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Overview of Hawaii Housing Market

Hawaii’s median home value is one of the highest in the U.S. That said, the state has the lowest property tax rates in the country.

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Source: Freddie Mac Primary Mortgage Market Survey, SmartAsset Research
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Factors in Your Hawaii Mortgage Payment

While your mortgage payment may be high due to Hawaii’s hefty real estate prices, you won’t be burdened with high property taxes on top of it. Hawaii has the lowest property tax rates in the nation, with an average effective rate of 0.28%. One of the reasons is exemptions for owner-occupied residences. So if you plan on calling the Aloha State your year-round home, you’ll save some money on property taxes.

Each county in Hawaii administers and collects property tax. Your home will be appraised once a year, and after you’ll receive your property’s assessed value in the mail. If you have an issue with your home’s assessment, you can appeal with your local tax board. Your taxes will be based on the assessed value, which is equal to market value. However, applicable exemptions are applied to this number prior to tax rates.

Another cost to consider is homeowners insurance. In Hawaii, the average annual premium is $979.28, according to SmartAsset’s Most Affordable Places to Live study. The state has the 33rd-highest premium in the country, which isn’t bad for an island home. Obviously, being an archipelago, there comes inherent homeowner risks.

However, contrary to what you might assume, hurricanes aren’t as high a risk in this state than other areas in the U.S. In fact, Hawaii doesn’t even make it on any of the Insurance Information Institute’s hurricane damage or at-risk states. The last hurricane to cause significant damage to the Aloha State was 1992’s Hurricane Iniki which caused an estimated $1.8 billion in damage mostly to the island of Kauai, according to AccuWeather. The last major hurricane to hit the islands prior to Iniki was Hurricane Dot back in 1959.

Normal homeowners insurance doesn’t cover flood or earthquake damage, so if you want to insure your home against that type of damage, you can purchase it separately. Hawaii’s Insurance Division has a Consumer’s Guide to Homeowners Insurance that explains the different types of homeowner policies and coverages.

Costs to Expect When Buying a Home in Hawaii

Prior to starting your monthly mortgage payments, property tax payments and homeowners insurance, you’ll need to pay a number of costs during the home-buying process. One of the first is a home inspection for the property you plan to purchase. While not a mandatory step, it’s what smart homebuyers do to ensure that the house doesn’t have any major issues. Most home inspections in Hawaii will total somewhere near $400 to $450, while the cost may be less for a condo or smaller home. A typical home inspection includes an assessment of the roof, attic, plumbing, electric, appliances, heating and cooling, foundations, walls and ceilings. If you want mold, radon or a pest inspection, you can usually add those testing services for an additional fee.

After you move on to the finalizing the contract and loan paperwork, you’ll set a closing date with your lender. Part of closing is paying a number of fees to various service providers (including your lender). These are known collectively as closing costs. Hawaii averages 1% to 1.5% of the home value in closing costs, which is relatively low compared to the rest of the U.S.

Average Closing Costs by County

CountyAvg. Closing CostsMedian Home ValueClosing Costs as % of Home Value
Hawaii$4,427$301,7001.47%
Honolulu$5,864$580,2001.01%
Kauai$5,333$480,6001.11%
Maui$5,560$509,7001.09%

Our Closing Costs Study assumed a 30-year fixed-rate mortgage with a 20% down payment on each county’s median home value. We considered all applicable closing costs, including the mortgage tax, transfer tax and both fixed and variable fees. Once we calculated the typical closing costs in each county we divided that figure by the county’s median home value to find the closing costs as a percentage of home value figure. Sources: US Census Bureau 2015 5-Year American Community Survey, Bankrate and government websites.

Your lender will charge you what’s called origination fees, as part of your closing cost burden. This can include fees for underwriting, commitment, document preparation, tax service, origin points and loan processing. You won’t find a standard charge across lenders: some will charge more or less, which is one of the reasons to shop around for lenders in the early stages of home buying.

Other services you’ll pay for as part of closing costs include attorney fees, flood certification, survey, appraisal and credit reports.

Your lender will often require title insurance, which helps insure that the rights to the property are clear. The insurance helps pay for any future court costs for title claims. There is the option to buy an owner’s policy as well, to cover the entire home value, rather than just the loan amount, which is what the lender’s policy will insure up to.

One last fee, though usually the responsibility of the seller, is Hawaii’s state conveyance tax. The tax is progressive and based on the purchase price, starting with $.10/$100 for homes under $600,000.

Details of Hawaii Housing Market

The most recent state to join the U.S., Hawaii is an archipelago of eight main islands. With an estimated population of just 1.43 million, according to 2016 U.S. Census Bureau estimates, the state is the 40th-most populated. To put it in perspective, the entire population of Hawaii is roughly one-sixth of New York City’s population. The Aloha State has 6,423 square miles of land area and 1,052 shoreline miles, according to the National Oceanic and Atmospheric Administration.

Hawaii is made up of the Island of Hawaii – known as the Big Island – Maui, Oahu, Kauai, Molokai, Lanai, Niihau and Kahoolawe. About 70% of the population is located on Oahu, home of the capital Honolulu. The next biggest city after the capital is Pearl City, located about 12 miles northwest from Honolulu. Hilo, Kailua and Waipahu are the next most-populous cities, according to the U.S. Census Bureau. Hilo is the only top five city located on Hawaii Island – the rest are on Oahu.

As an island group and popular tourist destination, Hawaii has an expensive housing market. All counties in Hawaii have conforming loan limits above the U.S. 2017 limit $424,100. According to Fannie Mae, Honolulu’s loan limit is an astounding $721,050, which is higher than New York City’s or Boston’s, which stand at $636,150 and $598,000 as of 2017.

In our Healthiest Housing Markets study, Hawaii ranked near the bottom of national rankings. This was due to having some of the most unaffordable housing in the nation, as well as very low stability markers. The other factors considered in the study were risk and ease of sale, which Hawaii fared a little better in, but not enough so to counterbalance the first two factors.

Hawaii’s seen a 6% increase in home value from 2016 to 2017, but is predicted to have a lower percent change from 2017 to 2018, according to Zillow. As of August 2017, the median home value was $604,800 and the medial list price was $600,000.

As for the most populated island, Oahu, a shortage of affordable homes is a persistent problem. The housing supply is constrained with new construction lagging behind, according to the Honolulu Board of Realtors.

Honolulu’s median home value is a high $675,000, which is a 5% increase from 2016. List price is a little lower at $627,500. Nearby Pearl City sees even higher numbers with $687,600 for median home value and $629,500 for list price. On Hawaii Island, Hilo seems more affordable with a median value of $306,300 and $322,500 for list price. (All figures as of August 2017.)

Local Economic Factors in Hawaii

While it’s pretty fair to assume that you’ve seen images of Hawaii in regards to a top vacation destination, tourism isn’t the only source of industry in Hawaii, though it plays a large role. Defense, raw sugar and molasses and pineapple are three of the four top export industries. In regards to defense, Hawaii is home to military bases for all five services: Army, Navy, Marine Corps, Air Force and Coast Guard. As for tourism, the state has numerous resorts, beaches, natural wonders like volcanoes and canyons and waterfalls.

According to Hawaii’s Workforce Infonet, the largest employers are Altres Industrial, Kapiolani Medical Center, Queen’s Medical Center, Hawaii Health System Corp and Hawaii State Police Department.

Hawaii has generally lower unemployment than the national average. The state’s unemployment rate in August 2017 was 2.6% compared to the national rate of 4.4%, according to the U.S. Bureau of Labor Statistics. If you take a look at income numbers from the Bureau of Economic Analysis, Hawaii also fares well. The state’s per capita personal income (PCPI) is $50,551 which is 18th in the U.S. and above the national average of $49,571.

While Hawaii has the lowest effective property tax rates in the nation, the same can’t be said for income tax. The state has a progressive income tax with 12 tax brackets. The lowest tax rate in Hawaii starts at 1.40% and progresses with each income tier. For example, income between $48,000 and $150,000 is taxed at 8.25%. The top tax rate in Hawaii is 11% (for those earning $200,000 or more). The good news is that there are tax credits and deductions that can help you lower your taxable income.

Sales tax technically doesn’t exist in Hawaii, but the state has a general excise tax that businesses are required to pay. This tax is usually passed on to customers with higher prices for services and goods.

Itching to move to this beach-filled group of islands? Island living isn’t exactly cheap. See what your budget will look like by comparing your cost of living. Let’s say you earn $80,000 a year and are a single filer, if you moved from San Diego, California to Honolulu, your cost of living would be 11% higher on average due to taxes, housing and food cost increases. Boston, Massachusetts to the same city would see an 8% average increase. However, Boston to Hilo is a 14% decrease.

Mortgage Legal Issues in Hawaii

Hawaii homebuyers have some protection under Hawaiian real estate statutes. Sellers are required to complete and deliver a signed disclosure statement that reports all material facts relating to the property. This is any fact, defect or condition that could measurably affect the value of the home, according to Honolulu’s Natori Law Office. This is more protection than many mainland states that don’t have laws covering disclosures. While it’s some protection, a seller’s disclosure doesn’t replace the need for a home inspection prior to purchase.

Another consideration is Hawaii’s foreclosure process, which has changed throughout the years. At the moment, the state allows both non-judicial and judicial foreclosures. In 2011, the Associated Press reported that a law requiring lenders to show mediators evidence of legal authority to foreclose lengthened the foreclosure process for months. The law also prohibited lenders from seeking deficiency judgments, which is when the lender pursues the homeowner for any difference between the home sale and the remaining loan. As of 2012, the law allows certain homeowners to file for a conversion from a non-judicial foreclosure to a judicial foreclosure. The benefit is that usually judicial foreclosures take longer since it involves a lawsuit and the court. Non-judicial foreclosures are allowed when the mortgage has a power of sale clause included in the document.

If you want to learn more about Hawaii’s mortgage foreclosure laws, Hawaii’s State Judiciary website has more information.

Hawaii Mortgage Resources

Available Resources

ResourceProblem or IssueWho QualifiesWebsite
U.S. Department of Housing and Urban Development - HawaiiOffers free or low-cost housing counseling, homeownership vouchers, legal assistance for homeowners wanting to avoid foreclosure and information about groups that provide down payment assistance.Varies depending on specific program requirements.http://portal.hud.gov/hudportal/HUD?src=/states/hawaii
Making Home Affordable ProgramOffers help for homebuyers whose mortgage payments are too expensive, homeowners who want to refinance, assistance for the unemployed and assistance for homeowners trying to avoid foreclosure.Homeowners who have experienced a financial hardship such as the loss of a job.https://www.makinghomeaffordable.gov/pages/default.aspx
Hawaii Housing Finance and Development CorporationProvides housing assistance to families of low and moderate income via Mortgage Credit Certificate.The home must serve as a primary residence and homeowners cannot exceed income and purchase price limits.http://dbedt.hawaii.gov/hhfdc/mortgage-credit-certificate/

Housing is not cheap on Hawaii. If your household has low or moderate income, you might qualify for a program through the Hawaii Housing Finance & Development Corporation. There are mortgage credit certificates that reduces the amount of federal income tax you pay which can help you qualify for a loan and helps free income for payments.

Another resource is the Hawaii HomeOwnership Center, a nonprofit that provides education, information and support for first-time homebuyers. Find down payment assistance loans, homeownership coaching and post-purchase workshops, among other offerings.

Hawaii also has property eligible for USDA-backed loans. If you have low or moderate income, you may qualify for this government-endorsed loan. First, you’ll want to check if the property you’re interested in is located in an eligible area on the USDA website.

Before you move to the Aloha state, you may want get familiar with 15 things to know about moving to Hawaii. Considering the islands as your retirement destination? You can run some numbers to see if Hawaii is retirement-friendly. Lastly, if you’re ready to start loan shopping, check out current Hawaii mortgage rates to get an idea of what your monthly mortgage payment will look like.