Thursday, January 4, 2001
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Posted on: Thursday, January 4, 2001

Fed move is 'good news' for Isle rates

Hawai'i economy 'getting better'

Previous stories:
Tourism, jobs expected to continue growth
Isle bankruptcy rate falls
Hawai'i unemployment rate at nine-year low

By Andrew Gomes
Advertiser Staff Writer

The Federal Reserve’s dramatic decision to lower a key interest rate yesterday to boost a slowing Mainland economy also is expected to help strengthen positive growth trends in Hawai
i, local economists and lending officials said yesterday.

"It’s good news on top of good news," said Uwe Kumbroch, senior loan officer at Western Pacific Mortgage Inc.

The Federal Reserve reduced the rate that banks charge each other for overnight loans to 6.0 percent from a nine-year high of 6.5 percent. It was the first cut in two years. Although anticipated, the cut was bigger than expected and was made with unusual timing, between meetings of the central bank’s interest-rate committee.

Local experts said some of the most direct effects of the cut in Hawaii will be felt in real estate, as mortgage rates already lower in anticipation of a rate cut further stimulate an already hot market. Economists also said the rate reduction will help sustain increasing visitor arrivals and investments in Hawaii from the Mainland.

Overall, the Fed’s move is expected to help the state’s economic growth catch up with Mainland expansion, which is moving at a faster pace despite braking measures (higher rates) instituted by the Fed last year, said Pearl Imada Iboshi, the state’s chief economist.

"For us, (the cut) is even more important because we’re just coming out of (a weak economy)," she said.

Iboshi said the rate cut will be good for consumer confidence, though only marginally. That’s because consumer confidence in Hawaii is relatively high compared to the Mainland, where the measure hit a two-year low recently. Still, she said "good news always helps."

Kumbroch shared the thought. "Every little bit helps," he said. "We’re much more sensitive to interest rates here with the economy the way it’s been over the last nine or 10 years. For once, Alan Greenspan and his cronies at the Federal Reserve have finally done something good for us in Hawaii."

Reacting quickly to the reduced federal rate, Hawaii’s two largest banks, First Hawaiian Bank and Bank of Hawaii, yesterday announced that they would lower their prime lending rate from 9.5 percent to 9.0 percent effective today — a move other local banks are expected to follow.

"Any time you lower the rate, it encourages spending and borrowing," said Henry Wong, an economist at City Bank in Honolulu. The prime rate is a benchmark for interest rates on many types of loans.

Stocks get boost

Stock investors also were encouraged by the Fed’s rate cut. They pushed the Dow Jones industrial average up nearly 300 points, or 2.8 percent, and the Nasdaq up about 325 points, or 14 percent, yesterday.

Not all Hawaii-based companies shared in the market’s rally. Share prices rose significantly for Alexander & Baldwin Inc. and Bank of Hawaii parent Pacific Century Financial Corp. Share prices were little changed or unchanged for First Hawaiian parent BancWest Corp. and Hawaiian Airlines. And prices fell for Hawaiian Electric Industries Inc. and CB Bancshares.

George Murakami, a financial planner with American Express Financial Advisors Inc. in Hawaii, said a more telling impact on the market will be seen in the next couple of days as investors either sustain the run or let it fall.

"This is positive news ... but (the market) could go back down tomorrow," he said yesterday.

Likewise, there will be waiting and seeing in the real estate market as homeowners and buyers evaluate whether mortgage rates, now just under 7 percent, are headed lower. Lenders already had gradually reduced mortgage rates over the past three weeks in anticipation of the Fed cutting its key rate at the end of the month.

"With that in mind, I don’t think there’s going to be a rush to refinance until people feel a bottom has been hit in the interest-rate markets," said Murakami. "I think people will wait and see if rates are likely to go down further."

Kumbroch said customers have been inquiring about refinancing over the past three weeks, and he expects a flood of calls this morning after most people digest the news of the Fed’s half-point rate cut.

"For the average person, it translates to big savings," he said, explaining that shaving 0.5 percent off a mortgage rate can reduce the payment on a $250,000 loan by $200 a month.

Kumbroch said he’s advising his customers to evaluate whether it makes sense for them to refinance now — depending on savings and expenses — or wait to see if rates move lower, which he thinks is possible. But he also notes that the trick is not to wait until real estate service providers get too busy to close deals before rates rise.

C. Scott Bradley, co-managing partner of Coldwell Banker Pacific Properties, said rates are already at a two-year low, which has made home-buying more attractive.

"I think it continues a trend of a more affordable real estate market in Hawaii than we’ve seen in a long time," he said.

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