Monday, December 10, 2007
Kitsap Real Estate Market Report - November 2007
The tempo of news stories about the US real estate market, mortgage defaults, and the fallout in financial markets as a result appears to be peaking at year end. Since we can’t really address the scope of all the issues, we will just focus on yesterday’s Kitsap Sun headline proclaiming, “Kitsap Home Prices Drop While Surplus Grows.” According to the article, the median sales price in the County dropped $19,000 last month compared to a year ago while the inventory remains up by 25% and pending sales were down by 27%. The median sales price drop is about 7% in one month. The article cites numbers only for the month of November rather than following our usual standard of looking at the year to date. If we look at monthly graphs Median Sales Price, Number of Closed Sales, and percent change in each of these values compared to a year earlier, it does paint a stark picture of decline in our market at year end.
While the month to month data may serve in this case as a timely warning of a sea change in our market, the relatively small number of sales can also be misleading. For instance, the monthly median sales price dropped from $284,000 in Nov 2006 to $268,400 in December 2006, a 5.5% drop, only to rebound to $280,000 in January 2007. Some individual areas in Kitsap showed large increases in median sales price and some showed large drops, both indicative of buyers purchasing a relatively small number of homes in a price range different from the previous month. We sense that prices are probably falling, but doubt that the change is as abrupt as the month-to-month data would indicate.
The listing inventory has actually been falling as the holidays approach and many sellers are pulling their properties off the market. Nationally this same trend is occurring in most areas. This drop in the total number of listings obscures the 22% increase in the number of new listings that came on the market last month compared to a year ago. Although the data for the month shows a significant drop in median sales price compared to a year ago, median price for the year (taking into account all sales year to date) dropped only about $1500 (less than 1%) compared to last month and is still up 7% from a year ago. Here are some more details.
Residential Highlights
Kitsap County residential inventory in November (2196 listings) was down 5.1% from October. Inventory was 31% higher than a year ago. The number of year to date pending sales was down 13% compared to a year ago - compared to minus 12% last month. As noted in the Sun article, pending sales for the month of December were down 27.5% compared to November 2006. Nationally the report of pending sales in October reported a small rise compared to a year ago. Countering the downward trend, Poulsbo YTD pending sales are up 32% compared to a year ago. Of 52 current pending sales in Poulsbo, 42 are new construction, and most of these are presales that never appeared as active listings. Bainbridge Island year to date pending sales are down 3% from a year ago (a reversal over the past several months after being up for most of the year). The number of YTD closed sales Countywide is minus 17% compared to a year ago - same as last month. Poulsbo YTD closed sales are up 11% from a year ago, down from 12% last month. Bainbridge Island closed sales were down 4% from a year ago, reversing the positive trend we have reported for most of the year.
Prices are falling…
The YTD median sales price of $293,500 in November was down less than a percent from October. It has basically been flat for 5 months now. This is up 7% from a year ago. It’s vitally important for sellers to be the most competitively priced among their competition if they want to generate an offer.
Seller expectations…
The median list price for the year remained steady at $350,000. This is the same as last month and is less than 1% higher than a year ago. The spread between the median list price and median sales price is telling - when the market is good this spread becomes larger and as the market declines this difference becomes smaller. Two years ago (at the top of the market) the spread between median list and median closed sale price was $74,100. A year ago the spread was $74,900, This month the spread is $56,500. The inventory turnover (total homes on the market divided by number sold last month) is 10.1 months, up from 9.3 months in October. This number has been steadily going up for the past several months. A year ago this number was 6 months, and that was already reflecting a market slowdown from its 2005 levels. Today a seller has a 10% chance of selling his/her home in a given month. Competitive pricing is essential, and almost every offer we see presented is negotiating on price.
The statistics for pending sales (compared to year-to-date sales last year) varied for different parts of the County. Most areas have slipped some in the past month. Here is a snapshot:
Bainbridge Island -3% (-2% last month)
Poulsbo +32% (+39% last month) - 42 of 52 pending are new construction
Bremerton -24% (-21% last month)
Kingston -10% (-9% last month)
Silverdale +2% (+3% last month)
Port Orchard -6% (-4% last month)
Olalla -25% (-23% last month)
Thursday, December 06, 2007
Kitsap Real Estate and Economic Conditions in 2008
Many of you have an interest in doing something with real estate in the coming year and might be interested in an assessment of where our local and national economy could be headed as it affects your home buying or selling decisions. Almost everything in the current press is pointing towards a bad year. The stock market is down, and investors are fleeing to Treasurys and other safe investments. Real estate markets are down. Unemployment is expected to rise. Investment capital is scarce. Some economists say there is an increased probability of recession. On an optimistic note, the National Association of Realtors recently pointed out that this will be the 5th best year for real estate sales ever, and that 2007 is very similar in many respects to the market in 2002, which was record breaking at that time. All that needs to change are our expectations.
Faced with predictions such as the study by the U.S. Conference of Mayors and the Council for the New American City, which predicts that property values in the US will fall by $1.2 trillion in 2008 and that at least 1.4 million home owners will lose their properties due to foreclosure, some politicians are calling for rate freezes and legislation to relieve homeowners affected by the problem. A group called the Hope Now Alliance, including large banks such as Citigroup, Countrywide Financial, Wells Fargo, and Washington Mutual, has today negotiated an agreement with the Treasury Department. This Alliance represents about 84% of the loan servicing organizations for subprime mortgages. In very general terms, their proposal is to extend the so called teaser rates on subprime loans, which run 7% or 8%, for a period of 5 years - forestalling the reset in rates to the 9.5 to 11% range that is scheduled for $362 billion of subprime mortgages in the coming year.
The coalition will try to create systems to identify those home buyers who could continue to make their payments only if current rates are extended or the maturity date of their mortgages is extended, and to this group the mortgage modifications would be offered. Subprime borrowers who can make their payments after the mortgage resets and those borrowers who can’t make current payments will not be eligible for the proposed revision in terms. Both the Treasury Department and the Alliance reportedly now have the cooperation of the investors holding the securities backed by the mortgages under negotiation. These investors stand to lose income if the terms of the original mortgages are not met - of course they will also lose income if the borrowers default. This agreement reportedly affects “tens of thousands” of home owners, so it would still leave a substantial number of subprime borrowers to fend for themselves. No broader relief, such as a taxpayer bail out, has yet been proposed. Some critics have compared the proposed plan to the course taken in Japan after the meltdown of their real estate market in 1989. Another aspect of the subprime problem has not yet been addressed, namely that a large portion of the borrowers (55% according to a Wall St Journal study) could have qualified for a conventional loan with lower overall costs and lower fees to the lenders.
So all this news sounds bad for next year - we might need a different perspective about our hopes for 2008. A couple weeks ago I heard a presentation by William Conerly, Ph.D., who consults with many companies in our region to help with their economic outlooks. You can find out more about him at Conerly Consulting. His presentation was much more upbeat and optimistic than I had expected. What follows are my notes from his presentation sponsored by Viking Bank.
- The real gross domestic product will be subpar - less than the nominal 3% growth that represents an average year for our economy. He said that he does not foresee a recession, but his probability that one will occur is 30% - higher than he predicted last year. He also pointed out that consumer spending has slowed somewhat, trending towards slower growth but not undergoing a sudden collapse. Our Pacific Northwest Region is dependent upon capital goods orders (planes, trucks, software, etc.) to a greater extent than other parts of the country. While capital spending was weak at the start of the year, it is now looking much better. Our economy also depends upon the exports, and with the current weakness in the dollar, he expects that export trade will be strong. He pointed out that emerging markets are growing much faster than the developed economies such as the US, and that they are fueling a large demand for exports. He also predicted that the dollar will continue to fall by another 7 - 9% in value in the coming year, adding more strength to US exports.
- Long term interest rates will increase 1 to 1.5%, which is important to the affordability of real estate. He predicted last year that long term rates would rise, but after rising earlier in the year they have fallen again, in some respects because of the flight to safe investments from stocks as the volatility picked up later in the year. He continues to predict that this long term rate increase will happen (to attract investors to support our debt), and felt that the Fed would cut the Federal Funds Rate one more time in the near term.
- He also is expecting the stock market to continue to perform well, though he declined to make any specific predictions about it. He encouraged participants to have some international stocks in their portfolios - as much as 50%.
- As he predicted last year, he anticipates that energy prices will fall significantly. The increase in oil prices in the past year or so is the first sustained upward movement in inflation adjusted oil prices since 1986, when adjusted prices fell to about $20 per barrel in 2005 dollars after over a decade of substantially higher prices. In this interval there was little incentive for oil companies to pay the costs of new exploration, but since prices have jumped there is much new exploration in progress. This is expected to produce an oversupply that will cause prices to continue to fall from present levels.
- Housing - He expects the housing market to remain weak throughout 2008 and into 2009 before it starts to recover. There is a large excess in inventory (1.25 million units). He said that housing by itself is not enough to bring down the rest of the economy. A weak homebuilding market will have an impact on the Pacific Northwest because of the large wood products industry here. Locally in the Seattle region, construction has not outstripped demand by that much, so the amount of new construction will be only somewhat below normal.
- The reduced number of buyers will be mitigated in the Seattle Tacoma region by strong job growth, which has resulted in strong population growth that is expected to continue in the coming year, though maybe not as strong as the past 2 years. Unemployment in Seattle is currently about 4% - somewhat lower than the national average. Labor markets are very tight.
So...barring impact from other unforeseen circumstances, Bill Conerly sees pretty good economic conditions for the year ahead - except for the real estate market. As a parting note he told the story of a businessman who didn’t expand his well run operation because he foresaw trouble on the economic horizon. Today that person still runs a good business but has been left behind because he didn’t bet on the ability of Americans to innovate and create new opportunities. Don’t be against America - I believe that was his message.
Statistics not compiled or published by NWMLS
