ve been able to find shows that despite being raided, the fund still has $167 million just sitting around.
I know this was a lot of information to take in, and insurance isn’t the most fascinating thing to read about. But the point I am trying to convey is that the government will not be the savior rescuing us from our insurance woes. There’s no data yet on the how costly the premiums will be for these policies. HPIA and HHRF will not self-insure themselves. They, just like any other insurance company in the open market, will need to purchase surplus (supplemental) coverage to adequately insure the policies they write. It’s the cost of that surplus coverage that has jacked up rates for us all. Yes, the programs will help those that can’t get any coverage, or sufficient coverage, but don’t look for premiums under these programs to look like anything those from 2022 and earlier.
False Data
We’ve been lied to, and it’s not nice. Earlier this week the Bureau of Labor Statistics announced that they overstated the health of our country’s labor market and removed 818,000 jobs from what the BLS has told us previously were created in the period of March 2023 to March 2024.
The job creation data is one of the most important statistics of how healthy our economy is. Instead of a monthly average of 242,000 jobs created, that number was revised down to 174,000. That’s the difference between a healthy economy and one not doing so well.
Why should you care, and why should you be upset? This data is used by the Federal Reserve to determine monetary policy – interest rates.
Did you buy anything on credit in the last 12 months?
A Car?
A home?
Utilize a line of credit, such as a credit card?
Then you should be furious. Because interests should not be as high as they are right now. Had the Fed been aware of the weak employment data, they would have cut interest rates already. The Fed has a dual mandate. We all know they raise and lower rates to fight inflation. But were you aware that equally their mandate is to try and achieve full employment? The Fed has used the strong labor market as a reason they’ve kept rates high. We’d be in a much different place had the true data been known.
Here’s how higher rates have taken money out of your pocket:
A six-year auto loan for $40,000 with an interest rate of 6% has a monthly payment of $662. The same loan with a 4% rate has a payment of $625. Over the course of that loan, you’ll pay an additional $2,671.69 in interest.
A $600,000 30-Year Fixed Rate mortgage with a rate of 7.000% has a principal and interest payment of $3,991. That same loan with a 5.000% rate has a payment of $3,220. That’s $771 per month lower! Not only is that a huge difference per month, but here’s also a more expressive way to see the difference: If you were to just compare how much you’d be able to borrower and have the same payment of $3,991 per month with the 5.000% loan, you have a loan of $744,000. With just a difference of 2% in rate, you’d be able to get a loan for $144,000 more.
I started this article with the word lie. I do believe we were lied to versus this being some innocent clerical mistake. I used to have greater faith in our government, but as more and more of these stories emerge, it's becoming impossible to accept it's all innocent.
And now the week’s economic news…….
Focus on Fed
During a light week for economic reports, investors were focused on a highly anticipated speech by Fed Chair Powell. All signs indicate that Fed officials are ready to begin cutting the federal funds rate soon. As a result, mortgage rates ended the week a little lower, near the lowest levels of the year.
In a speech on Friday, Fed Chair Powell said that "the time has come" to loosen monetary policy. The reasons he cited included that inflation has declined "significantly" and the labor market is "no longer overheated." He added that the timing and pace of rate cuts will be determined by incoming economic data.
The minutes from the July 31st Fed meeting released on Wednesday suggested that other officials have similar views on the appropriate direction for future monetary policy. Pointing to progress on inflation and increases in the unemployment rate, a small number of officials were ready to cut rates at this meeting, while the "vast majority" indicated that it would "likely be appropriate" at the next one. Investors now anticipate that there will be at least a 25-basis reduction in the federal funds rate in September, which would be the first easing since early in the pandemic.
In the housing sector, sales of existing homes in July rose slightly from June, the first gain in five months, but still were a little lower than a year ago. The median existing-home price of $422,600 was up 4% from last year at this time. Inventory levels remain stuck near historic lows, standing at just a 4.0-month supply nationally, far below the 6-month supply typical in a balanced market. From a different perspective, though, inventories were 20% higher than a year ago.
July new home sales were much stronger than expectations, rising 10.6% month-over-month. June sales were also revised 8% higher. The median sales price rose 3.1% Month-over-Month to $429,800, as sales of homes in the higher-priced West region increased as a percentage of total sales.
Next Week
Investors will continue to look for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Durable Orders will come out on Monday and Consumer Confidence on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday.
Until next week…….
