Mid December Kitsap Real Estate Outlook
Before exhausting you with details about our real estate market, we want to wish you a Merry Christmas and a happy holiday season. As would be appropriate, most families are focused on other things besides real estate this time of year. We have much to celebrate and be thankful for.
The first half of December has brought a deluge of real estate news, much of it very pessimistic on the national scene. Moody’s Economy.com, Inc., has predicted that existing home sales will fall 40% from their peak in 2005 of just over 7 million homes sold to 4.25 million homes sold in 2008. Sales in 2007 will be about 5.7 million. Global Insights predicts 4.7 million in 2008, Goldman Sachs predicts 4.9 million (in August), the National Association of Realtors predicts 5.7 million, and also that sales are near the bottom now - lots of divergence of opinion. Furthermore, there are some frightening numbers concerning falling home prices and the number of homeowners with no or negative equity. At the end of 2006 there were about 3.5 million in this category. Nationwide, prices have fallen another 5% or so in 2007, bringing the number of no equity homeowners to about 5.6 million. Some economists are predicting another 10% drop next year, which would bring the number of no equity homeowners to 10.7 million, and some economists are predicting that prices will have to fall 20 to 30% to restore the proper ratios of income to home prices seen in past historical markets. That would be a roll back to the prices at the start of 2003, and the number of no equity homeowners might reach as many as 20 million! Some experts have pointed out that falling home prices rather than subprime loans will result in increased foreclosure activity, so we might have good reason to fear that there will be many foreclosures as the market recovers. No political remedy has yet been proposed that provides incentives for homeowners who have no equity to continue making their mortgage payments.
Using the assumption that falling prices rather than subprime mortgage rate resets pose the real threat to large scale foreclosures, how do we look in Kitsap County? In the period 1984 to 2000, Irwin Kellner at Dow Jones Marketwatch reports that the median home prices nationally were on average 2.8 times the median family incomes, and in the '70s this ratio was even lower. Now that ratio is 3.5 nationally, down from a peak of 4.2 last year. In Kitsap County the current median home price is about $293,500 (year to date for closed sales). It was $265,000 for sales closed last month. The 2007 estimated Kitsap County median household income is $60,719. Since it will take some time for prices to fall, let's assume that the median family income in 2008 increases by 5% to $63,755. The current ratio of median home price to median income is 4.4 (using the $265,000 median). If we use Dr. Kellner's historical ratio of 2.8, then the Kitsap County median home price needs to fall to $178,513 - another 33%! That would take us back to the prices of mid year 2002. Just as a check, we might look at the ratio of median home price to median household income at the start of 2002, it was $165,900/$52,701 = 3.13, so the median might only fall to $199,553 using this as our guide, a fall of 25%. Most scenarios view this drop as proceeding more slowly and continuing into 2009 before reaching bottom. In any case, you can see that housing prices must fall if mortgage lending reverts to the standard types of home loans available prior to the advent of subprime lending.
There are mitigating factors that have kept prices from falling in our area. Population growth, fueled by strong demand for new jobs and by the beauty and natural attraction of our region, was about 1.7% in 2007, well above the national average of .9%. Economic conditions for our major employers remain very good, and the weak dollar has also helped exports that are very important to business in our region. The upshot of these factors is that we still have greater buyer demand than in other parts of the country, and to an extent this mitigates the downward pressure on prices described above. There is no simple way to predict how the ratio of median family wages to median house price returns to its normal range.
Armed with knowledge of the trend, if not the magnitude or duration of the current real estate market conditions, what advice might we offer sellers in the new year? Prices are headed downward - selling sooner is going to be better than selling later. Competing to be the best price among comparable properties must be your goal. If you are selling and buying in this market, your loss as a seller will offset when you are the buyer. If it is your time to buy, negotiate for the best price on the best property you can purchase.
Here are the current statistics for Subject To Inspection (STI) and Active Listings (comparing the number in mid December to the number in mid November). 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 12/15 | STI 11/15 | Active Listings 12/15 | Active Listings 11/15 |
|---|---|---|---|---|
| S. Kitsap W. of HWY 3 | 3 | 12 | 154 | 163 |
| S. Kitsap E. of HWY 3 | 4 | 2 | 150 | 151 |
| Port Orchard | 4 | 4 | 169 | 177 |
| Retsil/Manchester | 1 | 1 | 121 | 125 |
| Seabeck/Holly | 1 | 5 | 109 | 132 |
| Chico | 1 | 1 | 36 | 33 |
| Silverdale | 10 | 9 | 106 | 124 |
| W. Bremerton | 7 | 11 | 233 | 259 |
| E. Bremerton | 1 | 7 | 105 | 112 |
| E. Central Kitsap | 7 | 4 | 153 | 169 |
| Hansville | 0 | 0 | 45 | 48 |
| Kingston | 2 | 1 | 80 | 86 |
| Port Gamble | 1 | 3 | 24 | 28 |
| Lofall | 0 | 0 | 35 | 32 |
| Finn Hill | 0 | 2 | 73 | 75 |
| Poulsbo | 2 | 1 | 126 | 129 |
| Suquamish | 1 | 0 | 43 | 44 |
| Indianola | 0 | 2 | 39 | 38 |
| Bainbridge | 2 | 7 | 199 | 210 |
| Totals | 47 | 72 | 2000 | 2135 |
‘STI’ deals in December fell by 35% compared to the first two weeks in November. The number of active listings in our residential inventory decreased by 6%, showing that sellers are pulling their properties off the market in some cases rather than relisting. The ratio of sales to number of active listings fell from 3.7% to 2.4%. Silverdale, E. Central Kitsap, and W. Bremerton were the only areas with other than low activity. More than 90% of the sales were under $400,000 and almost 75% were under $300,000.
We have been doing this mid month review for a year now. Here is graph of the cumulative data for Kitsap County as a whole.
December’s APR is 6.353% on a 30-Year and 5.999% on a 15-Year, both Conforming. November’s rates were identical. 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.
Next entry: Kitsap Real Estate Local Markets in November 2007
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