Thursday, November 20, 2008
Mid November 2008 Kitsap Real Estate Outlook
Several readers have encouraged us to be more upbeat in reporting about the Kitsap housing market. We certainly find the Noriel Roubini approach (US Recession to be worst in 50 years) to be almost gleefully depressing. On the other hand, today Citigroup sells for under $5 per share, the S&P 500 is at its 1997 level, manufacturing is at its lowest level since 1990, unemployment is at its highest level since 1982, and treasury yields are at a record low, with the 2 year T - bill falling below 1% for the first time. There are good reasons for most of the trading that is causing these steep negative trends. All sorts of leveraged financial positions are being unwound all over the globe as banks and funds are forced to sell to take tax losses, redeem mutual funds, distribute capital gains, respond to margin calls, cash out hedge fund investors, unwind carry trades, and a host of other reasons. This huge amount of leveraged debt has been compared to a large amount of cotton candy spun from a very small amount of sugar. Andy Kessler in the Wall St Journal advised investors to “Ignore the Stock Market Until February,” because the short term and year end issues are clouding the picture. What becomes clear in studying the various opinions is that no one has a handle on how things will turn out, people are doing the best they can, and it will be awhile before things start to get better.
Compared with the national economic and financial news, the real estate market in Kitsap County is positively sleepy. Home prices are falling - the median price is down 9.5% from a year ago and the number of closed sales is down 24%. Compare this with the San Francisco Bay area, where sales are at their best in 17 months after the median price has fallen over 40%. The trade off for our sales price remaining higher is that homes are more difficult to sell. The good news (in a sense) is that our affordability is improving, and prices are likely to fall further, helping to clear the excess inventory. 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 70% 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 markedly to 1.11 in October from 1.01 last month. First time buyer affordability dropped to .970 from .89 last month. There is a second graph showing month-to-month affordability progress this year. Last month was the first month in since last spring that we’ve seen a significant improvement in affordability. Based on the pending sales from October, we expect that this trend will continue.
| Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|---|---|---|
| Annual Average interest rate | 6.54 | 5.83 | 5.84 | 5.87 | 6.41 | 6.34 | 6.10 |
| Median Income | $52,701 | $53,160 | $53,923 | $54,582 | $58,304 | $60,719 | $65,000 |
| Median Price | $165900 | $184000 | $206900 | $250000 | $275000 | $290343 | $252000 |
| Monthly payment | $880 | $867 | $975 | $1182.43 | $1378 | $1443 | $1222 |
| 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 | 1.11 |
| 1st time buyer payment | $674 | $693 | $780 | $946 | $1102 | $1155 | $977 |
| 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 | .970 |
Here are the current statistics for Pending - Inspection and Active Listings (comparing the number in mid November to the number in mid October). 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 11/15 | Pending Inspection 10/15 | Active Listings 11/15 | Active Listings 10/15 |
|---|---|---|---|---|
| S. Kitsap W. of HWY 3 | 7 | 6 | 201 | 213 |
| S. Kitsap E. of HWY 3 | 4 | 0 | 181 | 184 |
| Port Orchard | 2 | 8 | 128 | 129 |
| Retsil/Manchester | 2 | 1 | 131 | 144 |
| Seabeck/Holly | 1 | 3 | 104 | 109 |
| Chico | 0 | 0 | 32 | 33 |
| Silverdale | 1 | 5 | 116 | 121 |
| W. Bremerton | 9 | 4 | 218 | 246 |
| E. Bremerton | 2 | 2 | 137 | 134 |
| E. Central Kitsap | 4 | 6 | 179 | 183 |
| Hansville | 0 | 2 | 51 | 56 |
| Kingston | 1 | 1 | 94 | 94 |
| Port Gamble | 0 | 0 | 17 | 22 |
| Lofall | 0 | 2 | 40 | 38 |
| Finn Hill | 0 | 3 | 82 | 90 |
| Poulsbo | 1 | 3 | 153 | 155 |
| Suquamish | 1 | 0 | 42 | 38 |
| Indianola | 2 | 0 | 40 | 37 |
| Bainbridge | 6 | 3 | 229 | 260 |
| Totals | 43 | 49 | 2178 | 2286 |
After a drop of nearly 50% last months from the level in September, the number of Pending Inspection deals in November fell by 12% from the first two weeks in October. The activity is 40% lower than it was in November 2007. The number of active listings (2178) in our residential inventory dropped about 5% from October and mirrors the seasonal decline we saw last year. The ratio of sales to number of active listings fell from 2.1% to 2.0%. About 77% of the sales were under $400,000 (down from 86% as last month) and 65% were under $300,000 (down from 76% last month).
Here is a graph of the mid month Pending Inspection data for the past year:
November's APR is 6.226% on a 30-Year and 6.126% on a 15-Year, both Conforming. October's rates were 6.48% on a 30-Year and 6.378% on a 15-Year, both Conforming. As you can see, 30 year interest rates have dropped since last month. 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/.
Sunday, November 16, 2008
Kitsap Local Real Estate Markets in October 2008
If you’ve wanted an accessible, non-technical (well, less technical) source of economic information about the current world wide economic and financial situation (including a discussion of US mortgage and real estate issues), try http://www.baselinescenario.com. Started about a month ago by former IMF Director of Research and current MIT Sloan School of Management Professor Simon Johnson, the site includes a blog on current events, an updated baseline analysis, and a financial crisis for beginners section - what more could you ask for? There are several contributors. The site does have a definite political point of view, but for a primer on current economics it is a welcome addition.
Each month we publish a snapshot of several local markets to show variations in our larger Kitsap County real estate market. October’s inventory of homes for sale fell by 7% from September and is in seasonal decline. Based on the slow inventory turnover rates, listing inventory is still well above normal. Median year-to-date closed sale prices were down about 1% in October compared to September and were down 9.5% percent compared to a year ago. The median price for October sales was down 11% from a year ago. The number of ending sales in October was down 20% from a year ago and 28% from September. There was a pronounced slow down in our market following the merger of Merrill Lynch, rescue of AIG, and failure of Lehman Brothers. This is evident in the pending sales but not yet in the closed sales, which reflect a previous rise in pending sales from September. 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 October, a drop of 10.5% from a year ago. The median price for closed sales occurring in October ($620,000) was down about 18.6% from a year ago. Kitsap County YTD median price has fallen 9.5% over the past year. The YTD number of Bainbridge closed sales is down 48% from a year ago, and the YTD number of pending sales is down 38%. These numbers have improved slightly as the in the past couple months. The number of closed sales is down 24% Countywide from a year ago. The number of active listings on Bainbridge (241) is down 2% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 24.1 months, a slowdown from the 14.8 month turnover rate of last month. 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 similar trends. Homes in Bremerton were selling for a YTD median price of about $186,500 at the end of October, about 14% lower than a year ago. The October median price for closed sales ($209,000) was 7% higher than the median for last month but still 9% lower than a year ago. Kitsap County YTD median price has fallen 9.5% over the past year. The Bremerton YTD number of closed sales is down 30% from a year ago (compared to a Countywide drop of 24%). The YTD number of pending sales is down 23% from last year, and October sales fell by 35% after rising sharply last month. The number of active listings (207) has fallen 9% from last month and 21% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 7.9 months, which reflects the greater percentage of lower priced homes that are selling. The Bremerton market is still 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 $372,500 at the end of October, up about 2% from a year ago and the same as 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 9.5% over the past year. The YTD number of closed sales is down 26% from a year ago, and the YTD number of pending sales is down 32%. The number of closed sales is down 24% Countywide from a year ago. The number of active listings in Kingston (94) is down 2% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 24 months. 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 $332,663 at the end of October, down about 6.3% from a year ago and about the same as last month. Poulsbo’s October median sale price was $330,000, about 2.9% lower than in October 2007. Kitsap County YTD median price has fallen 9.5% over the past year. The number of Poulsbo closed sales YTD is almost the same as a year ago, and the number of YTD pending sales is down by 24%. The large difference in pending versus closed sales reflects the closing of many new construction sales that had been shown as pending for many months prior. YTD closed sales for Kitsap County have dropped 24% compared to last year. That portion of currently pending sales coming from new construction presales is 18 of 24. The Poulsbo listing inventory (144) is 2.9% higher than a year ago but has fallen 6% since last month. The inventory turnover (total homes on the market divided by number sold last month) is 7.2 months, much better than some of the other areas, but also skewed by the closings of a batch of new construction homes that were sold months ago.
Silverdale Real Estate
Homes in Silverdale were selling for a YTD median price of about $290,000 at the end of October, down 9 percent from a year ago. The October median closed sale of $265,000 was about 14% less than the October median a year ago. Kitsap County YTD median price has fallen 9.5% over the past year. The number of Silverdale YTD closed sales was down 36% from a year ago, compared to a drop in closed sales of 24% for the County as a whole. The number of pending sales YTD is down 36% from a year ago. The number of active listings in Silverdale (117) is 12% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 6.9 months, which is considerably better than many other areas and reflects the higher volume of sales in the lower price ranges.
Monday, November 10, 2008
Kitsap Real Estate Market Report - October 2008
We devote a portion of this report to the state of the economy and housing market as government gets ready to change hands. While there is a great deal of uncertainty, gloom, and doom in the news, Pacific Northwest Regional Economist Bill Conerly said that he sees the credit crunch ending by the end of 2008 (profitable businesses and qualified consumers will be able to borrow money again), consumers beginning to spend again by spring, and the housing/new construction markets remaining depressed for another year or so while we work off the excess inventory. Consumer confidence is a fundamental part of restoring the health of the economy. Hopefully this information will provide some reassurance that current policies, mostly monetary, are facilitating changes in the economy that we’ll soon enough be able to see and believe in. Here is a snapshot of our current situation:
Except for automobiles and housing, corporate balance sheets are still relatively healthy. Unemployment is rising. Most economists agree that we are in a recession, and that we can expect low growth in the economy in 2009. Credit markets remain tight, with most of the key liquidity indicators improving but still hovering above normal. Lending standards have been tightened not only for home mortgages but also for commercial lending. Companies with unhealthy balance sheets will suffer from a lack of liquidity much more than healthy ones. Since about half of business investment is financed by credit, this is a key area in limiting our growth. Start up funding is much more difficult to obtain, and municipal bond issues have abnormally high interest rates. This is a factor in the discussion in Poulsbo to delay construction of the new city hall. There is a widespread belief that increased regulation is needed in capital markets to prevent today’s troubles from recurring. There is also a danger that new regulations might create an overly conservative system that fails to provide the capital and allow the risks that are necessary for future economic growth.
The unsold national inventory of new construction homes is about 400,000, and the residential resale inventory is about 4.2 million homes. Both these inventory numbers now appear to be declining as we work through excess inventory. Residential resale activity rose 1.4% nationally in August as a result of falling prices, particularly in distressed sales in the most hard hit areas. The Case Shiller home price index has reported 20 consecutive months of declines, with record year over year declines in each of the past 11 months. The year over year decline in August was 17.7%.
In a recent survey on Zillow.com, 49% of homeowners thought that their homes were worth the same or more than the previous year. Zillow reported that 75% of the homes had actually fallen in value. This is an important aspect of consumer sentiment that somehow has escaped the pessimism in consumption and investment.
So we turn our discussion to the housing market. King County median sale price fell below $400,000 for the first time in 2.5 years, and sales plunged as well. In Kitsap County, pending sales, which had been up in September, fell 20% from a year ago. The number of closed sales fell by 5% - which reflects last month’s increase in pending sales.
Currently Kitsap County has an inventory turnover rate of about 9.1 months, an improvement over last month’s 10.6 months. A good part of this may be the result of people pulling their properties off the market until next spring, but the trend over time indicates that we are reducing inventory in Kitsap. In rough terms a neutral inventory is about 6 months supply of homes, so prices must continue to fall to allow the inventory to be reduced. Falling home prices will improve affordability (bring home prices back within balance with current incomes). One aspect of inventory turnover deserves more discussion - not all homes will sell in this amount of time. Many homes will never sell because they are priced too high. Currently only about 30% will actually sell. Homes priced to sell will sell more quickly than the turnover rate. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-08. Also shown is a graph of probability of sale, showing historically what percentage of the homes listed for sale will actually sell.
Residential Highlights
Kitsap County residential inventory in October (2156 listings) fell 7% from September and is in seasonal decline. Inventory is 7% lower than a year ago. The number of year-to-date pending sales was down 22% compared to a year ago and 28% from last month. The number of YTD closed sales Countywide (see graph below) is minus 24% compared to a year ago, and October closed sales were down 5% from a year ago.
Prices are falling…
The median price has been falling. October’s YTD median price ($269,975) is down about 1 percent from the median in September (see graph below). The YTD median price has fallen 9.5% from a year ago. The October median closed sale price ($252,000) fell 4% from September and is down 11% 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. Our calculation shows that Kitsap County affordability is now about where it was at the end of 2004. By this standard, the median price would need to fall to about $235,000 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 longer period while incomes rise to restore more favorable conditions. In the interim, the number of sales will remain weak.
Seller expectations…
The YTD median list price remained at $350,000, approximately the same as it has been for more than a 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 9.1 months, better than 10.5 months in September. A year ago this number was 9.3 months (not a good market back then). While it would appear that a seller has an 11% chance of selling his/her home in a given month, the truth is that only about 30% of homes are selling at all, and on average these sell in less than 4 months. Sellers must also be aware that the inventory turnover varies significantly by price range. Higher priced homes are moving much more slowly than lower priced homes. See the graph below for a better perspective. Competitive pricing is essential, and almost every offer we see presented is negotiating on price. Sellers must understand that with listing inventory up and closed sales down, we don’t have the same market that we had in 2005. Below is a historical depiction of the changes in the ratio of listings to closed sales.
The statistics for pending sales (compared to year-to-date sales last year) varied for different parts of the County. Again this month several areas have improved in pending sales. One area, East Central Kitsap, is actually +17% YTD compared to last year. Here is a snapshot:
Bainbridge Island -38% (-42% last month)
Poulsbo -24% (-32% last month)
Bremerton -23% (-22% last month)
Kingston -32% (-48% last month)
Silverdale -36% (-34% last month)
Port Orchard -27% (-29% last month)
Olalla -22% (-21% last month)
Statistics not compiled or published by NWMLS
