A recent Wall St Journal Article by Economics Editor David Wessel ("Geithner Gets Some Credit–But Still No Cheers") highlights the current paradox with the economic recovery. Stocks have rebounded, helping banks raise more capital. Mortgage rates have come down, but the value of commercial and industrial loans held by commercial banks continues to fall, recently down about 18% from a year earlier (while their cash assets have increased almost 30%). While the Treasury Secretary's policies have worked better, faster, and more cheaply in getting capital flowing back into the big banks, the lack of commercial lending hurts all but those corporations large enough to sell their own bonds. Large banks see their stock rising and want to return to paying large bonuses to their employees, while main street sees 9.7% unemployment and 15% of homeowners (almost 25% of all borrowers) owe more than their homes are worth. For them, to be told things could be worse is not comforting.
The Making Home Affordable loan modification program is in flux as officials now realize that the present program of reducing payments by adjusting interest rates and loan terms rather than reducing principal is not helping several million homeowners as anticipated. Fewer than 100,000 permanent modifications have been approved to date. Experts are predicting many additional foreclosures, since the trial modification period is approaching for many homeowners. Others are debating the merits of revising the program to allow principal reductions, allowing homeowners to stay and rent, or pushing for more short sales or deed in lieu of foreclosure sales. For those buyers making offers on short sale properties, the biggest drawback has been that the bank loss mitigation departments are understaffed and overloaded with offers and associated seller financial paperwork, thus taking far longer to respond to sellers than the typical buyer is willing to wait.
As we look at our January Kitsap real estate market, there are some other trends around the country worth noticing:
Pending sales in January rebounded while closed sales declined, much as pending sales had declined in the previous two months. Short sales, foreclosure sales, and even some 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. In December, there were 228 closed sales and 196 pending sales. In January there were 172 closed sales and 252 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales.
Residential Highlights
Kitsap County's residential inventory in January (1437 listings) is about 5% higher than December and down about 20% from a year ago. This is the first rise in the number of listings in some time, and may be evidence that we'll see 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 foreclosures increase and sellers come back to test the market. The number of pending sales in January was up 5% compared to a year ago. You may recall that financial crisis really hit a year ago in December 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 57% compared to a year ago, up from plus 38% last month, but temper this with knowing that we were at the very bottom of our market a year ago. Closed sales were down 11% compared with December 2009.
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. January's median price ($239,700) was almost the same as December (see graph of 3 month moving average below), and is less than 1% higher than a year ago. The current low median price coupled with historically low interest rates offers good affordability. Conventional mortgage rates are now just below 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. 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 January median list price fell again from $309,000 to $299,900. 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 8.35 months, slower than December's 6.0 months. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-10.
Last month’s slowing of inventory turnover rate was the result of fewer closed sales and the first increase in inventory in some time. 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. With this month's slowing in inventory turnover, the turnover in the upper price ranges fell significantly. 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 January was up 5% compared to a year ago. The statistics for January pending sales (compared to January 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. Notice how pending sales have fallen off since their peak last fall.
That's our report for January! We look forward to having the opportunity to help with your future purchase or sale.
Brenda Prowse