Living in paradise comes at a hefty price.
In the Honolulu, HI, metro area, the median sale price of an existing single-family home was $745,300 in the third quarter of 2016, according to the National Association Realtors. Behind the San Jose, CA, and San Francisco, CA, metro areas, Honolulu was the third most expensive home market in the U.S. during that period. By comparison, the national median sale price in the third quarter was $249,000, the association says.
Not surprisingly, Hawaii has the third highest average mortgage debt in the U.S. That figure puts Hawaii behind only two other places: the District of Columbia and California. Hawaii’s mortgage debt is 60 percent higher than the national average.
Maxed Out in Honolulu
More than 110,000 owner-occupied homes in the Honolulu, HI, area have mortgages.
Photo: Flickr/Edmund Garman
The high cost of housing in Honolulu helps explain why it’s the most maxed-out metro for housing debt among the 100 most populous metro areas.
A LawnStarter analysis of U.S. Census Bureau data shows nearly 23 percent of mortgaged owner-occupied homes in the Honolulu metro area had a second mortgage or a home equity loan in 2015. That’s the highest percentage among the top 100 metros. The Census Bureau data was released in 2016.
In and of themselves, second mortgages and home equity loans (another type of second mortgage) aren’t evil. But they do carry financial risks.
“By taking out a second mortgage, you are adding to your overall debt burden. Anytime you add on to your overall debt burden, you make yourself more vulnerable in case you then experience financial difficulties that affect your ability to repay your debts,” the federal Consumer Financial Protection Bureau says. “It is important to know that a major risk with home equity loans or home equity lines of credit is that if you cannot repay a home equity loan or home equity line of credit, you could potentially lose your home because you are using the equity in your home as collateral.”
The 80-15-5 Formula
Hawaii Gov. David Ige is addressing the affordability of housing in his state.
Cathy Lee, 2016 president of the Hawaii Association of Mortgage Brokers, says most home buyers in the Honolulu area don’t have enough money for a 20 percent down payment, which would enable them to avoid paying private mortgage insurance (PMI). To work around that, she says, most Honolulu home buyers use what’s known as the 80-15-5 formula — 85 percent for a first mortgage, 15 percent for a second mortgage and 5 percent for a down payment. This way, the need for PMI can be skirted.
The embrace of this so-called “piggyback” loan method underscores the hurdles faced by home buyers in Honolulu.
“We must build homes that Hawaii’s working families can afford — not luxury condominiums for out-of-state speculators,” Hawaii Gov. David Ige said when he was running for the post in 2014.
Of course, some homeowners in the Honolulu area do take out second mortgages to pay off debt, undertake home improvements or cover college expenses, Lee says, rather than just to avoid PMI.
“Housing debt is typically seen as safe, but over-levering can cause people to go from thriving financially to over their heads in debt” cautions Jacob Garmin, a spokesperson for Microcredit Summit. “That’s a lesson many learned the hard way in 2008.”
Cost-of-Living Concerns
Steep grocery prices contribute to the high cost of living in Honolulu.
Image: YouTube/Hawaii Kitty
Lee notes that most homeowners in the Honolulu area hold down more than one job to make ends meet, as residents of the area pay much more for housing, food, clothing and other essentials than their mainland counterparts do. Honolulu’s cost of living is the fourth highest among major North American cities, according to cost-of-living data from Expatistan.
“Cost of living is hard to fix. Hawaii is the most isolated community on the planet, and everything costs more,” Ige told the Hawaii Economic Association in 2015.
With Honolulu claiming the top spot, here’s our ranking of the 14 Most Maxed-Out Metros for Housing Debt.
1. Honolulu, HI
Photo: Flickr/Bernard Spragg
Owner-occupied homes with mortgage: 112,055
Mortgaged owner-occupied homes with second mortgage or home equity loan: 25,668
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 22.91%
2. Bridgeport-Stamford-Norwalk, CT
Photo: Flickr/Adam Moss
Owner-occupied homes with mortgage: 161,176
Mortgaged owner-occupied homes with second mortgage or home equity loan: 35,656
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 22.12%
3. Madison, WI
Photo: Flickr/Paul Frederickson
Owner-occupied homes with mortgage: 113,289
Mortgaged owner-occupied homes with second mortgage or home equity loan: 23,219
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 20.50%
4. Harrisburg, PA
Photo: Flickr/Harvey Barrison
Owner-occupied homes with mortgage: 96,831
Mortgaged owner-occupied homes with second mortgage or home equity loan: 19,625
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 20.27%
5. San Francisco, CA
Photo: Flickr/Jason Jenkins
Owner-occupied homes with mortgage: 656,117
Mortgaged owner-occupied homes with second mortgage or home equity loan: 131,529
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 20.05%
6. Hartford, CT
Photo: Flickr/Steve
Owner-occupied homes with mortgage: 214,832
Mortgaged owner-occupied homes with second mortgage or home equity loan: 42,247
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 19.67%
7. Boston, MA
Photo: Flickr/Bill Damon
Owner-occupied homes with mortgage: 776,000
Mortgaged owner-occupied homes with second mortgage or home equity loan: 151,992
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 19.59%
8. Worcester, MA
Photo: Flickr/Massachusetts Office of Travel & Tourism
Owner-occupied homes with mortgage: 157,906
Mortgaged owner-occupied homes with second mortgage or home equity loan: 30,907
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 19.57%
9. Milwaukee, WI
Photo: Flickr/Jim Bauer
Owner-occupied homes with mortgage: 254,058
Mortgaged owner-occupied homes with second mortgage or home equity loan: 49,194
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 19.36%
10. New Haven, CT
Photo: Flickr/Reflected Serendipity
Owner-occupied homes with mortgage: 135,895
Mortgaged owner-occupied homes with second mortgage or home equity loan: 25,943
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 19.09%
11. Minneapolis-St. Paul, MN
Photo: Flickr/Rabelais
Owner-occupied homes with mortgage: 671,476
Mortgaged owner-occupied homes with second mortgage or home equity loan: 128,153
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 19.08%
12. Rochester, NY
Photo: Association of Rochester Police and Area Law Enforcement Retirees
Owner-occupied homes with mortgage: 186,781
Mortgaged owner-occupied homes with second mortgage or home equity loan: 34,673
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 18.56%
13. Cleveland, OH
Photo: Flickr/Carlos Javier
Owner-occupied homes with mortgage: 349,827
Mortgaged owner-occupied homes with second mortgage or home equity loan: 64,445
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 18.42%
14. San Jose, CA
Photo: Flickr/Ben Loomis
Owner-occupied homes with mortgage: 260,644
Mortgaged owner-occupied homes with second mortgage or home equity loan: 47,814
Percentage of mortgaged owner-occupied homes with second mortgage or home equity loan: 18.34%
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