Tuesday, September 19, 2006
Comparing National Real Estate Trends with Local Kitsap Trends
Since the beginning of September national real estate news has heralded change in our market, while local news releases about our market have remained upbeat. There is a lot to be learned by analyzing some of these reports.
A recent New York Times article told about the rise of home prices in the US since 1890. It showed an inflation adjusted graph by Yale economist Robert J Shiller. The graph started at an index of 100 in 1890. In the great depression, the index fell to a low of about 66, but like the economy this recovered after World War 2. Since the War, prices varied between 110 and 120 until 1997, at which point there has been a steady rise to today’s value of about 200 on the scale.
Until 1997 it could be said that housing had done little better than the rate of inflation - so if inflation was 5% annually, real estate might outperform that by 10 to 20% better, which would be around 5.5% to 6% annually. When prices rose quickly in the 70’s and again in the 80’s, it would only take a couple years of steady prices for inflation to catch up and the level to return to normal on the curve. With the level at 200, if we assume an inflation rate of 3%, it will take 24 years of level prices for inflation to return housing prices back to their historical range. Hmmm…
On September 2 an article in the Wall St Journal revealed that David Lereah, Chief Economist for the National Association of Realtors, predicted that housing prices would fall over the next several months. He said that lower prices were needed to lure buyers back into the market. The article showed a graph of future home sale activity (the pending sales index) and showed that present levels are approaching the levels of 2001, the first year the index was established.
An internet article on MSN described how at the end of the second quarter prices were falling in 61 of the 275 national markets they monitored. The same article said that the Bremerton/Silverdale market was one of the best markets in the country, with a 4.32% rise in prices in the second quarter of 2006. Another article on rising inventories showed that the Seattle area posted one of the highest gains nationwide in inventory in August with a 6.4% increase. The same article stated that 40% of the homes on the market in the Seattle area had reduced price since listing.
A 3 September article in the Seattle Times predicted that prices in Seattle may stabilize but will probably not fall - an example of the optimism in Seattle. Seattle’s job growth and economy are mitigating the effects of the decline in the national real estate market. A report we receive from a local economist points to the geography of Puget Sound, which limits the supply of homes, as another factor in why the rise in home prices in Washington has outpaced the national averages.
It’s important also to be able to distinguish our Kitsap County Market from the rest of the Seattle market. The latest press release from the Northwest MLS shows that the number of active listings in Kitsap County less than a quarter of the number active in King County, about a third of the number active in Pierce County, and about half the number active in Snohomish County. In spite of what sounds like a lower inventory, the months supply - a measure of how fast homes are selling, is far slower in Kitsap County in than in the others. There is a 4.7 month supply in Kitsap, a 3.6 month supply in Pierce, a 2.5 month supply in Snohomish, and a 2.3 month supply in King County. The supply in King County now is about like the supply in Kitsap County was a year ago. All this sums up to say that the Kitsap market is more like the national market than the rest of the Seattle area.
Statistics not compiled or published by NWMLS
