Our market is not being kind to sellers these days. Not only do we have a buyer's market, we also have a renter's market. Rental vacancies are at a 30 year high, driven in part by sellers who decided to rent rather than sell their properties and by first time homebuyers, many of whom left rentals to become homeowners. As an aside, in this same market we've been having trouble finding a suitable short term rental for one of our clients.
Update for Kitsap: While the national rental vacancy rate is at a record high (10.6% according to our info), Kitsap County is actually doing quite a bit better at 5%. Here's an assessment from the web site "The Landlord Times".
The rental markets in Pierce and Kitsap are holding up surprisingly well considering the severity of the recession. A major factor in the relative health of these markets is the lack of new construction. In the King/Snohomish market there were over 2,500 units that opened in the second quarter alone. Anecdotal evidence suggests that Kitsap County may outperform Pierce County in the near term. This is due to a recent influx of navy personnel in Kitsap, and military deployment in Pierce. Kitsap and Pierce counties should continue to outperform the King/Snohomish market simply because there is no new construction competing for renters. In addition, the lower average rents in Kitsap and Pierce make apartments in these markets especially attractive to tenants looking to make ends meet in the recession.
Although most everyone except tenants are finding our rental market to be challenging, it may be helpful to know that we are outperforming the country as a whole. In the second quarter, the national vacancy rate for rental housing stood at 10.6%, according to the latest report by the Department of Commerce’s Census Bureau.
It's helpful to look back at some of the ideas presented on our web site last year. For instance, this April 2009 homemade chart of the Financial Stability Plan shows the newly developed policy programs of various government agencies. It's timely now because there is now much debate of how and when the Federal Reserve will curtail purchases of mortgage backed securities. The Fed's entry into this market has played a significant part in maintaining low mortgage interest rates in 2009, and the fear is that rates will rise when the Fed stops buying.
We also cited an April 2009 article from Salon about the "Cassandra" economists from both left and right, who for the most part opposed the administration's financial stability programs (such as the Capital Assistance Program, where the government bought preferred shares of major banks as a way of infusing TARP assistance). Most advocated holding banks accountable, some insisting that the big banks be taken over and their assets sold. We start the new year with the Capital Assistance Program having carried forward and with some of the large banks having now recovered and paid back their TARP funds, as well as having earned huge profits by betting at least in part on the same government policies that saved them. Now the administration is considering a tax on banks to recover some of the TARP money and for an additional purpose, according to this article in the New York Times,
"But the president also has a political purpose — to respond to the anger building across the country as big banks, having been rescued by the taxpayers, report record profits and begin paying out huge bonuses while millions of Americans remain out of work."
It's a good time to look at what happened in our Kitsap real estate market in 2009. In short, the number of closed sales improved over the year and exceeded the total for 2008 by 7%. The three month moving average for median sales price fell early in the year and then gradually recovered. It is now just about the same as in December 2008, and is well below the levels of several preceding years (down 19% from the peak in September 2007). The number of properties listed for sale (1370 listings) fell throughout the year and is now about 45% lower than the peak in 2007. However, we estimate there may be as many as 1000 more properties in a shadow inventory while sellers wait for loan modifications, banks complete activities to get foreclosed properties back on the market, or sellers hold out waiting for the market to improve. The number of pending sales started the year much higher than the number of closed sales and remained at roughly 80 to 100 more pending sales than closed sales each month until November, when the pending sales plunged by 43% to about 40 below the number of closed sales. This trend continued in December. A number of short sales, foreclosure sales, and even non distressed sales are delayed or are failing to close because of the added difficulties in getting bank approvals and the more difficult lender climate, which makes it more difficult for any borrower to obtain a loan. A big question is whether pending sales will pick up again going into the new year. In November, there were 252 closed sales and 205 pending sales. In December there were 228 closed sales and 196 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales.
The sharp drop on pending sales may not mean a drastic reduction in the number of closed sales next month. Many of the distressed property sales that might have contributed to the pending sales with long closing times in past months are currently waiting for loan modifications.
Residential Highlights
Kitsap County's residential inventory in December (1370 listings) is about 10% lower than November and down about 25% from a year ago. The steady fall in 2009's number of listings is counter to most years and suggests that a portion of last year's sellers may be waiting for conditions to improve. Inventory has been held down artificially by the accounting for short sales, where properties with offers still awaiting bank approval are shifted to pending status even though many of these properties are still open to receive other offers. The number of pending sales in December was up 38% compared to a year ago (even though pending sales have dropped steeply over the last two months compared to earlier in 2009). You may recall that financial crisis really hit a year ago in November with the failure, takeover, or bailout of the largest banks, investment banks, AIG, Fannie Mae and Freddie Mac, and other entities - so the comparative numbers with the previous year will start looking better as we go forward. The 3 month moving average number of closed sales Countywide is up 39% compared to a year ago, down from plus 56% last month. You can temper this by knowing that we were at the very bottom of our market a year ago.
Prices are steady...
The median price in Kitsap County has been pretty steady this year, and is up slightly from the beginning of the year. December's median price ($239,950) was almost the same as November (see graph of 3 month moving average below), and is 8% higher than a year ago, when the December median closed sale price was at the lowest since the boom began in the 2000s. The current low median price coupled with historically low interest rates has maintained good affordability. Conventional mortgage rates are now above 5% for 30 year loans after being in the mid 4's during December. This rise is in reaction to changes in the overall bond market, and one significant factor is the Federal Reserve's stated intention to curtail its purchases of GSE (Fannie Mae and Freddie Mac) mortgage backed securities. Jumbo loans are offered at about .8 to .9% higher than the 30 yr fixed rate conventional. Earlier this year passage of the President's Stimulus Program restored the conventional, VA, and FHA loan limits to $475,000 in Kitsap County, which has helped sales of higher priced homes. Now the homebuyer tax credit has been reworked to give some incentive to move up buyers as well as first time buyers. Our median price graphs shows a 3 month moving average of prices, which better shows trends and reduces the month-to-month fluctuations.
Seller expectations…
The December median list price fell again from $310,000 to $309,000. This is significant since our market median list price remained nearly steady at $350,000 for a couple years before falling off significantly late in 2009. The trend of falling sale prices has convinced many sellers who remain on the market to lower their asking price. The County has a listing inventory turnover rate of about 6.0 months, improved from November's 6.1 months. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-09.
The continual improvement in inventory turnover has been the result both of more closed sales and fewer listings on the market. The inventory turnover also varies significantly by price range, with higher priced homes selling more slowly than lower priced homes. We've made the point recently that the higher price ranges will be much more difficult to reduce in inventory because with today's lending environment the pool of buyers have been greatly reduced. See the graph below for a better perspective. The inventory turnover in the higher price ranges is definitely improving, even though it is still slow. Every seller is in a price war and beauty contest at the same time. If your price is not best among comparable properties, the chance of sale is very small. Below is a historical depiction of the changes in the ratio of listings to closed sales.
The number of pending sales in December was up 38% compared to a year ago (even though pending sales have dropped steeply over the last two months compared to earlier in 2009). You may recall that financial crisis really hit a year ago in November with the failure, takeover, or bailout of the largest banks, investment banks, AIG, Fannie Mae and Freddie Mac, and other entities - so the comparative numbers with the previous year will start looking better as we go forward. The statistics for December pending sales (compared to December sales last year) varied for different parts of the County. Below is a busy graph showing the 3 month moving average of pending sales for different parts of the County.
That's our first report for 2010! We look forward to having the opportunity to help with your future purchase or sale.
Brenda Prowse