2010 Housing Mortgage Market In Review

By Lisa Scontras

In the grips of the most turbulent economic times since the Great Depression, Hawaii braced for the worst when 2010 started.

Under the care of two federal stimulus programs, the housing market was being propped up by the second extension of the homebuyer tax credit and the Fed’s decision to keep mortgage interest rates artificially low by purchasing mortgage-backed securities.

“Early in the year, we saw a big frenzy of new and repeat homebuyers, scrambling to take advantage of the tax credit,” says Joy Cabildo, senior vice president of the residential real estate division at at First Hawaiian Bank. “The fact that interest rates remained low helped people to qualify, and the flurry of activity was a strong start to the year.”

Hawaii’s housing market showed signs of strength early on despite the fact that home sales on the mainland remained particularly grim. Yet, there was rightful concern as to what would happen after these federal programs ended. The question was no if interest rates would go up, but when and how fast?

Yet when the Federal Reserve stopped buying mortgage-backed securities in March, consumer’s fears were eased.

Perhaps the biggest and most welcome surprise of the year was that when the bailout ended, interest rates remained low. In fact, they dropped even further.

“Initially, fixed rate mortgages rose slightly to 5 percent in May, after hovering in the high 4’s for the first quarter,” says Cabildo. “But just when we thought that business was going to slow, rates came down again, to 50-year lows, and the refinance market took off.”

But no matter how you look at it, 2010 has been a challenging year for Americans – high unemployment coupled with low consumer confidence has resulted in dropping home prices across the country, and recent concerns about the health of the European financial system, and a string of new underwriting roadblocks, are making it more and more difficult to qualify for a loan.

“The economy has left some paralyzed in indecision,” says Cabildo. “But at least one decision has become a no-brainer for several thousands of people who decided to refinance their home on Oahu in the second half of 2010 when rates dropped, and then dropped again.”

As we enter into the New Year, the situation today is not as bleak as it seemed a year ago. HBR stats show that single-family home median sale prices on Oahu were down slightly in October to $595,750 and holding steady for condominiums at $300,000.

Stability here is expected to continue as low rates help housing to rise above current economic conditions.

“Earlier last month, the Fed’s announced another stimulus, which should continue to keep interest rates down” says Cabildo. “They have started buying Treasury Bills, accounting for another rate drop.”

First Hawaiian Bank is quoting 30-year fixed rates this week at 4.375 percent (APR of 4.57), and 3.5 percent for a 15-year mortgage – both with 2 points.