As the economy jives and shimmies its way out of recession, an observer confronted with the facts of high unemployment and continued banking and credit problems nevertheless might conclude that though the picture doesn’t look too good, there is a certain optimism. Mortgage rates for 30 year fixed rate loans have again fallen below 5% (driven down by Federal Reserve policies) and jobs don’t appear to be coming back. The local Kingston Share Net food bank sees no drop off in demand.

Credit markets are still hurting. Consumers and small businesses find themselves unable to get credit - while large well capitalized companies can obtain credit easily. The problem is that many investors are reluctant to buy securitized debt, which funded most credit in the past few years. The blog Baseline Scenario mused that there is no reason why the next bubble has to be in securitized debt - why not something else, and Paul Krugman is cited for his advocacy of a return to traditional bank lending. The exception to this credit shortage is housing, where consumers can still get low downpayment loans from FHA, VA, and Department of Agriculture. Now there is concern that FHA may need a bail out as their reserves have fallen below the minimum required by Congress. Also, while the well capitalized big banks have picked up more than half of the home mortgage lending market, small independent mortgage lenders have been frozen out by the high cost of capital and lack of access. Now Fannie Mae has launched a program to guarantee the debt of these smaller lenders providing they make home loans conforming to standards of Fannie and Freddie Mac. Since Fannie is already guaranteeing the debt of these loans, some observers think this is just another opportunity for Fannie to fail.

So with all of these negative reports related to the progress of our recovery, the Central Bank of Australia surprised everyone last week by raising their short term interest rate target - which is to say they think the boom is coming and are acting now to prevent inflation. The exchange rates for the US Dollar plummeted against most major currencies as investors fled safety to pursue opportunity and higher interest rates elsewhere. While the favored political position is always to back a strong dollar, the weakening of our currency is an opportunity to sell more US exports and relieve our country’s trade imbalance.

We have repeatedly advocated more government and banking industry support for short sales as the most efficient course to sell off most of the distressed property inventory. The government recently announced that the Home Affordable Modification Program has met its goal of 500,000 trial loan modifications. Almost at the same time, the Congressional Oversight Committee challenged the efficacy of the program, noting that only slightly more than 1% of the trial modifications had thus far become permanent. As an aside, much of the  current debate in government policy concerns whether the government has the wisdom to implement efficient policies to correct our economic problems - versus a point of view that these problems are so complex and unpredictable that the unintended consequences will not be worth the effort. New York Times columnist David Brooks recently provided a clever depiction of the problem.

Meanwhile, back in Kitsap County closed sales this year are 2% behind last year (4% behind last month), pending sales are running 24% ahead (27% ahead last month). There’s a good chance that closed sales in 2009 will top 2008. The County has a listing inventory turnover rate of about 6.9 months, improved from August's 7.4 months. In August, there were 243 closed sales and 348 pending sales. In September there were 253 closed sales and 350 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales. 


Kitsap closed sales vs pending sales by month

A typical pending sale should close within 60 days, so we should see the closed sales lagging pending sales by about 2 months. However, in our situation the closed sales level has not reached the pending sales level for 6 months, so something else is up. Tighter lending standards, delays in approving short sale offers, and sellers and bank owned properties with little room to give have made it more difficult for Realtors to close sales. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-09.

Kitsap Listing Inventory

 

 Kitsap County residentail housing inventory turnover

 

Residential Highlights
Kitsap County's residential inventory in September (1739 listings) is about 3% lower than August and down about 25% from a year ago. This trend is counter to most years and suggests  that a portion of last year's sellers may be waiting for conditions to improve.  In part 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 September was up 8% compared to a year ago and about the same as August. The 3 month moving average number of closed sales Countywide is up 14% compared to a year ago, improved from plus 12% last month.

 Kitsap Real Estate Closed Sales


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. September's median price ($250,000) was up 2% from August (see graph of 3 month moving average below), and is about 5% lower than a year ago. This low median price coupled with historically low interest rates has maintained good affordability. Conventional mortgage rates have fallen a bit recently. Jumbo loans are becoming more accessible - they are offered at about .8 to .9% higher than the 30 yr fixed rate conventional.  With passage of the President's Stimulus Program, the conventional, VA, and FHA loan limits were restored to $475,000 in Kitsap County, which should give a lift to sales of higher priced homes. We have reworked our median price graphs to show a 3 month moving average of prices, which will better show trends and reduce the month-to-month fluctuations.

 Kitsap Real Estate Median Price Graph

Seller expectations…
The September median list price rose slightly from $337,500 to $338,950. This market is in transition, with the percentage of sales in the upper price ranges still depressed compared to the past several years and what could be a large number of listings withdrawn into a shadow inventory that could return to the market if prices improve. The inventory turnover (total homes on the market divided by number sold last month) is 6.9 months, somewhat better than the 7.4 months in August. The inventory turnover also varies significantly by price range, with higher priced homes selling more slowly than lower priced homes. See the graph below for a better perspective. In the higher price ranges it is definitely improving even though it is still slow. Turnover for homes above $900k was much worse last month than earlier in the summer. 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.     

 Months of housing inventory by price in Kitsap County

 Closed sales versus listing inventory in Kitsap County

The number of pending sales is up 8%, which is off quite a bit from the double digit improvements of the past several months. The statistics for pending sales (compared to September pending 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.


Kitsap real estate regional pending sales