Tuesday, February 19, 2008
Mid February Kitsap Real Estate Outlook
Since the start of February, the national news has focused on a few new aspects of the current real estate market. Congress approved and the President signed an economic stimulus bill that will provide rebate checks to many households and also raised the loan limits for FHA loans and for loans conforming to the underwriting standards for Fannie Mae and Freddie Mac. Current loan limits of $417,000 are to be increased to as high as $729,750 in areas with the highest median home prices. In other news, a Federal anti-trust suit in New York has been filed against the four largest title insurance companies for alleged kickbacks that increase the cost of title insurance to homeowners. The State of Washington recorded its first ever (since records were started in 1994) year over year price decline. Median prices were down 2.5% statewide in the 4th quarter of 2007 compared to 2006.
Much news is now being devoted to the plight of monoline insurers (companies who insure municipal bonds and mortgage backed securities against default) such as FGIC Corp, MBIA, Inc., and Ambac Financial Group, Inc. These companies face lower credit ratings as a result of their exposure to subprime mortgage defaults. They have insured the collateralized debt obligations and other securities backed by home mortgages, and thus have guaranteed to pay the principal and interest on these securities in the event the issuer fails to do so. With the large rise in foreclosures, these securities have plunged in value, and the monoline insurers are suffering large losses. In turn the large losses are eroding their credit rating, which has always been AAA and served as a symbol of confidence in all the securities that they insure. While insuring mortgage backed securities has grown their business in the past few years, these companies were first formed to insure the municipal bonds of cities and communities. When the insurer’s rating falls, so do the ratings of the municipal bonds they insure, and this has resulted in falling municipal bond prices. Well heeled rivals such as Warren Buffett’s Berkshire Hathaway Assurance Corporation have proposed to step in and take over the municipal bond insurance business from the troubled monoline companies. They may be forced to split their businesses in two, cleaving the riskier mortgage backed securities insurance portion from the municipal bond and other insurance programs. One aspect of the market affects another - Buffett’s offer to reinsure $800 billion worth of municipal bonds caused investors to sell treasuries and mortgage backed securities so they could buy municipal bonds, which they now view as a safer investment. This caused treasury and mortgage backed security prices to fall and ultimately raised mortgage rates, reducing housing affordability, which we’ll discuss in the next section.
As we demonstrated last month, the Washington Center for Real Estate Research provides local affordability calculations that we can use to check on housing affordability using current median prices and interest rates. Last month we reported that affordability had improved significantly in recent months. We assume that a buyer making the median family income puts 20% down on the median priced home and obtains a 30 year fixed rate mortgage. We assume that a first time buyer making 70% of the median income puts 20% down and on a house priced at 80% of the median and obtains a 30 year fixed rate mortgage. We assume that both buyers can afford to spend a maximum of 25% of their monthly income on the principal plus interest of the loan. Using the annual averages of median price, median income, and average annual 30 year fixed interest rate since 2001 we plot an affordability index equal to the maximum affordable payment divided by the actual payment. When the index is greater than 1, the loan is affordable to the typical buyer. When it is less than 1 then some buyers cannot afford to purchase. The affordability index fell to 1.02 in February from 1.11 last month. First time buyer affordability fell to .89 from .97 in January.
| Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|---|---|---|
| Annual Average interest rate | 6.54 | 5.83 | 5.84 | 5.87 | 6.41 | 6.34 | 5.96 |
| Median Income | $52,701 | $53,160 | $53,923 | $54,582 | $58304 | $60719 | $65000 |
| Median Price | $165900 | $184000 | $206900 | $250000 | $275000 | $290343 | $278553 |
| Monthly payment | $880 | $867 | $975 | $1182.43 | $1378 | $1443 | $1330 |
| Affordable payment | $1,098 | $1,108 | $1,123 | $1,137 | $1,215 | $1,265 | $1354 |
| Affordability Index | 1.25 | 1.28 | 1.15 | 0.96 | 0.88 | 0.88 | 1.02 |
| 1st time buyer payment | $674 | $693 | $780 | $946 | $1102 | $1155 | $1064 |
| 1st time buyer affordable payment | $769 | $775 | $786 | $796 | $850 | $885 | $948 |
| 1st time buyer affordability index | 1.14 | 1.12 | 1.01 | 0.84 | 0.77 | 0.77 | 0.89 |
Here are the current statistics for Subject To Inspection (STI) and Active Listings (comparing the number in mid February to the number in mid January). You'll recall that STI represents a newly signed around contract prior to the buyer and seller agreeing on the home inspection. Below we show the number of STI contracts signed around in the first 2 weeks of the month. The number of STI contracts is the best gauge for telling us in near real time how many sales are occurring. Some of these sales will fall apart before they become pending sales.
| Area | STI 02/15 | STI 01/15 | Active Listings 02/15 | Active Listings 01/15 |
|---|---|---|---|---|
| S. Kitsap W. of HWY 3 | 7 | 4 | 160 | 148 |
| S. Kitsap E. of HWY 3 | 6 | 2 | 152 | 139 |
| Port Orchard | 8 | 7 | 173 | 168 |
| Retsil/Manchester | 3 | 3 | 130 | 120 |
| Seabeck/Holly | 3 | 4 | 96 | 96 |
| Chico | 0 | 4 | 31 | 34 |
| Silverdale | 6 | 4 | 111 | 101 |
| W. Bremerton | 9 | 4 | 218 | 228 |
| E. Bremerton | 9 | 4 | 94 | 99 |
| E. Central Kitsap | 6 | 5 | 149 | 140 |
| Hansville | 2 | 1 | 53 | 46 |
| Kingston | 1 | 0 | 78 | 74 |
| Port Gamble | 0 | 1 | 25 | 23 |
| Lofall | 4 | 1 | 33 | 34 |
| Finn Hill | 0 | 4 | 77 | 67 |
| Poulsbo | 5 | 3 | 139 | 128 |
| Suquamish | 1 | 1 | 43 | 40 |
| Indianola | 2 | 0 | 36 | 35 |
| Bainbridge | 4 | 5 | 218 | 185 |
| Totals | 76 | 57 | 2016 | 1905 |
STI deals in February increased by 33% compared to the first two weeks in January. The activity is down 39% compared with February 2007. The number of active listings in our residential inventory increased by 6%. The inventory fell in some areas and increased in others. The ratio of sales to number of active listings rose from 3.0% to 3.8%. About 80% of the sales were under $400,000 and 58% were under $300,000.
We have been doing this mid month review for more than a year now. Here are graphs of the cumulative data.
As we said above, interest rates rose as investors moved away from treasuries and mortgage backed securities. February’s APR is 6.48% on a 30-Year and 6.126% on a 15-Year, both Conforming. January’s rates were 5.846% on a 30-Year and 5.368% on a 15-Year, both Conforming. Interest rates have risen more than they fell last month. If you qualify for FHA or VA loans, these programs have become much more attractive for low downpayment buyers. Check with your lender to see if you qualify. To check the daily rate you can contact your lender or preview web sites such as this one - http://www.wellsfargo.com/mortgage/rates.
Statistics not compiled or published by NWMLS
