Rising home costs don't faze buyers

By Andrew Gomes
Advertiser Staff Writer

Hawai'i home prices increased more steeply last year than they have in more than a decade, but that hasn't led to an increase in buyers borrowing more than 80 percent of the purchase price when they take out conventional mortgages.

A nationwide survey released this month shows that Hawai'i has the lowest ratio of single-family home buyers stretching their conventional loans to cover part of the usual 20 percent cash down payment.

The Federal Housing Finance Board survey showed Hawai'i's average loan amount as a percentage of the purchase price was 73.4 percent last year, its lowest point since 1993 and the lowest in the nation. The figure has fallen for three consecutive years after hovering at about 80 percent from the mid-1990s through 2001.

So why is it that with housing prices soaring, home buyers don't appear to be resorting to higher-leveraged loans?

"We're a high-cost area, it would seem counterintuitive that we would have borrowers putting a lot of money (toward the down payment)," said Jon Whittington, vice president and regional manager for Countrywide Home Loans.

Whittington and other local mortgage industry leaders say more buyers actually are taking out higher-leveraged loans, but the loans are increasingly of the nonconventional variety not covered by the survey.

Other factors probably shaping survey results include growing numbers of buyers with a lot of cash, and fewer first-time buyers purchasing single-family homes.

Industry observers say the survey shows how local home prices, which have risen by more than 10 percent in each of the past three years, influence the popularity of various types of financing.

Whittington said one of the biggest trends in residential lending has been nonconventional "piggyback" loans, where buyers with good credit can borrow 80 percent of the purchase price with one mortgage and up to another 20 percent with a second mortgage.

Borrowers can qualify for piggyback loans to buy homes priced as high as $1 million, Whittington said. "We do a ton of piggyback first and second mortgages," he said.

John Gray, executive vice president of mortgage banking for Bank of Hawaii, said many home buyers are coming in with big cash down payments that can be as high as almost 50 percent of a purchase price.

Some of these borrowers are Hawai'i homeowners who are selling one house to buy another. Because of the strong appreciation in the real-estate market, there is usually equity in the house being sold that can be tapped for the down payment on the new home, Gray said.

Other buyers with big down payments are investors and second-home buyers who are selling other real estate or trading in stocks and bonds.

"Fairly well-to-do people are coming in with a million dollars down to buy a $2 million house," Gray said.

A falling number of first-time buyers of single-family homes also is likely reflected in the survey. "As prices go up, first-time home buyers are first to get priced out of the market," said Jim Patterson, loan department vice president for American Savings Bank.

Patterson added that inventory of starter homes is low, adding to a reduction of first-time home buyers, though some builders are trying to cater to more moderate-income buyers.

Additionally, first-time home buyers tend to primarily purchase condominiums, which weren't covered in the survey, lenders note.

Hawai'i, relative to other states, historically has had a low ranking in the survey for highly leveraged conventional home loans. Hawai'i's ranking in 2003 was fourth lowest among 50 states and the District of Columbia.

Patterson said lower Mainland home prices generally make it easier for buyers to borrow more of the purchase price.

For instance, a 20 percent down payment on an O'ahu single-family house at last month's $525,000 median price was $105,000, or close to the full price of a median-priced single-family home in El Paso, Texas.

The survey was based on a sample of about 270,000 conventional single-family home loans from savings associations, mortgage companies, commercial banks and savings banks. Excluded were FHA-insured and VA-guaranteed loans, multifamily loans and refinancings.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.