While conditions on main street remain relatively unchanged, investors appear more bullish about the US and world economies. One article reports on optimism about the US dollar. The Wall Street Journal reports in “Shares of Bailed-Out Firms Rally”:
Rapid and heavy trading sent shares of former financial titans American International Group, Inc., Citigroup Inc., Fannie Mae and Freddie Mac soaring Tuesday [Mar 9].
The article speculates about specific situations that now make these bailed out organizations good investments. One analyst noting that the worst is over for Citigroup (and another article about their promising efforts to repay debts), while another notes that AIG has made significant strides in repaying it’s government debt. The article mentions also a surge in the shares of Fannie and Fred, but with no corresponding reason for investor optimism. Both organizations are incurring larger losses than ever and are operating more to implement government housing policy than to enhance shareholder value. Fannie Mae recently announced it is buying up 200,000 delinquent mortgages from investors. Perhaps the good news for investors is that Fannie and Freddie must issue new debt at attractive interest rates to pay for these purchases.
Meanwhile, there is more news about the impending launch of the Home Affordable Foreclosure Alternatives (HAFA) program, which is supposed to start April 5th. Since mortgage modifications (HAMP) are helping far fewer homeowners than anticipated, the HAFA program will offer cash incentives to sellers and banks who negotiate short sales or deed-in-lieu of foreclosure agreements. One major stumbling block to completing short sales has been the reluctance of banks holding second liens (mortgages or home equity lines of credit) to agree to short sales. To address this, Congressman Barney Frank of Massachusetts has issued a letter to the four largest US banks urging them to start writing down the principal of non-performing second liens on property.
The government’s intervention in housing has slowed the pace of foreclosure and leveled off home prices compared to prior economic projections (see here for a graphic on the leveling of home prices from Calculated Risk). The question remains whether prices will resume their downward spiral once the huge cash injection from Treasury and the Fed subsides. There are still about 5 million homeowners in default or foreclosure - nearly 10% of all mortgages. Though home prices have leveled and inventory has depleted, many of these distressed properties will be coming on the market through foreclosure or short sales.
So that brings us back to Kitsap County real estate. Pending sales in February rebounded while the number of closed sales declined, following the trend of the previous month. Short sales, foreclosure sales, and even some non distressed sales are being delayed or are failing to close because of the added difficulties in getting bank approvals and the more difficult lending climate. In January, there were 172 closed sales and 255 pending sales. In February there were 130 closed sales and 309 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales.
Residential Highlights
Kitsap County's residential inventory in February (1550 listings) is about 8% higher than January and down about 13% from a year ago. The number of listings rose for the second month in a row after many months of decline. This may be evidence of a more typical seasonal listing curve, with then number of properties for sale rising into mid summer and falling off as the we get later into the year. We may at least see some of the shadow inventory become active again as distressed sales increase and sellers come back to test the market. The number of closed sales in February fell almost 25% from January and were down 4% compared with February 2009. Despite the weak closed sales in February, the 3 month moving average number of closed sales Countywide is up 37% compared to a year ago, down from plus 57% last month. The strength of pending sales indicates that closed sales should rebound in coming months.
Prices are steady...
The median price in Kitsap County has been pretty steady over the past year. February's median price ($252, 435) rose about 5% compared to January (see graph of 3 month moving average below), and is 12% higher than a year ago. This rise in median price is almost certainly a change in the mix of homes selling rather than an across the board increase in home prices. The homebuyer tax credit now includes incentives for move up buyers, and there is more pressure on owners of higher prices homes to sell for a bargain. Unemployment continues to rise (Kitsap County unemployment rose to 8.3% in January from 7.4% in December), and banks are now starting to end the trial loan modifications, which is expected to result in more defaults and foreclosures. The current low median price coupled with historically low interest rates offers good affordability. Conventional mortgage rates are now about 5% for 30 year loans. There is speculation that rates will rise later this year, 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. The conventional and FHA loan limits remain at $475,000 in Kitsap County, which has helped sales of higher priced homes. The VA loan lender imposed limit is back to $417,000. The homebuyer tax credit was reworked last year to give some incentive to move up buyers as well as first time buyers. Our median price graphs to show a 3 month moving average of prices, which better shows trends and reduces the month-to-month fluctuations.
Seller expectations…
The February median list price rose from $299.900 to $306,125, about a 2% increase with the rise in listing inventory. Median list prices have fallen significantly since a year ago as sellers became more aggressive in getting their properties sold. The County has a listing inventory turnover rate of about 11.9 months, slower than January's 8.35 months and much slower than the rates observed late last year. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-10.
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 more difficult to reduce in inventory because today's restrictive lending environment has reduced the number of eligible high end buyers. See the graph below for a better perspective. With this months slowing in inventory turnover, the turnover in the upper price ranges fell significantly, except that turnover of homes above $1 million was much better than that of mid priced homes. 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 February was up 21% compared to a year ago. The statistics for February pending sales (compared to February sales last year) varied for different parts of the County. The nearly uniform rise in pending sales bodes well for closed sales in future months, even though closed sales were weak in February. Below is a graph showing the 3 month moving average of pending sales for different parts of the County.
That's our report for February! We look forward to having the opportunity to help with your future purchase or sale.
Brenda Prowse