Sunday, August 31, 2008
Mid August 2008 Kitsap Real Estate Outlook
Political conventions are in progress, and many people are counting on the election to turn around our current economic problems. There is no question that expectations have a significant role in the market trends. However, it’s hard from our point of view to see how any amount of political euphoria can provide much near term relief to the current uncertainties in our national housing market.
Fannie Mae and Freddie Mac continue to dominate the national real estate news. With home prices falling, the number mortgage defaults continues to rise. Even though the loans repurchased by Fannie and Freddie default at a much lower rate than subprime mortgages, falling prices have caused such a large number of homeowners to owe more than their homes are worth. The rate of defaults has increased, and now both agencies are suffering large losses. Stock in both companies has plunged - Fannie Mae’s value is 90% lower than a year ago. The companies balance sheets are complex since they both sell mortgage backed securities to other investors (making money off fees to guarantee payment of the principal and interest), borrow funds to purchase their own mortgages (making money off the interest rate spread between what it costs to borrow vs. what they receive in mortgage interest), and sell stock to investors. Many of the countries largest banks and investment funds, as well as foreign central banks, have a stake in Fannie and Freddie. The Department of the Treasury obtained authority last month to intervene by either extending a line of credit or to investing directly in the stock or debt of these companies. Until the Treasury Department’s form of intervention is known, investors are shying away and the agencies themselves have little ability to raise capital, since investors may or may not be wiped out depending on the method by which Treasury intervenes. Treasury has not indicated their intentions, and Fannie and Freddie still say no intervention will be necessary. There you have it - uncertainty.
In Kitsap County, home prices have not fallen that far. The trade off for this benefit is that homes have become much more difficult to sell. The graphs below highlight how the number of sales have fallen and chance of making a sale have fallen over the past several years.
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 slightly to 1.02 in July from 1.03 last month. First time buyer affordability also fell to .89 from .90 in June. 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. The past several months have been relatively flat.
| Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|---|---|---|
| Annual Average interest rate | 6.54 | 5.83 | 5.84 | 5.87 | 6.41 | 6.34 | 6.33 |
| Median Income | $52,701 | $53,160 | $53,923 | $54,582 | $58,304 | $60,719 | $65,000 |
| Median Price | $165900 | $184000 | $206900 | $250000 | $275000 | $290343 | $267250 |
| Monthly payment | $880 | $867 | $975 | $1182.43 | $1378 | $1443 | $1328 |
| 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 | $1062 |
| 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 | .893 |
Here are the current statistics for Pending - Inspection (formerly called Subject To Inspection (STI)) and Active Listings (comparing the number in mid August to the number in mid July). 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 08/15 | Pending Inspection 07/15 | Active Listings 08/15 | Active Listings 07/15 |
|---|---|---|---|---|
| S. Kitsap W. of HWY 3 | 6 | 4 | 241 | 229 |
| S. Kitsap E. of HWY 3 | 4 | 5 | 192 | 196 |
| Port Orchard | 7 | 7 | 167 | 165 |
| Retsil/Manchester | 3 | 4 | 170 | 160 |
| Seabeck/Holly | 5 | 2 | 121 | 118 |
| Chico | 2 | 3 | 41 | 39 |
| Silverdale | 4 | 0 | 149 | 142 |
| W. Bremerton | 5 | 8 | 271 | 259 |
| E. Bremerton | 7 | 7 | 140 | 144 |
| E. Central Kitsap | 7 | 10 | 172 | 179 |
| Hansville | 1 | 1 | 60 | 62 |
| Kingston | 1 | 3 | 105 | 108 |
| Port Gamble | 0 | 1 | 20 | 24 |
| Lofall | 4 | 2 | 47 | 56 |
| Finn Hill | 2 | 0 | 109 | 104 |
| Poulsbo | 4 | 7 | 179 | 174 |
| Suquamish | 3 | 1 | 36 | 42 |
| Indianola | 1 | 2 | 40 | 39 |
| Bainbridge | 8 | 7 | 296 | 300 |
| Totals | 74 | 74 | 2556 | 2540 |
The number of Pending Inspection deals in August was the same first two weeks in July. The activity is 27% lower than it was in August 2007. The number of active listings (2556) in our residential inventory increased slightly from July. The ratio of sales to number of active listings rose to 2.9% from 2.4%. About 81% of the sales were under $400,000 (same as last month) and 68% were under $300,000 (down from 70% last month).
Here is a graph of the mid month sti data for the past year:
August's APR is 6.606% on a 30-Year and 6.252% on a 15-Year, both Conforming. July's rates were 6.733% on a 30-Year and 6.378% on a 15-Year, both Conforming. As you can see, interest rates have fallen slightly 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/.
Statistics not compiled or published by NWMLS
