Wednesday, April 09, 2008
Kitsap Real Estate Market Report - March 2008
Most of the recent national news about the real estate market has concerned various competing plans in Congress to provide relief to homeowners and in some cases builders. This can be seen as good news. Both the stock market and news about the banking and credit markets have been calmed to some extent by the activities of the Federal Reserve in dealing with the Bear Stearns crisis. For example, the recent announcement of a $7 billion dollar cash infusion, layoff of 3000 workers, and a sharp cutback in stock dividend at Washington Mutual received a muted response in financial markets. While some economists continue to tell of gloom and doom, others are changing the tenor to indicate that the government now has some degree of control in guiding the problem to a successful resolution, though there is still considerable uncertainty about when a turn around might occur. Most economists now consider the US to be in a recession, though the government has not made a formal declaration. Unemployment has gone up for 3 consecutive months, and consumption is down. With our weak dollar the bright spot in our economy is exports, which should only continue to improve as the year goes on. Earnings reports for the first quarter will be coming out soon and should tell us more about how financial markets are holding up.
Congress already passed an economic stimulus package in mid February that provides many Americans with between a $300 to $1200 rebate (coming in May) and raises the FHA and conventional conforming loan limits (in our area to $475,000). There are current bills in both the House ($11 billion) and Senate ($15 billion). Both bills would allow a property tax deduction for homeowners who don’t itemize their deductions (some 28% of tax filers). According to a Wall St Journal article, the Senate allows $500 for individuals or $1000 for joint filers, but has some restrictions for areas where property taxes have been raised this year. The House bill will allow smaller amounts and not have the tax increase provision. The Senate version also includes a tax break for home builders, block grants for communities to buy and refurbish foreclosed properties, mortgage revenue bonds for refinancing and for first time home buyers, and a $7,000 tax credit for those who purchase a residence facing foreclosure. Behind these competing visions is a much larger bill ($400 billion) being proposed by Representative Barney Frank and Senator Christopher Dodd to allow homeowners with mortgages originated between 2005 and mid 2007 to agree with their lenders on a federal refinancing plan. The concept described in articles about the bill (the link above is to a discussion in the New York Times by economist Alan Blinder) is that FHA rules would be modified so that the original mortgages would be purchased at a discount (and the lender would have to write off the deficit) and in return an new fixed rate loan insured by the FHA would be issued for the current market rate. In effect both lenders and borrowers would be getting bailed out. The plan also requires borrowers to give up a portion of any future gains to the lender. Blinder’s article states that a missing piece of this legislation is how to shield mortgage servicers from lawsuits and appease the purchasers of current mortgage backed securities when the underlying loans are sold for less than their face value. Most recently, the Bush administration has proposed a draft plan to expand eligibility for FHA Secure, a program where high interest, adjustable rate loans could be written down to 90% or 97% of the present value by the lenders in exchange for providing the borrower with a new, FHA insured loan. This program would be funded by borrowers premiums from FHA loans but is less expansive than either of the taxpayer funded congressional proposals above.
Housing prices tend to be strongly persistent - sellers are reluctant to lower their prices. The rise (or bounce back) in this month’s Kitsap median closed sale price (see graph below) along with continuing decline in the number of sales is evidence of the continuing struggle by sellers to hold on to their price until a willing buyer can be found. Buyers know that values are falling and therefore seek extra value at a lower price to shield themselves from equity loss in the future. If you’ve been gaging the Kitsap market by how prices have changed, things may not look too bad - but you should not be misled. If we focus on inventory levels, we can predict that prices must continue to decline. Currently Kitsap County has an inventory turnover rate of about 11 months. In rough terms a neutral inventory is about 6 months supply of homes, so we argue that prices must fall to allow the inventory to be reduced. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-08 - note that inventory has risen significantly since the end of 2007.
Residential Highlights
Kitsap County residential inventory in March (2301 listings) was up 4% from February and 33% higher than a year ago. The number of year to date pending sales was down 33% compared to a year ago. Pending sales were off significantly from a year ago except in Poulsbo, where pending sales were up 7% last month compared to year ago. Poulsbo was plus 32% last month - the drop this month reflects the starting surge of presales at the Quadrant Homes Stendal Ridge development about a year ago. 43 of 48 current pending sales in Poulsbo are new construction homes. The number of YTD closed sales Countywide (see graph below) is minus 26% compared to a year ago.
Prices are falling…
The median price has been falling, but March’s YTD median price ($269,888) rose 1.8% compared to the median closed sale price in February. Median price for closed sales only in March rose 10% percent from the closed sale price in February (see graph below). The monthly closed sales price had fallen 10% last month from January. The YTD median price has fallen 5.3% from a year ago (last month it was minus 6%). 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 nearly level at $349,900. Median list price was steady at about $350,000 for most of last year. It’s interesting that this number has held steady even when the median closed sale price has declined - further evidence that many sellers are holding out for a buyer at their price. The inventory turnover (total homes on the market divided by number sold last month) is 11 months, down from 12 months in February. Nationally this number was 9.6 months in February. A year ago this number was 5.2 months. Today a seller has a 9% 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. Here is a snapshot:
Bainbridge Island -54% (-60% last month)
Poulsbo +7% (+26% last month) - 43 of 48 pending are new construction. The surge in new construction sales started about a year ago.
Bremerton -32% (-36% last month)
Kingston -53% (-38% last month)
Silverdale -37% (-32% last month)
Port Orchard -39% (-36% last month)
Olalla -16% (-30% last month)
Statistics not compiled or published by NWMLS
