Saturday, September 27, 2008
Mid September 2008 Kitsap Real Estate Outlook
Mid September was only 12 days ago, but it seems an eternity with all the upheaval in the financial world that has since taken place. The current stage of the crisis centers around provisions for the so called $700 billion bail out of the banking industry. The problem itself with our financial system is difficult to understand - here is one explanation from University of Chicago economist Robert Shimer:
As everyone now knows, financial institutions hold significant assets that are backed by mortgage payments. Two years ago, many of those mortgage-backed securities (MBS) were rated AAA, very likely to yield a steady stream of payments with minimal risk of default. This made the assets liquid. If a financial institution needed cash, it could quickly sell these securities at a fair market price, the present value of the stream of payments. A buyer did not have to worry about the exact composition of the assets it purchased, because the stream of payments was safe.
When house prices started to decline, this had a bigger impact on some MBS than others, depending on the exact composition of mortgages that backed the security. Although MBS are complex financial instruments, their owners had a strong incentive to estimate how much those securities are worth. This is the crux of the problem. Now anyone who considers purchasing a MBS fears Akerlof’s classic lemons problem. A buyer hopes that the seller is selling the security because it needs cash, but the buyer worries that the seller may simply be trying to unload its worst-performing assets. This asymmetric information this makes the market illiquid. To buy a MBS in the current environment, you first need an independent assessment of the value of the security, which is time-consuming and costly. Put differently, the market price of MBS reflects buyers’ belief that most securities that are offered for sale are low quality. This low price has been called the fire-sale price. The true value of the average MBS may in fact be much higher. This is the hold-to-maturity price.
The adverse selection problem then aggregates from individual securities to financial service institutions. Because of losses on their real estate investments, these firms are undercapitalized, some more so than others. Investors rightly fear that any firm that would like to issue new equity or debt is currently overvalued. Thus firms that attempt to recapitalize push down their market price. Likewise banks fear that any bank that wants to borrow from them is on the verge of bankruptcy and they refuse to lend. This is the same lemons problem, just at a larger scale. No firm that is tainted by mortgage holdings, even those that are fundamentally sound, can raise new capital.
The basic plan proposed by Treasury Secretary Paulson allows the Treasury a maximum spending authority of $700 billion for 2 years to purchase mortgage backed securities from US financial institutions and sets out very generally the Treasury’s authority to manage and sell these assets. In practice, Secretary Paulson and Federal Reserve Chairman Benanke have described (as an example) a reverse auction process, where the Treasury would offer to purchase some amount of a certain type of security, and different holders of that security would compete by lowering price until a sale is made. That price would be a better estimate of the hold to maturity price rather than the fire sale price the financial institution would receive from other banks in today’s market.
The good of this plan is that it quickly provides institutions with liquid assets so they can function again. The concern at Treasury is that this must happen quickly or a severe financial unwinding will occur with great damage and recession. Seizure of Washington Mutual and new worries about the health of Wachovia Bank are the tip of the iceberg. Several concerns have been raised about the proposal. First, the government might overpay for the securities, benefiting the financial institution and its stockholders at cost to the taxpayer. Second, there could be conflicts of interest and corruption in deciding what to buy and who to save. Experts have suggested that the government might instead coerce financial institutions to raise new capital, thus removing the appearance of having a weak balance sheet since both weak and strong must comply. Other parties argue that this action alone will take too long to help. Some parties want the government to receive a preferred investment in the institutions that benefit. Other parties argue that this will distort the “hold to maturity price”.
Congress is now engaged - the proposal is growing thicker by the day. We expect them to reach an agreement soon, despite all the rhetoric. No doubt there will be some political ideas injected that don’t really pertain. For instance, Saturday’s Wall St Journal reports that the bill may contain provisions to divert a portion of any profits to low income housing assistance programs, rather than using them to pay back all this debt we are racking up.
We think that home prices will continue to fall until affordability is again in line with income. In Kitsap County, home prices have not fallen that far. The trade off for this benefit is that homes have become much more difficult to sell. The graphs below highlight how the number of sales and chance of making a sale have fallen over the past several years. The 2008 estimate shows YTD sales vs listings. Think of it as telling you that 75% of the homes coming on the market will not sell.
We can look at affordability as a means of seeing how close our market is to returning to its pre bubble conditions. 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. Affordability improved at the end of last year when median sales prices fell significantly. 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 2002 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. Our numbers for 2008 are estimates using the latest monthly data for median prices and interest rates, and an estimated median family income for 2008. Since the Fannie and Freddie bail out, interest rates have dropped. The affordability index improved to 1.05 in August from 1.02 last month. First time buyer affordability also improved to .92 from .89 in June. There is a second graph showing month-to-month affordability progress this year. It's up and down, sort of like the tug-of-war between buyers and sellers, and now reflecting loss of affordability because long term interest rates are rising due to fears about inflation. The past several months have been relatively flat.
| Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|---|---|---|
| Annual Average interest rate | 6.54 | 5.83 | 5.84 | 5.87 | 6.41 | 6.34 | 5.99 |
| Median Income | $52,701 | $53,160 | $53,923 | $54,582 | $58,304 | $60,719 | $65,000 |
| Median Price | $165900 | $184000 | $206900 | $250000 | $275000 | $290343 | $270000 |
| Monthly payment | $880 | $867 | $975 | $1182.43 | $1378 | $1443 | $1294 |
| Affordable payment | $1,098 | $1,108 | $1,123 | $1,137 | $1,215 | $1,265 | $1,354 |
| Affordability Index | 1.25 | 1.28 | 1.15 | 0.96 | 0.88 | 0.88 | 1.05 |
| 1st time buyer payment | $674 | $693 | $780 | $946 | $1102 | $1155 | $1034 |
| 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 | .917 |
Here are the current statistics for Pending - Inspection and Active Listings (comparing the number in mid September to the number in mid August). You'll recall that Pending Inspection status represents a newly signed around contract prior to the buyer and seller agreeing on the home inspection. Below we show the number of Pending Inspection contracts signed around in the first 2 weeks of the month. The number of Pending Inspection contracts is the best gauge for telling us in near real time how many sales are occurring. Some of these sales will fall apart as a result of the home inspection results.
| Area | Pending Inspection 09/15 | Pending Inspection 08/15 | Active Listings 09/15 | Active Listings 08/15 |
|---|---|---|---|---|
| S. Kitsap W. of HWY 3 | 4 | 6 | 230 | 241 |
| S. Kitsap E. of HWY 3 | 8 | 4 | 187 | 192 |
| Port Orchard | 14 | 7 | 149 | 167 |
| Retsil/Manchester | 2 | 3 | 159 | 170 |
| Seabeck/Holly | 6 | 5 | 118 | 121 |
| Chico | 1 | 2 | 36 | 41 |
| Silverdale | 5 | 4 | 135 | 149 |
| W. Bremerton | 9 | 5 | 255 | 271 |
| E. Bremerton | 7 | 7 | 133 | 140 |
| E. Central Kitsap | 6 | 7 | 184 | 172 |
| Hansville | 1 | 1 | 60 | 60 |
| Kingston | 5 | 1 | 99 | 105 |
| Port Gamble | 0 | 0 | 21 | 20 |
| Lofall | 2 | 4 | 44 | 47 |
| Finn Hill | 6 | 2 | 98 | 109 |
| Poulsbo | 6 | 4 | 173 | 179 |
| Suquamish | 3 | 3 | 37 | 36 |
| Indianola | 1 | 1 | 38 | 40 |
| Bainbridge | 6 | 8 | 275 | 296 |
| Totals | 92 | 74 | 2431 | 2556 |
With the current financial market turmoil it’s hard to say how the 2nd half of the month will turn out, but the market definitely was improving in the first half. The number of STI deals in September was up 24% from the first two weeks in August. The activity is 31% higher than it was in September 2007. The number of active listings (2431) in our residential inventory dropped about 5% from August and mirrors the seasonal decline we saw last year. The ratio of sales to number of active listings improved from 2.9% to 3.8%. About 84% of the sales were under $400,000 (up from 81% as last month) and 70% were under $300,000 (up from 68% last month).
Here is a graph of the mid month Pending Inspection data for the past year:
September's APR is 6.353% on a 30-Year and 6.252% on a 15-Year, both Conforming. August's rates were 6.606% on a 30-Year and 6.252% on a 15-Year, both Conforming. As you can see, 30 year interest rates have fallen since last month. We are seeing Jumbo loans vary as much as 3% between different lenders - shows there are some big banks that don’t want to make this loan. If you qualify for FHA or VA loans, these programs have become much more attractive for low downpayment buyers. Limits for FHA and conventional conforming loans have risen recently to $475,000. 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://bankrate.com/.
Tuesday, September 23, 2008
Kitsap Real Estate Local Markets in August 2008
In light of the recent bankruptcy of Lehman Brothers, acquisition of Merrill Lynch, and seizure of Fannie Mae and Freddie Mac, reorganization of Morgan Stanley and Goldman Sachs, and proposed $700 billion Federal bail out, you might want to review the work of NYU Economist Noriel Roubini, who has maintained a steadfastly grim outlook on the near term economic prospects for the US real estate and financial markets. A number of his predictions have now come to pass. While it may be very discouraging for the reader to buy completely into Roubini’s world view, the article presents the scope and magnitude of the problems in a way that will allow a home seller to see that a quick return to an up market is unlikely.
There have been many articles with unexplained attributions for recent government policy actions, but few that explain underlying causes to the general reader. One of these few was a guest post on Steven Levitt’s blog “Freakonomics”. Economists Doug Diamond and Anil Kashyap provide answers to frequently asked questions about the recent downfall of Lehman Brothers and AIG, with background on the failure of Fannie Mae and Freddie Mac. To quote their very concise explanation of the seizing of Fannie and Freddie:
The Fannie and Freddie situation was a result of their unique roles in the economy. They had been set up to support the housing market. They helped guarantee mortgages (provided they met certain standards), and were able to fund these guarantees by issuing their own debt, which was in turn tacitly backed by the government. The government guarantees allowed Fannie and Freddie to take on far more debt than a normal company. In principle, they were also supposed to use the government guarantee to reduce the mortgage cost to the homeowners, but the Fed and others have argued that this hardly occurred. Instead, they appear to have used the funding advantage to rack up huge profits and squeeze the private sector out of the “conforming” mortgage market. Regardless, many firms and foreign governments considered the debt of Fannie and Freddie as a substitute for U.S. Treasury securities and snapped it up eagerly.
Fannie and Freddie were weakly supervised and strayed from the core mission. They began using their subsidized financing to buy mortgage-backed securities which were backed by pools of mortgages that did not meet their usual standards. Over the last year, it became clear that their thin capital was not enough to cover the losses on these subprime mortgages. The massive amount of diffusely held debt would have caused collapses everywhere if it was defaulted upon; so the Treasury announced that it would explicitly guarantee the debt.
But once the debt was guaranteed to be secure (and the government would wipe out shareholders if it carried through with the guarantee), no self-interested investor was willing to supply more equity to help buffer the losses. Hence, the Treasury ended up taking them over.
Here is their explanation for the fall of Lehman Brothers, which in a sense also forced the hands of Morgan Stanley and Goldman Sachs:
Lehman’s demise came when it could not even keep borrowing. Lehman was rolling over at least $100 billion a month to finance its investments in real estate, bonds, stocks, and financial assets. When it is hard for lenders to monitor their investments and borrowers can rapidly change the risk on their balance sheets, lenders opt for short-term lending. Compared to legal or other channels, their threat to refuse to roll over funding is the most effective option to keep the borrower in line.
This was especially relevant for Lehman, because as an investment bank, it could transform its risk characteristics very easily by using derivatives and by churning its trading portfolio. So for Lehman (and all investment banks), the short-term financing is not an accident; it is inevitable.
Why did the financing dry up? For months, short-sellers were convinced that Lehman’s real-estate losses were bigger than it had acknowledged. As more bad news about the real estate market emerged, including the losses at Freddie Mac and Fannie Mae, this view spread.
Lehman’s costs of borrowing rose and its share price fell. With an impending downgrade to its credit rating looming, legal restrictions were going to prevent certain firms from continuing to lend to Lehman. Other counterparties that might have been able to lend, even if Lehman’s credit rating was impaired, simply decided that the chance of default in the near future was too high, partly because they feared that future credit conditions would get even tighter and force Lehman and others to default at that time.
While the government allowed Lehman Brothers to fail, here is an explanation for why they could not let AIG fail:
A.I.G. had to raise money because it had written $57 billion of insurance contracts whose payouts depended on the losses incurred on subprime real-estate related investments. While its core insurance businesses and other subsidiaries (such as its large aircraft-leasing operation) were doing fine, these contracts, called credit default swaps (C.D.S.’s), were hemorrhaging.
Furthermore, the possibility of further losses loomed if the housing market continued to deteriorate. The credit-rating agencies looking at the potential losses downgraded A.I.G.’s debt on Monday. With its lower credit ratings, A.I.G.’s insurance contracts required A.I.G. to demonstrate that it had collateral to service the contracts; estimates suggested that it needed roughly $15 billion in immediate collateral.
A second problem A.I.G. faced is that if it failed to post the collateral, it would be considered to have defaulted on the C.D.S.’s. Were A.I.G. to default on C.D.S.’s, some other A.I.G. contracts (tied to losses on other financial securities) contain clauses saying that its other contractual partners could insist on prepayment of their claims. These cross-default clauses are present so that resources from one part of the business do not get diverted to plug a hole in another part. A.I.G. had another $380 billion of these other insurance contracts outstanding. No private investors were willing to step into this situation and loan A.I.G. the money it needed to post the collateral.
In the scramble to make good on the C.D.S.’s, A.I.G.’s ability to service its own debt would come into question. A.I.G. had $160 billion in bonds that were held all over the world: nowhere near as widely as the Fannie and Freddie bonds, but still dispersed widely.
In addition, other large financial firms — including Pacific Investment Management Company (Pimco), the largest bond-investment fund in the world — had guaranteed A.I.G.’s bonds by writing C.D.S. contracts.
Given the huge size of the contracts and the number of parties intertwined, the Federal Reserve decided that a default by A.I.G. would wreak havoc on the financial system and cause contagious failures. There was an immediate need to get A.I.G. the collateral to honor its contracts, so the Fed loaned A.I.G. $85 billion.
Read the article - there’s more.
For all of these problems, the political tendency has been to blame over reliance on markets for the excesses and failures and call for more regulation - the Federal government is taking over everything it seems. Yet in many cases our own regulations created the comparative advantages that were exploited to create problems (such as abuse of government sanctioned borrowing advantages by Fannie and Freddie noted above). The very popular 1990’s change to the tax treatment of capital gains realized from the sale of personal residences created a significant comparative advantage for certain investments in real estate versus other forms of investment. We are not yet aware of any analysis of the unintended consequences of this tax law (but here is another reference to the consequences of the 1997 Taxpayer Relief Act.). NY Times commentator David Brooks recently challenged the calls for more regulation. The Wall St Journal recently outlined some of the ways that Congress and government regulators are implicated in our current situation.
Meanwhile homes continue to be bought and sold in Kitsap County. Each month we publish a snapshot of several local markets to show a range of variations in our larger Kitsap County real estate market. August’s inventory of homes for sale fell by 2.3% from July. Inventory peaked and then began to decline about the same time last year. Median year to date closed sale prices were about the same in August compared to July and were down 8.5% percent compared to a year ago. The Poulsbo market got much better (67% more sales) and the Silverdale market much worse (56% fewer sales) in August compared to July. Below are graphs of the month-to-month market fluctuations of total listings, number of closed sales, and median sales price for each areas. The descriptive comments for each area below cite the more consistent year-to-date numbers. These regional statistics are updated each month on our website at http://www.bprowse.com.
Total listings on the market by month for various Kitsap communities
Number of Closed Sales each month for various Kitsap communities
Variations in Median Price Month by Month for Closed Sales in various Kitsap communities
Bainbridge Island Real Estate
Residential homes on Bainbridge Island were selling for a YTD median price of about $608,500 at the end of August, a drop of 10.5% from a year ago. The median price for closed sales occurring in August ($578,500) was down about 18% from a year ago. Kitsap County YTD median price has fallen 8.5% over the past year. The YTD number of Bainbridge closed sales is down 50% from a year ago, and the YTD number of pending sales is down 44%. These numbers have improved slightly as the median price has fallen. The number of closed sales is down 27% Countywide from a year ago. The number of active listings on Bainbridge (300) is up 20% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 11.6 months, an improvement from the greater than 15 month turnover rates the past two months. Bainbridge Island is a strong buyers market.
Bremerton Real Estate
Statistics we refer to are for that part of Bremerton encompassing the downtown core and west to Kitsap Lake. The market for other parts of Bremerton and its suburbs should have approximately similar trends. Homes in Bremerton were selling for a YTD median price of about $185,000 at the end of August, about 14% lower than a year ago. The August median price for closed sales ($183,000) was 4.9% lower than the median for last month. Kitsap County YTD median price has fallen 8.5% over the past year. The Bremerton YTD number of closed sales is down 30% from a year ago (compared to a Countywide drop of 27%), and the YTD number of pending sales is down 27% from last year. The number of active listings (259) is only up 4% from a year ago, but has been fairly constant for the past 6 months. The inventory turnover (total homes on the market divided by number sold last month) is 13.6 months. The market has slowed after being in the 10 to 11 month turnover range for the past couple months. The Bremerton market is a buyers market.
North Kitsap Real Estate
Using the example of Kingston - the largest housing market in North Kitsap - homes were selling for a YTD median price of about $362,500 at the end of August, up about 4% from a year ago and up about 4% from last month. Kingston prices fluctuate more than some of the other markets because of the lower listing and sales volume. Kitsap County YTD median price has fallen 8.5% over the past year. The YTD number of closed sales is down 33% from a year ago, and the YTD number of pending sales is down 35%. The number of closed sales is down 27% Countywide from a year ago. The number of active listings in Kingston (103) is down 4% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 14.7 months, a significant slow down since last month. Kingston is a buyer’s market.
Poulsbo Real Estate
Statistics we refer to are for that part of Poulsbo encompassing the downtown core, from the head of Liberty Bay southeast to Ne-Si-Ka Bay, including parts north to Sawdust Hill Rd. The market for other parts of Poulsbo and its suburbs should have approximately similar trends. Homes in Poulsbo were selling for a YTD median sale price of about $336,718 at the end of August, down about 5.3% from a year ago and down 2% from last month. Poulsbo’s August median sale price was $315,000, down 10% from 2007. Kitsap County YTD median price has fallen 8.5% over the past year. The number of Poulsbo closed sales YTD is the same as a year ago, and the number of YTD pending sales is down by 32%. The large difference in pending versus closed sales reflects the backlog of new construction pending sales that are now closing. There was a drop of 27% in YTD closed sales compared to a year ago for Kitsap County as a whole. That portion of currently pending sales coming from new construction presales is 20 of 32. The pace of new construction sales has fallen along with the rest of the market. The Poulsbo listing inventory (171) has risen by 19.6% compared to a year ago and is up 3.6% since last month. The inventory turnover (total homes on the market divided by number sold last month) is 5 months - much better than elsewhere in the County and a big drop from 11 months in July. While we would not assume that this pace of sales in Poulsbo will continue, given the much lower pace elsewhere. The large changes in Poulsbo (better) and Silverdale (worse) from last month shows that there are currently large month-to-month fluctuations in our market.
Silverdale Real Estate
Homes in Silverdale were selling for a YTD median price of about $300,000 at the end of August, down 4.7 percent from a year ago. The August median closed sale of $275,900 was about 21% less than the August median a year ago. Kitsap County YTD median price has fallen 8.5% over the past year. The number of Silverdale YTD closed sales was down 39% from a year ago, compared to a drop in closed sales of 27% for the County as a whole. The number of pending sales YTD is down 39% from a year ago. The number of active listings in Silverdale (134) is 11% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 19 months, about double the value of last month. The Silverdale market has slowed down considerably. The large changes in Poulsbo (better) and Silverdale (worse) from last month shows that there are currently large month-to-month fluctuations in our market.
Thursday, September 11, 2008
Kitsap Real Estate Market Report - August 2008
The Seattle PI lamented August’s 14.5% year-over-year drop in median residential sales price in Seattle. The Kitsap Sun reported a small positive bump in our local Kitsap market in August, with a 4% price rise compared to the previous month (although they report that August median prices are still 4% less than a year ago). The Sun’s report is so misleading that it deserves comment. Our numbers for closed August residential sales in Kitsap (232 - same as last month and down 23% from last year) and August median sales price ($280,000, up 4.8% from $267,250 in July but down 6.5% from $299,500 in 2007) indicate that while median price went up, the number of sales did not change and remained at a level well below the previous year. The price distribution of sales changed, with fewer sales in the lower priced areas and more in the higher priced areas. There were 7 more sales above $500,000 in August (and 7 more sales on high priced Bainbridge Island), so the median (middle) price for the County shifted a little to the right from July. However, the median sales price on Bainbridge Island has fallen significantly over the past several months. See the graph below - the median price on Bainbridge Island is down 18% from a year ago. Sounds a little like the Seattle PI doesn’t it? The higher priced neighborhoods have been slower to reduce price than the lower priced areas, but now are reducing more and getting some additional sales as a result. We have commented in the past that the price trends (not necessarily magnitude) in Seattle and Kitsap move together in the long run, though month-to-month variations may be out of sync.
In a historic move, the US Treasury seized control of Fannie Mae and Freddie Mac, making available $200 billion in capital and new credit lines, as well as plans to turn over operations to the conservatorship of the Federal Housing Finance Agency. This move caused 30 year fixed rate to drop almost half a percent. Bankrate.com reports 30 year fixed rates are now about 5.79%. The New York Times reported that investigators had found that Freddie Mac had overstated its capital cushion. Once Treasury contemplated seizing control of Freddie, the move to seize Fannie followed. With home prices continuing to fall, large numbers of foreclosures continue to be expected. Even though the default rate for loans held by Fannie and Freddie is low compared to subprime default rates, the losses are expected to be large enough to threaten Fannie and Freddie’s cash reserves. These agencies hold more than $5 Trillion in debt and mortgage backed securities. The Congressional Budget Office has announced its intention to include these assets and liabilities on the US balance sheet and to incorporate them into the budget. The estimated cost to taxpayers of this bailout has been estimated in tens of billions of dollars.
There are other shoes about to drop - big bank failures. The Lehman Brothers investment bank has been in the headlines with radical restructuring to forestall collapse. Washington Mutual has recently fired their CEO and appears to be in trouble. Behind them are smaller banks trying to work out a solution for survival. Locally we know that builders are being pressured by banks to lower prices and move their unsold inventory. The story is the same all over the country.
Housing prices tend to be strongly persistent. Sellers are reluctant to lower their prices and tend to hold on to the price they want 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. A recent post on the blog Calculated Risk shows in three different ways (analysis of Case Shiller corrected for inflation, price vs equivalent rent, and price vs income) why prices must continue to fall before the market can recover. Each month we feature a post about housing affordability that shows the relationship between median household income, median home prices, and current mortgage interest rates in a scenario for a typical buyer and a typical first time buyer. Our calculation (updated for the lower interest rates) shows that Kitsap price levels are about where they were in mid 2004. By this standard, the median price would need to fall to about $235,000 at current interest rates before affordability would be back to the level of 2002. While it’s not likely that this will happen soon, the more likely scenario is for prices to fall gradually for a long period while incomes rise to restore more favorable conditions. In the interim, the number of sales will remain weak. Currently Kitsap County has an inventory turnover rate of about 10.6 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. Falling home prices will improve affordability (bring home prices back within balance with current incomes). Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-08.
Residential Highlights
Kitsap County residential inventory in August (2470 listings) fell 2.2% from July. Inventory is less than 1% lower than a year ago. The number of year to date pending sales was down 27% compared to a year ago. 20 of 32 current pending sales in Poulsbo are new construction homes, but the pace of new construction sales has fallen off. The number of YTD closed sales Countywide (see graph below) is minus 27% compared to a year ago.
Prices are falling…
The median price has been falling, but August’s YTD median price ($270,000) is up less than a percent from the median in July (see graph below). The YTD median price has fallen 8.5% 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 nearly level at $350,000. 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 10.7 months, somewhat better than 11 months in July. A year ago this number was 8.3 months (not a good market back then). 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 -44% (-56% last month)
Poulsbo -32% (-36% last month) - 20 of 32 pending are new construction. The surge in new construction sales started about a year ago.
Bremerton -27% (-29% last month)
Kingston -35% (-56% last month)
Silverdale -39% (-38% last month)
Port Orchard -34% (-38% last month)
Olalla -26% (-25% last month)
Statistics not compiled or published by NWMLS
