Tuesday, October 07, 2008
Kitsap Real Estate Market Report - September 2008
The real estate and financial crisis has become the biggest item in the news worldwide, and the U.S. Federal Reserve and Dept. Of the Treasury are just starting to take action on the $700 billion bailout plan to purchase mortgage backed securities from financial institutions. Aside from watching the markets gyrate in anticipation, there isn’t much for us to evaluate about this program so far. The size of the bailout and method of using reverse auctions to purchase mortgage backed securities have been questioned by critics as being either too big or too small, and in either case perhaps not an effective way to restore liquidity to markets. One aspect that may soon become apparent is whether and how quickly banks and firms may jump back into the market. Warren Buffett made a $5 billion investment in Goldman Sachs, and once the Congressional bailout became law, Wells Fargo bid to assume all of Wachovia Bank’s debt in a purchase bid that may prevent rival Citibank from gaining control. These investments may indicate that others will sense opportunities and jump back into the market now that there is a way to value the mortgage backed securities. The latest statement from Federal Reserve Chairman Bernanke indicates that despite the many actions and programs currently being implemented, the Fed is counting in part on the markets to revive themselves.
So we turn our discussion to the housing market. King County prices continued to slide, and sales picked up as a result. In Kitsap County, pending sales were up 33% from a year ago and 16% from last month, though the number of closed sales fell for the same periods by 14% and 5% respectively. About 6% of the residential properties listed, about 18% of the properties pending, and about 8% of the recent closed sales were bank owned or short sales. The Kitsap Sun reports that about 112 Kitsap properties are coming up soon for foreclosure auction, a 195% increase from a year ago. Transactions for these properties, with motivated banks and lenders, are helping to drive prices lower, at least in some neighborhoods. To some extent this jump in activity may be more about the end of summer and need to get families into a house before the start of school than about a recovery of the real estate market itself.
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 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 28% 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 September (2323 listings) fell 6% from August and is in seasonal decline. Inventory is 4% lower than a year ago. The number of year to date pending sales was down 22% compared to a year ago, but the good news is that September pending sales were up 33% from a year ago and 16% from August. 22 of 41 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 26% compared to a year ago, and September closed sales were down 14% from a year ago.
Prices are falling…
The median price has been falling, but September’s YTD median price ($269,975) is down less than a percent from the median in August (see graph below). The YTD median price has fallen 8.8% 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 (updated for the lower interest rates) shows that Kitsap County affordability is now about where it was 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.
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 10.5 months, somewhat better than 10.7 months in August. A year ago this number was 9.4 months (not a good market back then). Today a seller has a 9.5% chance of selling his/her home in a given month. 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. Generally most areas have improved, indicating a recent pickup in pending sales. Here is a snapshot:
Bainbridge Island -42% (-44% last month)
Poulsbo -32% (-36% last month) - 22 of 41 pending are new construction. The surge in new construction sales started has fallen off somewhat.
Bremerton -22% (-27% last month)
Kingston -48% (-35% last month)
Silverdale -34% (-39% last month)
Port Orchard -29% (-34% last month)
Olalla -21% (-26% last month)
Statistics not compiled or published by NWMLS
