Even families making $100,000 a year could be struggling to make ends meet.

The income required to become a homeowner in Honolulu has virtually doubled in the last three years, as rising home prices and soaring interest rates have combined to push homeownership out of reach for the vast majority of people living in the state.  

In 2020, a family with 5% down and an annual income of $168,000 could afford to purchase a single-family home in Honolulu, based on sales data analyzed by the National Association of Realtors. By the end of 2022, that figure had risen to a jaw-dropping ​​$326,000 in required annual income. 

The growing cost of real estate is just one of many ways that interest rate hikes are impacting people in Hawaii. Purchasing a new car or paying off credit card debt are also increasingly difficult — particularly for people without good credit or the income to pay down debt fast. 

In a recent analysis by LendingTree, Honolulu ranked as one of the top cities where even people earning six figures might be struggling to make ends meet. According to the study, a family of three in Honolulu making $100,000 a year would need an additional $865 a month to make ends meet for basics including child care and housing.

Most conversations about growing interest rates center around mortgage rates, which have risen rapidly in the last few years, as part of an effort by the Federal Reserve to curb inflation.

The difference in monthly payments on a mortgage with a 2.6% interest rate -- a record low set during the pandemic -- and the current average rate of 6.5% is significant.

For a mortgage of $900,000 -- closer to the amount needed for a single-family home on Oahu, the monthly payment balloons even further.

In Hawaii, about only 14% of households can afford to buy a median-priced home, said Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors. That's less than half the national average, and takes into account the statewide median home cost -- which is about $300,000 less than the median single-family sales price in metro Honolulu.

In Hilo, where real estate is typically much more affordable than on Oahu, the changes in home affordability have been particularly pronounced.

In 2020, Hilo had a home affordability index of 92.8. A rating of 100 would mean that a family with an average income in the area would be able to afford a home. That rating has plummeted to 48.4. (Screenshot:Federal Reserve Bank of Atlanta.)

Rising interest rates from the Fed have also been impacting most credit card users -- although they might not know it. Credit card companies can raise rates in lock step with federal increases without notifying users, something usually spelled out in the fine print of credit card agreements.

When the Fed raises rates, the vast majority of card holders will see the interest rates on both their current balance and their future spending increased by the same amount that the Fed raised their rates, said Matt Schulz, chief credit analyst at LendingTree.

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"That's what makes the Fed's moves so significant. Because if you are somebody with $5,000 in credit card debt, the last thing you want is a higher interest rate," Schulz said. "But unfortunately, that's exactly what you got nine times the past year."

The change in average interest rates on credit cards between 2019 and 2023 doesn’t add much to users’ monthly bills -- if credit card holders are paying down their debts fast and increase their monthly payments. 

For example, someone with $4,260 in credit card debt who wanted to pay that off in two years would need to increase their payment from around $206 a month to $218 a month to keep up with the change in average interest rates, which have gone from around 14% to just over 20% on average.

The problem is most pronounced for people who hold higher amounts of debt and are struggling to make payments. The average amount of credit card debt in Hawaii -- for people who are carrying a balance -- is currently $8,556, according to a study by LendingTree. 

If someone with that debt load can only pay $200 a month, they will pay significantly more in interest and be paying down the debt for far longer.

People with a good credit score do have some options, Schulz said. Looking for a new card that offers a zero-interest balance transfer is one way to tackle credit card debt, he said.

Another option is to call the credit card company and request an interest rate reduction. That's something few users know is an option, but Schulz said that research has shown about 70% of users who asked for an interest rate reduction received one.

"The good news is that people do have options," Schulz said. "They just need to be sure that they take action to exert what control they can have."

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