Kitsap Real Estate Market Report - August 2011

This is an archive post of our August Kitsap Real Estate Newsletter

Consumer confidence dropped sharply this month, in part because of the divisive debate in the Federal Government before raising the debt ceiling. This bill passed only after the feuding political parties agreed to a weak compromise on actions to reduce our nation’s long term debt. The Dow Jones average fell significantly when the credit rating of US long term government debt was lowered by the credit ratings firm Standard and Poors (and markets also acknowledged problems with debt among several members of the European Union that could potentially threaten the viability of that currency). Markets gyrated but eventually rose when the Federal Reserve announced they would target short term interest rates to remain at their current near-zero levels until 2013 - not so good news for your passbook savings. Then markets fell, then they rose. Qué Será, Será (whatever will be will be).

The housing market remains a key player in the stalled American economy. If it were our goal to convert, we could mention that 11 of the last 40 years the stock market has fallen, whereas the real estate market has fallen in only 3 of the last 40. 19% of current national closed sales are investments, 59% of these investor deals are cash. 30% of all current national sales are cash. Clearly investors are seeing an opportunity in the real estate market. 

Now the government is asking for ideas to involve investors in reducing the distressed housing glut. 

The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and Department of Housing and Urban Development (HUD), has announced a Request For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac(the Enterprises), and the Federal Housing Administration (FHA).

While the number of bank owned properties (REO) on the market has declined significantly this year, it’s more a reflection on the delays banks now face in processing foreclosures than a market improvement in reducing the number of distressed properties. While there are only about 500,000 REO properties for sale, there are still about 4.1 million additional homes in foreclosure or 90+ days delinquent.

As a result of these changes in the bank owned market, several of the large banks (Wells Fargo, Chase, and Citibank) are now offering incentives for distressed property owners to complete short sales. These offers are being mailed directly to homeowners. The short sale market percentage has been growing nationally as banks have finally begun to understand that the homes sell for more and all parties stand to benefit from preventing a foreclosure. 

The number of closed sales in Kitsap County in July was down about 11% from June and up about 2% from a year ago. Pending sales fell about 3% compared to last month and were 5% higher than a year ago. In June, there were 233 closed sales and 299 pending sales. In July there were 208 closed sales and 290 pending sales. 24% of the closed sales were distressed properties. 30% of the pending sales were distressed properties. Among closed distressed sales, bank owned sales were about 2 times the number of short sales closed. Shown below is a graph of month-by-month pending sales vs closed sales. Pending sales tend to lead closed sales in direction if not magnitude by about 2 months. Based on past trends, the number of closed sales could either rise or fall slightly next month.

Residential Highlights

Kitsap County's residential inventory in July (1795 listings) is about 6% higher than June and about 8% lower than a year ago. Distressed properties listed in the MLS make up about 17% of our market, a bit lower than the 18% we reported in June.  At the end of July, RealtyTrac showed 822 (890 last month) Kitsap County homes either in default, in foreclosure, or bank owned. At the beginning of the year there were 1473 distressed properties, so we've seen a decline of 44% this year. It's not clear whether the numbers reported here represent real progress in loan modifications and curing of defaults or if instead it represents reluctance on the part of banks to declare defaults given the government scrutiny of foreclosures. The MLS shows only about 38% of the distressed property inventory, so there could be as many as 512 distressed properties that have yet to be put up for sale. Closed sales were up 2% compared with July 2010. The more stable 3 month moving average number of Kitsap County closed sales is down 12% compared to a year ago.

Prices are steady...

Kitsap County's monthly median closed sale price in July ($242,500) was up 1% compared to June and down 8% compared to a year ago. The more stable (but also lagging in showing trends) 3 month moving average (see graph below) of the median closed sale price ($240,833) is about 5% higher than last month and about 3% lower than a year ago. Our median price graphs show a 3 month moving average of prices, which better shows trends and reduces the month-to-month fluctuations.

Seller expectations…

The July median list price was $298,888, barely changed from last month. More higher priced homes are being listed for sale. Median list price is about 2% lower than a year ago. The County has a listing inventory turnover rate of about 8.6 months, slower than the 7.3 month turnover in June. The turnover rate has been driven by the under $200k market, where there was 6.3 months of inventory, and in the $200 − 300k market, where there is 7.2 months of inventory. All higher price ranges have 10 or more months of inventory. Inventory turnover is the number of months it would take to sell the current inventory at the current rate of sales. In July, the number of listings rose and the number of sales fell compared to June. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-11.

The inventory turnover also varies 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 more difficult to reduce in inventory because today's lending environment has greatly reduced the pool of qualified buyers. There were 4 sales in the $800k and above range among 145 listings County-wide in that price range. Even more striking is that in all of Bremerton and South Kitsap, there were no closed sales above $500k, and there were none above $550k in North Kitsap - only Bainbridge Island had activity in the higher price ranges. 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 July was up 5% compared to a year ago and was down about 3% from June. The statistics for July pending sales varied for different parts of the County. Below is a graph showing the 3 month moving average of pending sales for different parts of the County. The general trend has been for rising sales in Bremerton and falling sales in North Kitsap, with mixed results in other areas. 

Affordability

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 10% down on a house priced at 85% of the median and obtains a 30 year fixed rate mortgage with mortgage insurance.  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 some buyers cannot afford to purchase. Mortgage insurance quotes are dependent on credit scores - MI for a FICO credit score of 700 might be $20 per month higher than MI for a credit score of 750. We use 750 and have corrected all PMI values to be consistent with this. Our numbers for 2011 are estimates using the latest monthly data for median prices, interest rates, and median income. As a point of reference the index in 2001 was 1.31 and the first time buyers index was .89.

Affordability remained just about the same as last month and is still very good. Median price rose a bit and interest rates have fallen to historic lows, so the affordability index improved slightly to 1.29 in August from 1.28 in July. First time buyer affordability remained constant at .86. Below is a  graph of the year-to-year changes in affordability and a second graph showing month-to-month affordability over the past year.

August's APR is 4.559% on a 30-Year and 3.817% on a 15-Year, both conforming. July's APR was 4.812% on a 30-Year and 4.069% on a 15-Year, both conforming. If you qualify for FHA, VA, or USDA loans , these programs are attractive for low downpayment buyers. The conventional and FHA loan limits remain at $475,000 in Kitsap County. These higher limits have helped sales of higher priced homes, but they are set to expire this October. The VA loan lender imposed limit is back to $417,000. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 4.886% on one major bank web site.  To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/.

That's our report for August! Please give me a call if I can help you or anyone you know with purchasing or selling a home.

Brenda Prowse