The Perils of Paradise

We are all feeling the effects of rising insurance rates for homes and condos throughout the state.  The insurance companies claim they have had to reevaluate the associated risk for properties in Hawaii.  Many vocal critics are claiming the insurance companies are just trying to take advantage of the situation after the Lahaina fire.

 

Last week I wrote about new FEMA maps for Oahu that will affect thousands of homeowners who will have their properties reclassified being in a flood zone.  FEMA is updating their flood maps because they have now been able to get accurate elevations of Oahu’s hills and valleys.  If the new maps place your home in a flood zone, you’ll be required to purchase flood insurance - if you have a mortgage.  I also wrote that politicians blasted the proposed changes – not because the maps are wrong, but that increased costs will make living in Hawaii even less affordable than it currently is.

 

Then I started thinking, is it really that much riskier living in Hawaii?

 

I was born and raised in these islands.  I joked when I first met my wife 25 years ago about growing up and having school days in the 1970’s canceled because of heavy rain.  We even once had Halloween postponed a day due to heavy rains.  My wife, who was originally from Canada, thought that was crazy coming from a land where snowdrifts higher than your car were common, yet the kids still went off to school.  Then I told her of the 1987 New Year’s Eve Flood that caused millions in damage in East Oahu.  It was sudden and without warning.  The next morning dozens of homeowners were stranded because their street was replaced with a stream bed littered with debris and damaged cars.  Here’s the front page of the Honolulu Star Bulletin from January 2^nd, 1988.

 

And depending on your age or how long you’ve lived in Hawaii, like me, you probably experienced the effects of Hurricane Iwa and Hurricane Iniki.  Yet despite the storms and hurricanes, they were always rare.  After all, as Guy Hagi says, we have the best weather on the planet.

 

But as I started to do research for today’s article, I was shocked by the data I found.  Do you have any idea the number of hurricanes that have affected our islands over the years?  Thankfully you can find the complete list on Wikipedia, https://en.wikipedia.org/wiki/List_of_Hawaii_hurricanes.  Since 1949, we’ve had 69 tropical cyclones affect us, with 29 deaths.  Few have hit us as hurricanes, but the near misses and tropical storms are just as destructive.  We don’t need a hurricane to hit us directly in order to cause major damage.  Heavy rain and wind are all we need.  Hurricane Dora in 2023 was well south of the islands, yet her winds triggered power lines to snap and start the Lahaina fire.

 

As I said, it doesn’t have to be a hurricane to bring costly damage to our islands.  Rainy season storms like the New Years Flood of 1987 were not from a cyclone event.  Then there’s the 2021 flood of Haleiwa.  Another non-cyclone storm of our rainy season.  How significant was that storm?  Nearly 4000 residents of Haleiwa town were asked to evacuate.  The Waiahole Stream, located above Kamehameha Highway, reported flow rates of nearly 9,000 cubic feet per second.  The previous record, obtained through 19 years of maintaining data, was set in 2012 and was 432 cubic feet per second.  Yup, it was bad.

 

Our islands are made from basalt – the hardened effects of lava flows.  Basalt easily erodes, especially due to water.  Do you remember we had a period within the last few years where boulders were dislodging and rolling into homes?  This is just one additional peril you should be cognizant of living on a volcanic island.

 

Taken individually, these incidents seem far and few between.  But when you start to add all the perils we face here, it has now changed my perception.  I never associated living in Hawaii as being risky.

 

◊ Tsunamis                        ◊ Hurricanes               ◊ Flooding

◊ Rockslides                      ◊ Lava                         ◊ Wildfires

 

Compared to most of the continental US, we do live in a higher risk place.  Now let’s compound the matter for insurance companies with lots of older homes and condominium projects.  We still have thousands of single-wall constructed homes throughout the state.  They will not do well if we get another high-wind event.  And at least for Oahu, 90% of all condos were constructed prior to 1990.  While condos, at least the tall concrete ones, will withstand most weather events, 35–70 year-old internal plumbing pipes don’t need a weather event to fail, and fail they do.

 

Does this mean we should all pack it up and head for the mainland?  No!  But we should not kid ourselves of the unique circumstances living in paradise brings upon us.  For those planning on buying here’s tips to keep in mind.  If you already own, use these tips to evaluate your present home.

 

Buying a Single-Family Home:

The home inspection is now the most important information you’ll get for your potential dream home.  How old is the wiring and the pluming?  When was the roof last replaced?  Does the home have hurricane clips for the roof structure?  Is it double-wall construction?

 

Consider where the home is located.  Visit the home and look up and around.  Are you on the side of a hill?  Are there potential objects that could become dislodged and tumble into your home?  Is the home located in a valley?  That quaint stream could turn into a raging river during a storm.  Even if you are blocks from the stream, debris clogging water trying to leave the valley could result in flooding throughout.

 

Maybe being in a more private setting is your preference and the home you are looking at is adjacent to old agricultural land or conservation protected land.  Is that lot next to your potential home fallow with overgrown grass?  Until the Lahaina fire no one considered a brush fire as a real risk to their home.

 

Lastly, think about how long you plan to live at that residence.  Is there a potential for more homes to be built?  Would you want to endure years of noise, traffic and dirt blown into your home from construction?

 

 

Buying a Condo:

I used to think home inspections for condos were silly.  There’s nothing much to discover.  But as I mentioned earlier, lots of condos are old buildings.  What condition is the wiring and plumbing?  You’d hate to have an electrical fire because an outlet is 40 years old.

 

When you buy a condo, the seller provides you with a full package of disclosure documents.  Does anyone ever read them?  Be honest?  Yet you can learn a lot about how good or bad the building is by reading the disclosures.  Read all the Board of Directors minutes.  Is there a push-back from owners about spending money to upgrade or make repairs?  Some projects pride themselves in keeping the project in tip-top shape.  Others use the band-aid approach.  You should also look to see how old the building is and if the internal plumbing as ever been retrofitted.  Does the building have a fire sprinkler system?

 

With ever sale, home or condo, the sellers are required to provide a minimum level of disclosure.  But they can get away with a lot using the “Not to My Knowledge” response on the disclosure forms.  You are ultimately responsible for sleuthing out the issues we covered here today.

 

I am not a worrier, but there is one situation that truly concerns me.  We’ve been relatively lucky with hurricanes, despite feeling the effects of 69 of them since 1949.  If one of sufficient strength were to hit Oahu, it would be really bad.  We are islands in the middle of nowhere.  If our harbors and/or airport were damaged, there would be no way to bring in food and supplies.  We’re not like the mainland where neighboring states can mobilize and send supplies and utility people to get us back up and running quickly.  You should, as I have done, consider what your family would need for 2 weeks of disruption - food, water, medicines, and any other essentials like batteries, flashlights, and maybe even a generator.  Residents of Florida prove time and time again that we can survive being struck by a hurricane – it just takes some planning beforehand.

 

Today’s article is not meant to discourage ownership in Hawaii.  My role is to hopefully educate and make you aware of potential perils we all may face.  I hope this article opens your eyes to the true risks we face living in the place with the best weather on the planet!

 

 

 

And now the week’s economic news…….

 

Home Sales Mixed

During a light week for economic reports, investors continued to focus on the stronger than expected data released earlier in the month.  Since faster economic growth increases the outlook for future inflation, mortgage rates ended the week a little higher.

 

In September, sales of existing homes fell a little from August, as expected, to the lowest level since October 2010.  The median existing-home price of $404,500 was up 3% from last year at this time.  Inventories remain stuck at historically low levels, standing at just a 4.3-month supply nationally, far below the 6-month supply typical in a balanced market.  From a different perspective, though, inventories were 23% higher than a year ago.

 

 

Sales of previously owned (existing) homes currently account for about 85% of the market, and sales of new homes make up the remaining 15%.

 

In September, new home sales rose 4% from August and were 6% higher than a year ago.  The median new-home price of $426,300 was up slightly from last year at this time.  In contrast to existing home sales, which measure closings during the month, new home sales are based on contracts signed, so they are a leading indicator of future housing market activity.

 

The headline figure for overall housing starts in September showed the expected slight decline from August, but the details of the report were more encouraging.  The weakness this month was entirely due to multi-family units, while single-family housing starts rose 3% to the highest level in five months.  Single-family building permits, a leading indicator of future construction, also increased in September.  In addition, a separate survey of home builder sentiment on housing market conditions from the NAHB rose more than expected.

 

 

 

 

 

Next Week

Investors will continue looking for Fed officials to elaborate on their plans for future monetary policy.  For economic reports, third quarter GDP, the broadest measure of economic activity, will be released on Wednesday.  Personal Income and the PCE price index, the inflation indicator favored by the Fed, will come out on Thursday.  The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.

 

 

 

 

 

Until next week…….