Banker believe worst is behind us
By Lisa Scontras
Declining unemployment nationally and locally, along with the fact that the National Association of Realtors has reported year-over-year increases in sales volume for 22 consecutive months have many experts agreeing that the worst of the recession is behind us.
Consumer confidence is back and, in general, businesses have regained a stronger footing since the Great Recession.
On Oahu, healthy tourism figures and a pick up in residential construction are further evidence that the local economy is recovering nicely. Record foreclosures and unemployment levels from as recent as two or three years ago are down as well.
At First Hawaiian Bank, refinance applications continue to be strong due to low interest rates. According to Leonard Fernandes, Vice President and Manager of the Residential Credit Center, home purchases are also on the rise.
“Applications to purchase properties have doubled for us this year,” he says.
Fernandes and Ken Miller, First Hawaiian Bank’s Chief Investment Strategist, recently talked about the state of our leading economic indicators and shared their insight.
How does the recovery in 2013 compare to what we’ve seen in the last five to six years?
Miller: I anticipate much the same. Economic growth will be about 2 percent – same as the average since the recovery began in mid-2009. But I expect acceleration toward the end of the year and into 2014.
Can you comment on the real estate market recovery?
Miller: Generally, real estate has been helped by low interest rates. Also, after years of little activity, inventory of new and existing homes has fallen, helping to boost prices.
Fernandes: In Honolulu, inventory is low and demand is strong. Because of this demand, several new condominium projects have already started construction, such as The Cove, Waihonua at Kewalo and One Ala Moana. 801 South St. is for sale now and a few others will soon come on the market. This is more new home activity at one time than there has been in about a decade, so the real estate market is already showing signs of recovery. Each project that goes to construction will help strengthen the employment rate and economy of Hawaii.
Are foreclosures back to a pre-recession rate?
Fernandes: Not yet. However, they have been going down slowly on the Mainland for the past six months. In Hawaii, since lenders are going through judicial foreclosures, the time for a foreclosure has increased, which means fore-closures take longer.
Miller: Nationwide, fore-closures, as a percentage of total loans, have fallen from 4.6 percent to 3.5 percent, but they’re still above the 1 percent level seen pre-recession.
How has consumer confidence changed in the past 12 months?
Miller: Polls are mixed, but generally, confidence has been improving.
Can you comment on unemployment?
Miller: Unemployment is 7.5 percent nationwide, down from 10 percent; in Hawaii, 5.1 percent, down from 7.6 percent. We should continue to see only a gradual fall in unemployment nationwide because job growth is still slow and if it picks up many people who are not now in the labor force will start to look for jobs again. Strong growth in construction jobs is likely in Hawaii.
What about tourism?
Miller: It should still be positive, but the strong growth rate from last year is not sustainable. Increased air lift has helped, but we are beginning to run out of hotel rooms on Oahu.
Is the worst over?
Miller: Yes. You could argue that the whole recovery is artificial and unsustainable (reliant on very loose monetary policy and increasing government debt), but in my view there has been real improvement in the economy. At the same time, the national economy is still fragile and vulnerable to shocks, for example, a sharp deterioration in the euro zone.
Fernandes: My personal opinion is yes, the worst is over. Tourism has been showing improvement and strong numbers for a year. This is the major engine that drives our local economy, so in many respects, as tourism goes, so goes our state economy.
Today, rates remain low. But as the economy strengthens and government stimulation is no longer necessary, mortgage interest rates will likely rise to market levels. If you’re considering buying a home, it would be wise to act before this happens. Talk with Realtors, bankers and mortgage loan officers to get educated about the current market and what your home buying options are.
What about all the new housing development that is under way. Is it fair to say that inventory is so depleted it will take a while for supply to meet demand?
Fernandes: Yes. It will take awhile for new inventory to complete construction, but buyers have shown patience. The success of the response and contracting at new projects, like The Cove, One Ala Moana, Waihonua at Kewalo and 801 South St. all show a strong demand for purchases in Honolulu. Construction has started on three of these projects. There is a lot of excitement about development in Honolulu right now. Sales of units at Holomua were recently completed with strong demand for units.
What about our economic forecast?
Miller: I expect continued sluggish growth of 2-3 percent. Unemployment should come down gradually, but with little sign of inflation, the Feds will almost certainly keep interest rates low.
The opinions, forecasts and other views contained in this article are those of Ken Miller and Leonard Fernandes, are based on their experience and knowledge of the underlying data, do not necessarily represent the views of First Hawaiian Bank or its management, should not be construed as investment, tax or legal advice, and are subject to change without notice. First Hawaiian Bank does not guarantee that the information provided herein is accurate or suitable for any particular purpose.