At a recent presentation in Poulsbo by Patrick Redmond, CEO of Viking Bank, he remarked that Washington State banks have the highest percentage of construction loans in the country (I'm taking that to mean the highest percentage of bank's total loan portfolio), and that the housing crisis is hitting our community banks as hard as in any other state. He said that 90% of the banks are under some level of stress. That might sound odd since the Washington residential real estate market has not suffered in any respect like the markets have in California, Michigan, Arizona, Arizona, Florida, or Nevada, just to name a few. Land use planning and geography in Washington have to some extent limited the large tracts commonly put up by the big national builders. The big national builders get their financing from other sources, but in Washington, community banks have funded smaller builders for most of the construction and thus are suffering more of the consequences. A recent Seattle Times article analyzed by several methods some Washington Banks having the most difficulty, including Westsound Bank (which failed), as well as Frontier Bank, American Marine Bank, and Golf Savings Bank, all of which have branches operating in Kitsap County. Redmond’s presentation pointed out that not only are community banks being affected by the credit crunch , low interest rates, and non performing loans, but they are also reeling from the sharp increase in FDIC deposit insurance fees at a time when most banks are trying to cut their overhead in every area possible. Redmond’s closing comment was that, much as he wished otherwise, there will probably be more bank failures.
While community banks and their borrowers and creditors are having to face the music from the financial crisis, there are some complaints that large banks are being propped up by the government because they are too big to fail. William Buiter at the Financial Times takes a pretty blunt tack, as does Simon Johnson at the Baseline Scenario. Both say that the government’s proposed regulatory changes are too soft on the big banks. Ever since the days of Alexander Hamilton, who was for a strong federal government and the first national bank, and Thomas Jefferson, who was for states rights and opposed creation of a national bank, there has been a tug of war between support for large national banks and populist opposition to their power and profits.
Each month we 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 rate statistics in Kitsap. 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 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 2003, 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 some buyers cannot afford to purchase. Our numbers for 2009 are estimates using the latest monthly data for median prices and interest rates (2008 has been updated with average annual values), and an estimated median family income for 2008 and 2009. With interest rates rising from 4.97% last month to 5.41% in June for a typical 30 year fixed rate conforming loan and the median price remaining steady in May at $240,000, affordability is still very good but has slipped somewhat. Keeping in mind how median prices can be deceptive, you should be aware that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges. The affordability index fell to 1.25 in May from 1.32 in April. First time buyer affordability also fell to 1.10 from 1.15 last month. Below are graphs of the year to year changes in affordability and a second graph showing month-to-month affordability progress over the past year.
| Year |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
| Annual Average interest rate |
5.83 |
5.84 |
5.87 |
6.41 |
6.34 |
5.80 |
5.41 |
| Median Income |
$53,160 |
$53,923 |
$54,582 |
$58,304 |
$60,719 |
$65,000 |
$65,000 |
| Median Price |
$184000 |
$206900 |
$250000 |
$275000 |
$290343 |
$265000 |
$240,000 |
| Monthly payment |
$867 |
$975 |
$1182.43 |
$1378 |
$1443 |
$1244 |
$1079 |
| Affordable payment |
$1,108 |
$1,123 |
$1,137 |
$1,215 |
$1,265 |
$1,354 |
$1,354 |
| Affordability Index |
1.28 |
1.15 |
0.96 |
0.88 |
0.88 |
1.09 |
1.25 |
| 1st time buyer payment |
$693 |
$780 |
$946 |
$1102 |
$1155 |
$995 |
$863 |
| 1st time buyer affordable payment |
$775 |
$786 |
$796 |
$850 |
$885 |
$948 |
$948 |
| 1st time buyer affordability index |
1.12 |
1.01 |
0.84 |
0.77 |
0.77 |
.953 |
1.10
|
Here are the current statistics for Pending - Inspection and Active Listings (comparing the number in mid June to the number in mid May). 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. This category also excludes short sales awaiting bank approval, a category that has pumped up the pending sales numbers with contracts that could take months to be rejected or approved. Some of the pending inspection sales will fall apart because buyer and seller will not be able to agree on the home inspection repairs.
| Area |
Pending Inspection 06/15 |
Pending Inspection 05/15 |
Active Listings 06/15 |
Active Listings 05/15 |
| S. Kitsap W. of HWY 3 |
5 |
8 |
160 |
153 |
| S. Kitsap E. of HWY 3 |
4 |
7 |
166 |
144 |
| Port Orchard |
10 |
13 |
109 |
96 |
| Retsil/Manchester |
7 |
11 |
107 |
110 |
| Seabeck/Holly |
7 |
2 |
92 |
96 |
| Chico |
0 |
0 |
22 |
17 |
| Silverdale |
10 |
10 |
81 |
85 |
| W. Bremerton |
11 |
13 |
167 |
173 |
| E. Bremerton |
10 |
10 |
118 |
116 |
| E. Central Kitsap |
6 |
6 |
135 |
143 |
| Hansville |
3 |
1 |
52 |
44 |
| Kingston |
3 |
4 |
64 |
63 |
| Port Gamble |
1 |
2 |
11 |
13 |
| Lofall |
1 |
5 |
27 |
27 |
| Finn Hill |
3 |
4 |
56 |
57 |
| Poulsbo |
5 |
2 |
128 |
145 |
| Suquamish |
2 |
1 |
25 |
25 |
| Indianola |
1 |
1 |
28 |
29 |
| Bainbridge |
5 |
3 |
264 |
241 |
| Totals |
94 |
103 |
1812 |
1777 |
The number of Pending Inspection deals the first two weeks of June fell 9% from the same period in May, but June’s activity is 68% higher than it was in June 2008, so the level of sales is still pretty good. The number of active listings (1812) in our residential inventory rose about 2% from May. In a typical year it would have risen sharply by now. The ratio of sales to number of active listings fell from 5.8% to 5.2%. About 87% of the sales were under $400,000 (85% as last month - so fewer higher priced homes are now selling) and 73% were under $300,000 (69% last month). There was one pending sale above $1 million.
Here is a graph of the mid month Pending Inspection data (note the graph uses the 3 month moving average to better show the trends - and that it is still rising).
June's APR is 5.697% on a 30-Year and 5.204% on a 15-Year, both Conforming. May's rates were 4.96% on a 30-Year and 4.862% on a 15-Year, both Conforming. If you qualify for FHA or VA loans (or the newly popular USDA loans), these programs have become much more attractive for low downpayment buyers. Limits for FHA and conventional conforming loans just went up with the stimulus bill signed yesterday. FHA maximum is $475,000, and the conventional conforming limit has returned to $475,000. Lending programs for jumbo loans reportedly getting better, with the larger banks starting to come back to this market. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 6.399% on one major bank web site). Local credit unions and savings and loans may be able to beat this rate for some jumbo loans. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/.
