As prices and the number of sales retreat, housing inventory increases across all areas of East Oahu, or what the Honolulu Board of Realtors® refers to as Kapahulu/Diamond Head through Hawaii Kai. These market changes follow the normal patterns of a downward real estate market, but did suffer with parallel changes in the economy and the mortgage industry.

For the month of August there were 96 single-family listings in East Oahu, of which approximately 43 sold, equating that for every two homes on the market, only one reached a successful closing. The same formula is true for East Oahu condominiums: 53 percent of those listed were sold.

The time it takes for an active listing to receive an accepted contract is referred to as the "Days on the Market." The median Days on the Market for single-family homes on Oahu were 46 and for condos 48, respectively.

According to Clyde Kobatake, Principal Broker for Kobatake Realty, "The active listing inventory is higher now than it was at this same point last year. Statistics show that leading into the fourth quarter of each year, both single-family and condominium inventory jumps up, beginning in September. There are many factors that contribute to this, but it does suggest that the rest of 2008 should have increased inventories, due to falling sales, thus giving buyers more to choose from."

Active inventory is also a factor of current supply, relative to the demand. Active inventory can be measured in terms of month's supply. Specifically, how many months will it take to sell or "absorb" all properties currently for sale (assuming no others enter the market)? A six-month's supply is considered a balanced market. Less than six months can be considered a seller's market, and greater than six months, a buyer's market. According to the Honolulu Board of Realtors® Statistical Summary of Resales, East Oahu has an 8.5-month supply of single-family homes and a 7.6-month supply of condominiums. These numbers mirror the supply for the entire island.

"Our troubled financial markets will work out slowly through 2009 and very likely linger into 2010, causing a continual drop in housing sales and price," says Kobatake. "We're experiencing increasing foreclosures, bankruptcies and unemployment and decreasing tourism and government revenue. Lending institutions have also tightened lending guidelines, making it harder to borrow money."

"In the past year, credit has become the number one requirement in obtaining a new mortgage loan," says Keith McClintock of Harbor Financial Group. "Traditionally credit scoring played a minimal part in obtaining financing, but now it dictates the interest rate you receive from your lender(s). This is all a result of the crash of the sub-prime industry."

Loans that were previously given based on the lending three "C's": credit, capacity and collateral, are now being judged primarily by credit scores. "Credit has taken the forefront of all mortgage loans today. The scores are an indication of the borrower's payment(s), usage, past history and current percentage of revolving accounts available." According to McClintock, the interest rate a borrower receives today is most likely a direct reflection of their credit rating. He also says that another round of adjustable-type loans is coming due, which could lead to increased foreclosures.

"The sub-prime industry was the savior for the consumer that had a notably risky credit record, and it allowed them to acquire home loans," says McClintock. "The downfall of these loans is that they escalated with adjustment periods being built into these loans often two to three years from the inception date. The adjustments continued every six months and will continue for the remaining loan duration." McClintock says that borrowers were often times caught off-guard after the two to three year term when the escalation of payments began. These frequent adjustments often affected affordability. This coupled with a downward sloping real estate market left homeowners with more debt than they could recover from the sale of property.

According to McClintock, there is one more type of loan that is set to come due for borrowers: the Option Arm Loan, which could affect foreclosure and short sale rates. "The bulk of these programs is coming due in later 2008 and through 2009. Lenders will essentially call the entire loan "due" if certain conditions are not met."

Is this all bad news? No. Is it necessary? Yes. "If you believe in balance, that's what we need to go through," says Kobatake.

East Oahu should have the same market experience as the rest of Oahu; however, history being an indicator, the East side will resist the price instability better than most of Oahu. "Without going into the details, the macro reason is...location, location, location. Prices may fall; plateau for a number of years even while the number of sales are increasing. Supply will get lower from increasing demand, which will cause prices to rise again."

A changing market still affords opportunity. It just requires more scrutiny. While some face hardship, there will be those that prosper.