Since there are many different factors affecting our local market, we'll try to touch on a few different topics to give you the flavor of what is happening nationally as it affects Kitsap real estate, as well as our usual review of local markets.

Regarding prices in our local market (from Fortune):

"In normal times, people won't pay too much more to own a house than to lease it. After all, if you're paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room, chef's kitchen, and casita for visiting grandparents. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That's precisely what happened during the last bubble."

On average, the Deutsche Bank analysis (see link to article above) of rents in 53 cities showed that in 1999 families were paying about 87% as much to rent as to own. By mid 2006 the cost to rent was only 60% of what it cost to own, and the cost to own was far higher in some bubble markets like Las Vegas. The good news is that in about a third of those cities (including Phoenix and parts of California) home prices have now fallen to where the cost to own exceeds the cost to rent by less than 10%. In another third, including Boston, San Jose, and Chicago, the difference has fallen farther -  to less than 6%. Unfortunately, the final third, including Seattle, still have prices 24% to 32% above the 1999 benchmark, and Deutsche Bank expects home prices to fall further in these areas.

In a separate independent analysis, John Burns Real Estate Consulting ranks the Bremerton Metropolitan Statistical Area (Kitsap County) as the 4th most overpriced area in the country in comparison with the 26 year history of housing affordability in our area. They compare current conditions in the area to historical conditions in our area - so they're saying that we are overpriced compared to historical affordability for our area. Seattle is 2nd most overpriced on the list. Their analysis compares local incomes, down payments, and house payments to derive an affordability index. The factors affecting the sale of any given property are always local, but organizations looking at the pressures on our overall market are saying that prices still need to fall to get back within the historical norms for our own community.

Regarding mortgage delinquencies (Housing Wire):

"Mortgage delinquencies of 60 or more days rose for the 12th straight quarter, hitting a record high 6.89% in Q409, according to market research by credit bureau TransUnion."

On the other hand, the number of mortgage delinquencies of 30 or more days have fallen. If you look at the graph in the link from Calculated Risk blog, you'll see that although the rate of new defaults may have started to decline, there are still a large number of distressed loans to be resolved through loan modification, short sale, or foreclosure.

Regarding the current progress in loan modifications (Bloomberg News):

"Modifications made permanent jumped 75 percent in January from December, while new trials rose about 9 percent, according to U.S. Treasury Department data released today. In total, 116,297 people in the Home Affordable Modification Program have been successfully steered into more manageable loans, with 830,438 more trying to navigate through the trial phase of the plan.

As the program nears the one-year anniversary of its unveiling, it is still short of the 3 million to 4 million at- risk homeowners Obama targeted. About 2.82 million U.S. homeowners still lost their properties to foreclosure last year and 4.5 million filings are expected in 2010, RealtyTrac Inc. said last month."

A recent article by real estate analyst Mark Hanson points out that there are no resources to implement a wide scale principal reduction program and that the median recipient of a permanent loan modification is being saddled with a 55% debt to income ratio and left with virtually no disposable income. He advocates the HAFA program (Home Affordable Foreclosure Alternatives) coming April 5th and a resumption of bank foreclosures as the only practical ways to de-leverage homeowners from unsustainable amounts of mortgage debt.

Regarding the rise in short sales vs sales of bank owned properties (REO)(Calculated Risk):

"Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation's largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.

Short sales are still few compared with foreclosures, but policymakers are looking at such sales to shrink the number of bank-owned homes on the market."

The Calculated Risk article quoted above also notes that the HAFA program will probably accelerate further the number of short sales completed.

http://bprowse.com/kitsap_market_blog/view/1033/kitsap_real_estate_affordability_in_january_2010

In addition to our standard report on the affordability, which remains very good for conventional conforming loans, we look at the latest report from the Special Inspector General for the Troubled Asset Relief Program (TARP). You can find out there why in many ways the government not only saved the mortgage market - it also became the mortgage market.

There's lots of other information as well.

See the FDIC website for more information, including information for depositors and borrowers with accounts at American Marine.

These statistics are for Poulsbo, including the downtown core, from the head of Liberty Bay southeast to Ne-Si-Ka Bay, and parts north to Sawdust Hill Rd. Other parts of Poulsbo and its suburbs should have similar trends. The December median sales price for Poulsbo was $254,250, down about 13% from a year ago. The more stable three month moving average closed sale price was $282,709, about 5% lower than in December 2008. The Kitsap County 3 month moving average median price is just about the same as it was a year ago. The 3 month moving average number of closed sales in Poulsbo rose 50% from a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago.  December pending sales were up 50% in Poulsbo. Recall this number includes pending short sales and new construction that may not close soon. The Poulsbo listing inventory (98) is 36% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 5.9 months, somewhat worse than the 4.2 months reported last month - but still very good. Poulsbo is probably still a buyers market because of the shadow inventory of homes pulled off the market in the past year without selling, but looks like it has improved recently.

Homes in Silverdale were selling for a December median price of about $274,000. This median is down 4% percent from a year ago. Silverdale's more stable 3 month moving average median closed sale prince in December of $275,417 was up about 5% from a year ago. The Kitsap County 3 month moving average median price is just about the same as it was a year ago.  The 3 month moving average for Silverdale's number of closed sales was 8% higher than a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago.  The number of Silverdale pending sales in December is up 44% from a year ago, but recall this number includes pending short sales that may not close. The number of active listings in Silverdale (62) is 25% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 5.2 months, better than the 5.7 months last month. Silverdale is looking now like a seller's market, but there appears to be a large shadow inventory of unsold homes not currently on the market that will deter prices from rising.

Statistics here are for Kingston, the largest housing market in North Kitsap. Activity in Kingston should be representative of the other areas in North Kitsap. Kingston homes were selling for a month end median price of about $299,000 at the end of December, 94% higher than a year ago - December 2008 was a terrible month for Kingston home sales. The low sales volume can produce large fluctuations when one or two high priced homes sell.  The more stable 3 month moving average of closed sale prices is up 13% compared to a year ago.  The Kitsap County 3 month moving average median price is just about the same as it was a year ago.  The 3 month moving average number of Kingston closed sales rose 175% from a year ago, while the number of pending sales is 100% higher than a year ago. Recall again that December 2008 had very low sales and that our current pending sales include pending short sales that may not close. The 3 month moving average of closed sales is up 39% Countywide from a year ago. The number of active listings in Kingston (62) is down 21% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 4.8 months (better than the 8.7 months last month, not to mention the 78 month turnover of last year). Our guess is that Kingston is still a buyer's market because of the shadow inventory.

Statistics are for the Bremerton downtown core and west to Kitsap Lake. The market for other parts of Bremerton and its suburbs should be similar. Bremerton homes were selling for a month end median price of $153,150 at the end of December, about 2% higher than a year ago and down 4% from last month. The more stable 3 month moving average was 22% lower than a year ago. The Kitsap County 3 month moving average median price is just about the same as it was a year ago. Bremerton's 3 month moving average for number of closed sales is up 13% from a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago.  The 3 month moving average number of Bremerton pending sales is up 13% from last year. Recall this number includes pending short sales that may not close. The number of Bremerton active listings (138) is 25% lower than a year ago. The inventory turnover (total Bremerton homes on the market divided by number sold last month) is 5.1 months (better than the 6.1 last month and from 8.7 months a year ago). The Bremerton market is probably still a buyers market because of shadow inventory that has been pulled off unsold.

The recent (Christmas Eve) approvals for Treasury’s funding of the GSE’s (Fannie Mae and Freddie Mac) may be a first step in a larger program to overhaul HAMP to allow principal reductions as well as the soon to be released GSE version of Home Affordable Foreclosure Alternatives (HAFA), which may better support short sales and deeds-in-lieu of foreclosure.

See more in our article at avoidforeclosurebremerton.com.

http://www.kitsaphomefinder.net/news/decnews09web.pdf

Happy New Year!

http://bprowse.com/kitsap_market_blog/view/1015/kitsap_real_estate_year_end_review_and_affordability_report

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.

These statistics are for Poulsbo, including the downtown core, from the head of Liberty Bay southeast to Ne-Si-Ka Bay, and parts north to Sawdust Hill Rd. Other parts of Poulsbo and its suburbs should have similar trends. The November median sales price for Poulsbo was $291,378, down about 14% from a year ago. The more stable three month moving average closed sale price was $298,293, about 10% lower than in November 2008. The Kitsap County 3 month moving average median price has fallen 4% over the past year. The 3 month moving average number of closed sales in Poulsbo rose 18% from a year ago. The number of closed sales is up 22% Countywide from a year ago.  November pending sales were up 11% from a year ago in Poulsbo. Recall this number includes pending short sales and new construction that may not close soon. The Poulsbo listing inventory (84) is 45% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 4.2 months, a little worse than the 3.9 months reported last month. Poulsbo’s market has been humming along for the past several months, but it is probably still a buyers market because of the shadow inventory of homes pulled off the market in the past year without selling.

Homes in Silverdale were selling for a November median price of about $275,000. This median is up 17% percent from a year ago. Silverdale's more stable 3 month moving average median closed sale price in November of $275,750 was up about 3% from a year ago. Silverdale’s median price fell sooner and has remained fairly stable over the past year. The Kitsap County 3 month moving average median price is down 4% compared to a year ago.  The 3 month moving average for Silverdale's number of closed sales was unchanged from a year ago, compared to a rise in closed sales of 22% for the County as a whole. The number of Silverdale pending sales in November is up 7% from a year ago, but recall this number includes pending short sales that may not close. The number of active listings in Silverdale (74) is 24% lower than a year ago. There are only about half as many homes on the market now as there were at peak inventory in mid 2007. The inventory turnover (total homes on the market divided by number sold last month) is 5.7 months, better than the 8.1 months reported last month. Silverdale has been one of the area’s better markets, but there appears to be a large shadow inventory of unsold homes not currently on the market that will deter prices from rising.

Statistics here are for Kingston, the largest housing market in North Kitsap. Activity in Kingston should be representative of the other areas in North Kitsap. Kingston homes were selling for a month end median price of about $275,000 at the end of November, 12% higher than a year ago. The low sales volume can produce large fluctuations when one or two high priced homes sell.  The more stable 3 month moving average of closed sale prices is down 15% compared to a year ago.   The Kitsap County 3 month moving average median price has fallen 4% over the past year.  The 3 month moving average number of Kingston closed sales rose 50% from a year ago, while the number of pending sales is 140% higher than a year ago. Recall our current pending sales include pending short sales that may not close. The number of closed sales is up 22% Countywide from a year ago. The number of active listings in Kingston (52) is down 43% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 8.7 months (worse than the 3.9 months last month). While we definitely see evidence of lower prices and higher sales, we suspect that Kingston will continue to be a buyer's market. 

Bainbridge Island residential properties were selling for an November median price of $492,000, about 1% lower than in October. The more stable three month moving average of closed sale price fell 6% from last month to $501,667 and is 15% lower than it was a year ago. Sales at the top of the market, while still pretty slow, did improve somewhat compared to previous months. The Kitsap County 3 month moving average median price has fallen 4% over the past year. Note that prices tailed off at the end of last year so we expect this gap to close in the coming months. The 3 month moving average for Bainbridge Island's number of  closed sales is 38% higher than a year ago. The 3 month moving average number of pending sales in November rose 11% from a year ago. The 3 month moving average of closed sales is up 22% Countywide from a year ago. The number of active listings on Bainbridge (188) is down 13% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 11.7 months, a sharp drop off from the 8.7 month turnover rate of last month . Bainbridge Island is a buyers market.