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Trends for residential sales are not yet breaking positively for Kitsap County. The active listing inventory of homes in June 2010 was at 1,879 versus 1,758 for June 2009. Median asking price was $319,000 compared to $350,000 one year ago. Median days on market was 126 for June 2010 versus 133 one year ago.

The number of pending sales was 239 in June 2010 and 372 in June 2009. Their respective ratios were 13% and 21% showing a precipitous drop. Pending sales ration are near term indicators of sales activity and the near term direction of price trends. The median price for pending sales for June 2010 was $265,000 and $246,125 a year ago. This is a sign perhaps of increased activity in move up sales. Days on market was 107 for June 2010 and 86 for June 2009.

Closed sales in June 2010 were up slightly for June 2010 at 266 units vs. 249 for June 2009. There is a more impressive difference in the Year To Date tally with 1,297 for YTD 2010 and 1,090 one year ago. The median closed price was $236,000 in June 2010 and $245,000 in June 2009. Days on market were 156 in June 2010 and 83 in June 2009.

This is likely because the lid has come off prices asked by lenders for foreclosures in Kitsap and short sales. I guess so when you consider that in the last twelve months the number of closings tagged as bank owned properties and third party approval required totaled 627 or 48%. Sure looks like those lenders are setting the price for everyone else.

Home Loan Rates Are At Record Lows.

Loan rates available to qualified buyers on July 15th, 2010, even those with zero down were between 4.5% and 4.75%. This means that if you were to obtain a loan for the median priced closed home in Kitsap in June, 2010 for $236,000 for 100% of the purchase price that your payment of principle and interest for a 30 year fixed rate loan would be $1,195.78. Throw in $300 per month for taxes and insurance and that might be say $1,496 per month for your housing expense which is about the same rate you would need to pay in rent for most of these homes selling at the median.

These are truly unusual times for buyers. How much longer will this perfect storm of conditions last?

Fed members previously said that the use of “extended period” referred to three or four meetings, but the new explanation suggests that the Fed’s language “could legitimately be used until just before tightening is set to start, and thus does not convey much information about the likely start date of Fed tightening,” said Barclays Capital economist Dean Maki in a research note.   However, at the meeting a number of policymakers “pointed out that the economic recovery could not be sustained over time without a substantial pickup in job creation, which they still anticipated but had not yet become evident in the data.”  Fed members also highlighted concerns about the housing market, where gains are “leveling off” despite government support such as the homebuyer tax credit, and said commercial and industrial real estate markets continue to weaken.   “The housing market is still tenuous. The last thing the Fed wants to do is torpedo any improvements,” Canally said. “The Fed does  not want to raise rates and be responsible for squashing the recovery and killing the housing market.”

What does this mean for Kitsap real estate sellers and buyers. While home mortgage rates are more directly correlated with long term treasury securities short term interest rate increases will put upward pressure on those instruments.

Bank of America (BoA) announced last week that it would begin cutting loan balances for distressed mortgage borrowers and in the process created a lottery – if you’re lucky enough to be in its portfolio and smart enough not to pay your mortgage, you win.  Specialty servicers have been around for a while, handling the worst-of-the-worst; loans at least 90 days late, and one of the tactics they have used is principle reduction.  It sometimes works well with the worst cases.  But now BoA is taking the practice mainstream, and not surprisingly more loans are going 90 days late.

Business is booming for specialty servicers these days.  Last week the Federal Deposit Insurance Corp. sold specialty servicer RoundPoint a 50% stake in a portfolio of mostly non-performing mortgage worth almost $500 million.  Unlike the bank the entity that owns a mortgage (the bank or a group of investors), mortgage servicers are the companies that handle the day-to-day administration of mortgages. They collect payments, maintain escrow accounts and confront borrowers about late payments. They also initiate the foreclosure process when borrowers default.  Dozens of specialty services have sprung up to take on these difficult jobs. They mostly deal with loans three payments or more late, which is about 5% of all mortgages, according to the Mortgage Bankers Association (MBA).   One of their main solutions is cutting the principal balance so that homeowners no longer owe more than their houses are worth.  “Our clients would rather do a principal-reduction than an interest-reduction workout,” said Gagan Sharma, CEO of BSI Financial. “Many bought the loans at discount so they’re happy to pass the savings down to consumers.”

This could have many intended and unintended consequences. More borrowers might be encouraged to default in order to negotiate for a principle write down and perhaps keep their home thus lowering the available inventory. Kitsap real estate could still be in for downward price movements.

The National Association of Homebuilders and Wells Fargo publish research about the affordability of housing in all metropolitan statistical areas (MSAs) in the country. The report for the fourth indicates that 63.6% of homes in the Bremerton/Silverdale MSA were affordable for the median income family. They report that the median income was $70,900 per year and the median home price was $232,000.

A lot of people believe that foreclosure homes are affordable and a good bargain. To get your customized list of foreclosure homes for Kitsap and Gig Harbor visit Kitasap Bank Owned Properties.

71% of all U.S. Homes Are Affordable

According a quarterly report from the National Association of Home Builders and Wells Fargo, the typical American family, who makes the nation’s median income of $64,000 a year, could afford to buy 70.8% of all homes sold in the United States during the last three months of 2009.   That’s off just a tad from the record 72.5% reached during the first three months of 2009, but up substantially from the second quarter of 2008 when only 55% of homes sold were affordable.  “Favorable mortgage rates and sliding house prices that have now started to stabilize nationally have both contributed to a record year for housing affordability in 2009,” said NAHB chairman Bob Jones, a home builder from Bloomfield Hills, Mich.  The NAHB judges a home to be affordable if a family making the metro area’s median income could devote no more than 28% of their take-home pay toward housing costs.

There was a huge variation in affordability around the nation. All five of the most affordable major housing markets were in the Rust Belt, led by Indianapolis, which has been the nation’s most affordable major metro area for more than four years. More than 95% of all home sold there were classed as within the budget.  Detroit was the second most affordable major market with 93.4%, followed by three Ohio cities, Dayton (93.2%), Youngstown (93%) and Akron (92.2%).   New York was the least affordable market; less than 20% of homes met the criteria. San Francisco (22.3%), Honolulu (33.8%), Santa Ana, Calif.,. (34.5%) and Los Angeles (36.8%) filled out the bottom five.  The most unaffordable small market was San Luis Obispo in California, where only 32% of homes sold were attainable for median-income families.

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The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine Census Divisions, seasonally adjusted monthly price changes from October to November ranged from –0.4 percent in the East South Central Division to + 2.3 percent in the Pacific Division.

Housing Price Index Changes

Hey, that means that housing prices in the greater Seattle SMSA have risen 2.9% for the year from November of 2008 to November of 2009. From November of 2007 to November of 2008 that index fell  22.0%. I like the trend. That’s good, isn’t it?

Well, not so fast.

Diana Olick of CNBC spoke with Rick Sharga of RealtyTrac, and he elaborated on the formal report we talked about above, giving her his thoughts on the coming year and 2011.  He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.  “Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won’t peak until the end of 2010 or the first quarter of 2011,” says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).  Olick:  “There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery.  Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth).  Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.”

Only in the past year, CY 2009 did the NWMLS begin “tagging” homes that were listed and sold as bank owned or short sale properties so the data is not complete for the year. My unofficial tally of bank owned homes sold in Kitsap for the year was 287 units out of 2,599. That is 11.04% of all solds in Kitsap County on incomplete data. If you throw in short sales and other distressed sales I will bet that number begins to approach 20-30%.

According to the Kitsap Economic Development Alliance (KEDA) the unemployment rate in Kitsap County was estimated at 7.6% in November of 2009, lower than the national average.

Kitsap Employment Statistics

Conclusion: Inventories of foreclosures and bank owned homes in Kitsap County will continue to be the major influence on price. We are likely to see an increasing supply of Other Real Estate Owned (OREO) clogging up bank balance sheets and housing inventory for the foreseeable future.

My sympathies to those of you that are losing your homes. I will try to help you when I can.

Buyers: Now is the time to act. Interest rates are at historic lows. Home prices on an inflation adjsuted basis are low, low, low. Opportunity knocks.

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]]> http://www.jimfreeman.com/kitsaprealestateblog/indicative-of-what/feed 0 http://www.jimfreeman.com/kitsaprealestateblog/what-would-a-kitsap-real-estate-market-bottom-look-like http://www.jimfreeman.com/kitsaprealestateblog/what-would-a-kitsap-real-estate-market-bottom-look-like#comments Sat, 06 Jun 2009 20:54:40 +0000 Jim Freeman http://kitsaprealestateblog.com/?p=80

Highest Rate of Appreciation On This Home In The Country?

No doubt about it, the real estate market outlook has been bleak for a couple of years now. Kitsap County has not experienced the trauma of say Detroit, MI but median prices are down year to year, days on market have been lengthening, Realtors have been feeling the pinch, foreclosures and short sales are up, etc.

But what will the market bottom look like? Many experts agree that the market top probably occurred in late 2006 or early 2007. Things still felt pretty hot with multiple offers on many properties and sellers were still pretty smug. It was several months after the peak before the majority of people really felt it. Could we be at a market bottom now or soon?

There are some signs that might be the case. US News and World Report has ranked Bremerton-Silverdale as the top MSA in the country that will enjoy the fastest price appreciation over the next ten years. Why? Their premise is that the Puget Sound Naval Shipyard, the Puget Sound’s third largest employer provides steady reliable income and when families’ incomes increase so do home prices.

It’s nice to get a shot in the arm from a national news source. It could mean that the next 3 months are the best opportunity to buy in all of Kitsap because of the perfect storm of low prices and low mortgage rates. The enormous growth in the federal deficit and money supply could portend some serious inflation if the economy begins to recover ever so slightly. Rates have bumped up off what appears to be the bottom in recent weeks to 5.25 to 5.5%. I suppose the high wages at PSNS have more than kept pace with inflation over the years but compared to the diversified, robust private sector economy of King County Kitsap usually loses out in income and population growth to our eastern neighbor. There is no reason to expect that Kitsap’s population growth will accelerate over the roughly 1% per year average of the last five years. Of course, starting from the relatively lower price base here perhaps USNWR could be right on the money as far as the rate of home price appreciation. It happened before in the last run up.

Conclusion: Buyers can buy at today’s prices with a high degree of confidence that they will not lose money if they stay in the home for at least 3-5 years. They have an opportunity to lock in low rates an  d low payments at what are historic lows. “Shadow inventories” (i.e. bank owned properties, listings that expired unsold, short sales and other distressed sales) will continue to hold prices down for at least 12-18 months. If sellers really want to sell or need to sell they will still need to price their offering skillfully. Buyers have a lot of alternatives.

How can you read the tea leaves about real estate market cycles? The National Strategic Investors Corporation is sponsoring a free educational webinar by Robert Campbell, author of “Timing The Real Estate Market”. He will teach us how to gather, compile and analyze the data to tell you what point you are at in the real estate market cycle for any particular MSA. Follow this link to register:

Market Timing Educational Webinar

Comparing that to the Colliers Report of the same period the downtown Seattle totals were 37,779,190 sf with a direct vacancy of 8.31%. Both markets saw an increase in inventory because of new construction.

Kitsap added 137,416 sf, mostly in Bremerton, Bainbridge Island and Silverdale. While there was a positive absorption of space for the period, the vacancy rate increased from 12.55% in October of 2007.

Downtown Bremerton Renaissance

The conclusion? Absorption of space up to October of 2008 was acceptable but there is anecdotal evidence that everything halted severely after that. New construction plans have been put on hold indefinitely and a number of largely vacant buildings have been put up for sale. Landlords can expect to lose existing tenants more than gain and should look to manage their properties well until some sort of a turnaround.

It is a good time to be buying for cash flow and certainty of leasing income with the caveat of finding reasonably priced debt financing.

For more detailed information on specific sub-markets or properties email your request to jimfreeman@jimfreeman.com.

(1) Source: Bradley Scott

Port Orchard waterfront and marina

The much beloved Natural Health Food Store has moved to the Westbay Center in downtown Port Orchard. For the past 27 years owner Patricia Anderson has helped thousands of South Kitsap residents with education and products to improve their health through good eating habits. The new store location is 1341 Bay Street, Suite A and is open for business.

This applies to local retailers as well as national chain stores but the experienced local store owners know that the fact that they live in the community and have the opportunity to build social connections with their customers can give them a competitive advantage over the chains with their reliance on price. Ms. Anderson has a number of plans to add products and services to her store to deliver more value to her customers.

Nearly all retailers in Kitsap are suffering from a drop in sales. This is showing up as increased vacancies in the various Kitsap retail centers, although not yet at crisis levels for mall owners. As of the summer of 2007 retail vacancies were still below 7%. If consumer buying habits remain depressed we could see vacancies rise to double digits in retail for the first time in at least a decade.

With the addition of Natural Health Foods the Westbay Center in a counter trend to rising vacancies is able to offer a greater variety of goods and services through local vendors including Café LaGarmache’ Catering, Pedro’s Mexican Grocery and Restaurant, Help Line, a driving school, a tobacconist and the Hi Tide Tavern and Restaurant.

Going Up Or Down?

Year to year comparisons of home sales in Kitsap County continue to broadcast bad news. The NWMLS statistics report for October 2008 indicate a significant drop in volume of residential sales from 2,836 units sold (10/2007 YTD) to 2,148 (10/2008 YTD), a 24%+ decline.

This is what I call a deep background picture. But how useful is it in gaining perspective about what is happening now and for the immediate future. Is it likely that values and sales volume are likely to continue to go down?

Before tackling that question it is important to note the severity of the deeper backdrop, the collapse in the availability of credit and how that affects demand for housing by buyers that don’t currently own a home. Purchases by these owner occupants tend to reduce the supply of housing. Diminishing credit tends to reduce the pool of these buyers because they are no longer able to buy.

On the other hand reductions in prices make home buying more affordable for a larger number of these people so the two trends combined tend to have off-setting affects. Do we have shorter term indicators that might give us a better picture of what is happening now?

Most real estate professionals that study and use statistics will look carefully at the ratio of pending sales to inventory as a more reliable short term indicator, short term meaning 3-6 months. In Kitsap County the October report shows a ratio of 233/2156 pending to current inventory or 10.8% for October, 2008 and a ratio of 290/2314 or 12.5% for October, 2007.

In September those numbers were 14.0% for September, 2008 and 10.1% for September, 2007. The healthy improvement for September 2008 would otherwise be an eyebrow raising possibility of improving conditions but the slide back again in October would not detract from the formation of a possible bottom to further price decline in Kitsap County or at lease a reduction of the rate of decrease.

Many unknowns face us in the coming year with likely reductions in incomes, increasing unemployment and the results of various stimulus plans being rolled out but if you are a buyer worried about the value your newly purchased home falling from where you bought it, you might take heart.