kitsap-market-blog
Wednesday, June 25, 2008
Mid June 2008 Kitsap Real Estate Outlook
The return of summer weather has done little to brighten the outlook in national real estate markets. Harvard University’s Annual State of the Nation’s Housing was released earlier in the week. This report is loaded with statistics and has been criticized sometimes in the past as being overly optimistic, but this year’s report takes no prisoners in predicting, “The current housing slump is shaping up to be the worst in 50 years.” Since March the FBI has arrested more than 300 members of the real estate industry in a crackdown on mortgage fraud, including 6 people from the Seattle area. Recently announced updates to the Case-Shiller and OFHEO home price indexes show that prices nationwide are back to the levels of 2004, though our local estimates put current prices closer to those at the start of 2005. At least one article has warned of the increased difficulty small and mid sized banks are having in attracting new capital because of the poor track record of most of the banking deals in past several months. Also current accounting rules make buyers of troubled assets mark them to market, further contributing to poor financial results. The fear is that a spate of bank failures might occur in the near future because banks in trouble will have no source of capital to bail them out.
Congress is in the process of reconciling the House and Senate versions of the $300 billion foreclosure rescue bill - final passage of a bill is expected in mid July. During recent weeks it was revealed that several high government officials, including Christopher Dodd, one of the bill's chief sponsors, received special rate home loans arranged by then Countrywide CEO Angelo Mozilo. Since the bill is in some sense a bailout of the banks, there have been some calls for an ethics investigation of the political officials who may have benefited. The Hope Now Alliance, a coalition of banks backed by the President with a voluntary alternative to the Congressional plan, announced that it has modified its rules to speed up efforts to help struggling homeowners. The new rules, expected to be implemented within 60 days, shorten the time in which banks pledge to respond to requests, encourage lenders to accommodate borrowers seeking to sell for less than their mortgage balance (facilitating short sales), and under some circumstances resolve the concerns of second-lien holders to keep them from having to sacrifice to allow a workout to proceed. This could be a significant improvement in our area, where many of the troubled loans have second liens. While the Congressional plan brings significant new duties and responsibilities for the FHA, some recent articles have also pointed out that the agency lost $4.6 billion in 2007, particularly through failed loans in its down payment assistance program. This is a program where a non-profit or seller essentially makes the down payment for the buyer. Agency officials are advocating doing away with such programs, while home builders and Congressional advocates continue to support these programs as providing economic opportunity and allowing more buyers to enter this otherwise difficult lending market.
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 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. 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. The affordability index fell to 1.02 in June from 1.16 last month. First time buyer affordability fell to .89 from 1.02 in May. 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.
| Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|---|---|---|
| Annual Average interest rate | 6.54 | 5.83 | 5.84 | 5.87 | 6.41 | 6.34 | 6.27 |
| Median Income | $52,701 | $53,160 | $53,923 | $54,582 | $58,304 | $60,719 | $65,000 |
| Median Price | $165900 | $184000 | $206900 | $250000 | $275000 | $290343 | $269950 |
| Monthly payment | $880 | $867 | $975 | $1182.43 | $1378 | $1443 | $1333 |
| 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 | 1.02 |
| 1st time buyer payment | $674 | $693 | $780 | $946 | $1102 | $1155 | $1066 |
| 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 | .889 |
Here are the current statistics for Subject To Inspection (STI) and Active Listings (comparing the number in mid June to the number in mid May). 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 06/15 | STI 05/15 | Active Listings 06/15 | Active Listings 05/15 |
|---|---|---|---|---|
| S. Kitsap W. of HWY 3 | 4 | 4 | 212 | 205 |
| S. Kitsap E. of HWY 3 | 5 | 3 | 184 | 173 |
| Port Orchard | 4 | 7 | 164 | 169 |
| Retsil/Manchester | 3 | 2 | 139 | 137 |
| Seabeck/Holly | 2 | 5 | 112 | 107 |
| Chico | 0 | 4 | 35 | 32 |
| Silverdale | 4 | 6 | 125 | 126 |
| W. Bremerton | 7 | 11 | 232 | 239 |
| E. Bremerton | 5 | 9 | 126 | 122 |
| E. Central Kitsap | 6 | 5 | 180 | 178 |
| Hansville | 0 | 1 | 58 | 56 |
| Kingston | 1 | 2 | 102 | 104 |
| Port Gamble | 1 | 0 | 17 | 28 |
| Lofall | 0 | 3 | 46 | 47 |
| Finn Hill | 2 | 4 | 87 | 86 |
| Poulsbo | 5 | 7 | 157 | 156 |
| Suquamish | 1 | 1 | 41 | 45 |
| Indianola | 2 | 2 | 39 | 36 |
| Bainbridge | 6 | 12 | 298 | 273 |
| Totals | 56 | 88 | 2354 | 2319 |
The number of STI deals in June dropped by 36% compared to the first two weeks in May. The activity is down 40% compared with June 2007. The number of active listings (2354) in our residential inventory increased by 1.5%, falling in some areas and increasing in others. The ratio of sales to number of active listings fell from 4 to 2.4%. About 79% of the sales were under $400,000 (up from 74% last month) and 66% were under $300,000 (up from 56% last month).
Here is a graph of the mid month sti data for the past year:
June's APR is 6.733% on a 30-Year and 5.378% on a 15-Year, both Conforming. May's rates were 6.226% on a 30-Year and 5.873% on a 15-Year, both Conforming. As you can see, interest rates have risen almost half a point since last month, reflecting the premium borrowers are having to pay because of inflation fears. 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/.
One last note - while the tone of this article might seem very pessimistic, consumer sentiments are even more so. Consumer confidence (expectations for the economy in the next 6 months) is at its lowest level since measurements began in 1967. As over optimism leads the market upward, so over pessimism leads it down. Barron’s Magazine this week predicts that oil is at its peak and that the bubble may burst soon. Our economic and real estate markets are changing quickly every day, and the prospects for improvement are getting better all the time.
Tuesday, June 10, 2008
Kitsap Real Estate Market Report - May 2008
The Seattle Times reported that May closed sales in Seattle were down 36.3% from a year earlier and that the median closed sale price had fallen 2.7% compared to a year earlier. In Kitsap County closed sales in May were down 31%, and the median closed sale price had fallen 11.3% from a year earlier. Statistics for individual months can be volatile and misleading, but the drop in prices in Kitsap appears to be accelerating. This trend is being reported nationally, where the price drops are not uniform between neighborhoods and communities, but instead are more focused in areas where foreclosures are occurring. The National Association of Realtors reported the April’s pending home sales rose 6.3% from March. In Kitsap County pending home sales fell 6% during this same period. The Mortgage Banker Association reports that almost 8.8% of all loans outstanding are delinquent or in foreclosure. This is about 4.6 million households - a very large number. A high percentage (about 42% of the foreclosure starts) of these distressed homeowners are concentrated in California, Nevada, Arizona, and Florida. Trying to put that in perspective, we calculated that there are about 2.6 times as many loans delinquent as foreclosures. If we approximate the number of properties in foreclosure by looking up foreclosure properties listed in Kitsap County in trulia.com, we find about 329 by summing all the different communities. Using the national ratio of loans delinquent to loans in foreclosure, we would have about 855 delinquent loans and a total of 1,184 loans in Kitsap County either in foreclosure or delinquent on payments. Roughly speaking, at least 10% and up to a third of the properties on the market in Kitsap could be distressed sales. The greatest percentage of these are concentrated in the Bremerton and Port Orchard areas. The closed sale price in downtown Bremerton in May was down 19% from a year ago. In Port Orchard it was down 20%. Banks are becoming more aggressive in reducing prices to move the large inventory of unsold properties, and this puts downward price pressure on the community.
There are some other trends affecting home sales now. Inflation pressures are causing the interest rates for long term bonds to rise, pushing up mortgage rates and reducing affordability. Bankrate.com currently shows 6.12% on a 30 year fixed rate mortgage, whereas several weeks ago this rate was 5.8%. The FHA reported a $4.6 billion loss primarily due to high defaults on its seller-financed down payment mortgage program (such as the Nehemiah program), and would seek to end the program. This is one of the only remaining options to help with down payments for first time buyers, minorities, and lower income owners. The program accounted for 35% of the FHAs loans in 2007.
Despite continued problems in the housing market, Federal Reserve Chairman Ben Bernanke stated recently that the risk of a substantial economic downturn has receded and that the Federal Reserve will strongly resist an erosion of longer term inflation expectations. In his address before the Federal Reserve Bank of Boston’s economic conference, he gave a lengthy discussion of the effects and uncertainties of the public’s perceptions about inflation, different economic viewpoints about the impact of commodity prices, and a wealth of suggestions for economics students in need of a good Ph.D. Thesis topic. While in present poor economic conditions Americans may be holding inflation in check, Bernanke’s remarks seem to indicate that Fed will raise interest rates at the first sign of an uptick in economic activity.
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. Our market expresses this inability of buyers and sellers to agree on price through a falling number of sales. 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 11.9 months. Nationally, we have not seen the current inventory levels (11.2 months nationally) since the early ‘80s. 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), which is vital since the exotic mortgages that artificially propped up prices have been removed from the lender’s shelves. 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 May (2523 listings) was up 9.7% from April and 15% higher than a year ago. The number of year to date pending sales was down 31% compared to a year ago. Pending sales were off significantly even in Poulsbo (down 31%), where pending sales have been up for over a year because of a plentiful supply of low cost new construction undercutting residential resale prices. 29 of 42 current pending sales in Poulsbo are new construction homes. (This ratio has been higher in past months, meaning that a greater percentage of resale homes are selling in Poulsbo.) The number of YTD closed sales Countywide (see graph below) is minus 26% compared to a year ago. You’ll note that closed sales in May declined about 7% from closed sales in April. This drop in sales has also occurred in other years so we cannot conclude that it represents a trend. Based on past years the June closed sales should be up from May.
Prices are falling…
The median price has been falling, but May’s YTD median price ($269,950) is down just a few dollars from the median in April (see graph below). The YTD median price has fallen 6.6% 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 $349,990. 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 11.9 months, up from 10.7 months in April. A year ago this number was 7.2 months (not a good market back then). Today a seller has a 8% 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 -52% (-54% last month)
Poulsbo -31% (-16% last month) - 29 of 42 pending are new construction. The large number of pending sales that are new construction has begun to drop off.
Bremerton -30% (-31% last month)
Kingston -42% (-46% last month)
Silverdale -42% (-39% last month)
Port Orchard -43% (-37% last month)
Olalla -23% (-26% last month)
Friday, June 06, 2008
Kitsap Real Estate Local Markets in April
We have published this article monthly for most of the past year to explore some of the significant variations in the Kitsap Real Estate market. We are still quoting April prices in this article, but should have another article shortly showing May’s numbers. At the end of the first quarter the national home price data reported in the Case Shiller Index showed a drop of 14.1% compared to a year earlier. At the end of 2007, the index showed only an 8.9% drop. This story, of accelerating price drops across the nation, while not obvious in our local market, has been taking place here the same way it has been taking place in other parts of the country. Areas of lower priced homes where more subprime loans occurred have steeper price drops than in the higher priced areas. Foreclosure sales are a greater percentage of the sales in these areas too. Thus prices have dropped 13% in Bremerton (median price $180,450) while prices have dropped only 1.5% on Bainbridge Island (median price $644,000). April’s inventory of homes for sale rose by 6% from March. Median year to date closed sale prices were about the same in April compared to March and were down 5.3% percent compared to a year ago. We try to breakout the new construction sales from the resale market in Poulsbo to give a more accurate presentation of conditions there. 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.
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 $644,000 at the end of April, a drop of 1.5% from a year ago. The April YTD median price for closed sales was about half a percent lower than last month’s median price; however, it is noteworthy that the median price for closed sales occurring in April was down 6% from the price of closed sales in March. Kitsap County median prices have fallen 5.3% over the past year. The YTD number of Bainbridge closed sales is down 46% from a year ago, and the YTD number of pending sales is down 54%. The number of closed sales is down 25% Countywide from a year ago. The number of active listings on Bainbridge (285) is up 39% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 16.7 months, up from 15.7 months last month. Although interest rates have been rising the past several weeks because of inflation fears, buyers in the higher priced market on Bainbridge may benefit from the better availability and lower interest rates on jumbo conforming loans. 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 $180,450 at the end of April, about 13% lower than a year ago. The April median price for closed sales was 3% higher than the median for last month. Kitsap County median prices have fallen 5.3% over the past year. The YTD number of closed sales is down 30% from a year ago (compared to a Countywide drop of 25%), and the YTD number of pending sales is down 31% from last year. The number of active listings (248) is up 18% from a year ago, but actually fell slightly (from 251) in the past month. The inventory turnover (total homes on the market divided by number sold last month) is 11.8 months, an improvement from 16.7 months last month. The Bremerton market is weak, but showing signs that it is stabilizing.
North Kitsap Real Estate
Using the example of Kingston - the largest housing market in North Kitsap - homes were selling for a median price of about $415,000 at the end of April, up about 16% from a year ago and up about 17% from last month. Kingston prices fluctuate more than some of the other markets because of the lower listing and sales volume. Kitsap County median prices have fallen 5.3% over the past year. The YTD number of closed sales is down 50% from a year ago, and the YTD number of pending sales is down 46%. The number of closed sales is down 25% Countywide from a year ago. The number of active listings in Kingston (99) is up 43% from a year ago and up 6 percent since last month. The inventory turnover (total homes on the market divided by number sold last month) is 25 months - only 4 sales closed in Kingston last month.
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 median price of about $345,268 at the end of April, down about 3.2% from a year ago. Kitsap County median prices have fallen 5.3% over the past year. The number of closed sales YTD has is the same as last year, and the number of YTD pending sales fell by 16%. This compares to a drop of 25% in YTD closed sales compared to a year ago for Kitsap County as a whole. A large portion of the currently pending sales is from presales at one moderately priced new construction development - homes that never appeared as active listings. The Poulsbo listing inventory (170) has risen by 53% compared to a year ago and is up 6% since last month. The inventory turnover (total homes on the market divided by number sold last month) is 9.4 months. Calculating inventory turnover in this manner is artificially low since a number of the new construction homes closing did not show as active listings.
Silverdale Real Estate
Homes in Silverdale were selling for a median price of about $293,000 at the end of April, down about 2.3% from a year ago. The YTD median dropped about 11% from its value last month and last month dropped 15% from the previous month. We started the year with a number of higher priced sales that skewed the distribution upward so it’s hard to tell if the 26% drop of median sales price for April sales compared to March sales signifies a trend that will continue. The April median closed sale of $244,000 was 17% less than April sales a year ago. Kitsap County median prices have fallen 5.3% over the past year. The number of YTD closed sales was down 41% from a year ago, compared to a drop in closed sales of 25% 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 (136) is 11% higher than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 8.5 months, which makes Silverdale one of the better markets in the County.
Statistics not compiled or published by NWMLS
