Kitsap Real Estate Year End Review and Affordability Report
Wednesday, December 30, 2009
Below is a repost of information from our other website at bprowse.com. To see the full article, including extensive additional information about current affordability in Kitsap County, follow this link:
This has been an eventful year for our Kitsap real estate market and for the national market as well. Here are some of the landmark events from the past year (with links to find more detail):
- Congress passed the American Recovery and Reinvestment Act: Job creation from the $800 billion stimulus has not gone as predicted in January. In June we realized that unemployment numbers were much higher than the predicted worst case, even though the stimulus had been passed. Kitsap County, with a higher percentage of government jobs, has about 7.6% unemployment, compared to the national rate of about 10% and a state rate of about 9.2%.
- The first time homebuyer tax credit resulted in many renters pursuing purchases of low priced homes as prices in the low end fell dramatically and sales increased. One study showed that the actual cost to obtain a new buyer in the program was $43k per home sold. Rental vacancy rates have reached record highs.
- Treasury's Financial Stability Plan was developed to get credit flowing by conducting bank stress tests. Results in May showed none of the 19 largest banks were to be failed, but that some needed to raise capital.
- Treasury introduced the Home Affordability and Stability Plan: Home Affordable Modification Program (HAMP) offered $75 billion assistance to help 7 to 9 million homeowners with mortgage mods or refinancing. Few mortgage mods have been made permanent thus far. Recently approved new guidelines for short sale and deed-in-lieu for non GSE loans to go into effect next April. Support for Bankruptcy law modification to permit mortgage cram downs by bankruptcy judges did not pass in Congress. To strengthen the GSEs (Fannie Mae and Freddie Mac), Federal Reserve purchases of GSE mortgage backed securities and debt have helped maintain historically low interest rates for fixed rate conventional loans.
- In July 2009 we saw reports that the world was pulling out of the recession.
- By late summer the number of conventional conforming mortgages began to greatly exceed other forms of home loans in number of defaults as the toll of falling home prices took effect. 14% of all loans in the US are in default or foreclosure.
- The percentage of new construction sales nationwide has fallen behind the percentage of residential resales by a considerable margin this year, whereas normally the two categories track closely together. One expert surmises that this is because builders cannot compete in price with the foreclosure market, where banks are operating with a much different motivation to rid themselves of problem properties and loans. Recovery of the real estate market is in large part dependent upon recovery of the new construction business. Kitsap County's construction sector is faring poorly much as elsewhere in the country. The recently announced closure of Parker Lumber in Bremerton testifies to this.
- The number of Kitsap County closed sales for 2009 exceeds the number in 2008. There is speculation that prices in the higher price ranges will continue to fall in the coming year, whereas the lower price ranges may be approaching a bottom. Listing inventory (1526 homes in November) has fallen to its lowest level in several years, but there is again speculation that there is still a considerable shadow inventory of bank owned properties not on the market, potential foreclosures currently pursuing loan modifications, and sellers holding out for a better market (we estimate about 1000 total). Pending sales were running well ahead of closed sales for most of the year because of long lead short sales and REO sales. Pending sales declined significantly at year end.
- While the large banks are being protected and enabled by government policy, there have been 140 community and regional bank failures. Westsound Bank in Bremerton failed in the spring. Frontier Bank, Golf Savings Bank, and American Marine Bank in Kitsap County have received FDIC letters. Experts anticipate that more banks will fail next year than this year.
- Although affordability for conventional loans has improved significantly this year as prices have fallen and interest rates have remained low, buyers cannot borrow anywhere close to as much as they could several years ago when exotic loans could be obtained. As a result, many homes were built in the higher price ranges where now the pool of buyers has become much smaller, first because buyers with a given income cannot borrow nearly as much, and secondly because buyers must now have a large downpayment whereas a few years ago large sums could be borrowed with no money down.
