Central Pacific Bank's Rusty Rasmussen on residential lending

Rusty Rasmussen is senior vice president at Central Pacific Bank and manager of its Home Loans Division, which primarily handles mortgages for homebuyers.

With interest rates the highest they’ve been in some time – in the 7% range – Rasmussen recently spoke with Pacific Business News about the current trends in home loans and the impact rising interest rates have on homeownership in the Islands.

What trends are you currently seeing in residential lending? The overall trend, the volume is down quite a bit but the [interest] rates are up quite a bit, which kind of makes sense. That’s really the trend now and all everybody’s talking about is the rates are the highest we’ve seen in a number of years.

How have rising interest rates affected lending locally, and what impact does that have on homeownership in the Islands? We had a very long period of low rates and now it’s spiked up more than we’ve seen in a long time. So as a result, nobody’s refinancing their mortgages – they have such a low rate, right? Refinances made up a big percentage of the overall volume, so those are gone. Nobody wants to refinance to a higher rate, so the overall volume is down.

The impact to homeowners is that when the rates move up this much – we were in the 2 [percent range] in 2021 and now we’re at 7 [percent], that’s a big, big jump – that impacts the monthly payment that someone is going to pay when they finance a home, so the payments are way up. The impact to the homebuyer is that they may have to look at a home that’s less than what they were looking at a year ago or two years ago. Someone who was looking at a $700,000 condo, now they have to look at a $600,000 condo or $550,000 condo with the same amount of money.

Can you talk more about the impact this has on affordability? It’s really bad for affordability when the rates go up that much. The first-time buyer, particularly, has a much harder time because they might have been looking at a $3,000-a-month payment, now it’s $4,000 a month. They may or may not be able to qualify, so that’s the real big impact there on the affordable side.

In past cycles, when the rates went up so dramatically, we would see the real estate market weaken a little, but we haven’t seen any of that. … There’s still much more demand than there is supply. It’s been very interesting. Normally, we would see less and less activity, but there’s just not enough inventory out there, so these people want to buy a home but they can’t find a home to buy. That’s the real challenge.

What other factors are in play that might affect lending through the remainder of the year? [Interest rates are] where everybody’s focused because we’re seeing these rates much higher than we’d ever seen before. Quite honestly, everybody thought we might see rates starting to head down, but between now and the end of the year, it’ll be real interesting to see. Personally, I think that rates will come down. The Fed[eral Reserve] is looking at inflation primarily and they want to bring that down, but all of the hikes that they’ve made, it takes a while for that to show up in the economy. So I think we’re just starting to see that now, so I think by the end of the year, we’ll see the rates moderate a little bit, come down a little bit.

What do you expect to see a year from now? A year from now, I think that we’ll be in a much better rate environment and that’ll just make it more affordable for everybody. I don’t think this high-rate environment is going to last forever. Whether it’s going to last for another month or six months, nobody knows. There’s just too many variables. But I think that would be a welcomed change. … I don’t think the rates are going to go back down to 3% any time soon, but back into the 5s I think would be reasonable and that’s kind of where I think we’ll be this time next year – probably in the mid-5s. That will be a big relief for the market because that’s going to impact payments and overall activity.

What advice do you have for someone seeking to buy their first home in this high-rate environment? The best advice I can give to somebody is to sit down with a Realtor, sit down with a loan officer, because it doesn’t cost any money [to do so]. … There’s no obligation. You can sit down with a loan officer and they’ll tell you exactly what you can and cannot do, and sit down with a Realtor and they’ll let you know exactly what’s out there to buy, what’s available in the market. The thing is, if you start now, then maybe six months [or a year] from now, you’ll be in shape to buy a home.


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