Robert Shiller of the Case-Shiller Housing Market Index

Real estate investors, lenders, brokers and increasingly homeowners need to track home values more closely to make decisions that have outsize effects in their personal financial lives and collectively on the economy. One of the most watched housing indices is something called the Case-Shiller Index developed by Yale economist and author Robert Shiller and his graduate student, Mr. Case. The index is so closely watched because it tracks price movements of actual homes in major markets over time rather than rely on statistical medians that cannot correct for differences in the types of homes that are developed and sold in regional or SMSA markets in different market cycles.

To understand real estate market cycles I highly recommend reading a book by author Robert Campbell. Campbell also publishes a bi-monthly real estate market timing newsletter the predictions from which I share with my clients.

But, for more insight from Robert Shiller check out this recent interview with Robert Shiller by the Motley Fool:

http://www.fool.com/investing/general/2010/04/20/shiller-the-housing-recovery-could-be-on-shaky-gro.aspx

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.

Announcements by Fannie Mae and Freddie Mac Will Impact Availability of Home Loan Financing In Kitsap County

If you read the news or absorb it from other media you a re likely aware that something called the secondary mortgage market supplies the funds for our home loans. So what is the secondary mortgage market?

When you borrow money to purchase or re-finance a home loan the company you initially deal with is called the originator. They originate the loan you receive. Most often, that company sells that loan to an investor who then collects hundreds and thousands of loans into pools. Then that company or in many cases others financial firms create a new security instrument (bonds) secured by a possessory interest in the loans. This is called a mortgage backed security. The pool of loans is held by a trustee (usually a trust department of a large bank). The trustee manages a mortgage servicer who then collects the payments form the mortgage loans and transmits the interest and principal to the trustee for disbursement to the people who purchased the bonds (bondholders) secured by the pools.

Bonds are sold to different kinds of investors in what are called tranches. These investors are seeking shorter and longer term maturities and yields. In this way the cash flows of all of the different loan payment terms are collected together and paid out in a form different form the manner in which they are paid in. Truly, these securities created by the bond indentures are rather marvelous examples of financial engineering.

When constructed upon loans with sound underwriting they provided a large, stable source of investing second only to the US Treasury securities market. That is, they did so prior to the 2005-2007 meltdown.

You see, the massive rise of national savings accumulated in countries like China and India created unprecedented masses of capital in the world that sought safe places to go. In 2005 The United States had a savings rate of 2% and accumulated savings of $158 Billion not including the value of real estate or stocks held as investment or home. China’s savings rate was 50% and $1.0Trillion. The Indians were saving at a rate of about 26% of income. It is not difficult to imagine how these thrifty populations and especially their governments, accumulated sums of capital that created an imbalance in the supply and demand of capital and safe vehicles in which to invest.

Well, times have changed and the poorly underwritten US home loans created to fill the unprecedented demand for securities eventually lead to the meltdown in the secondary mortgage market. When private investors indicated they were no longer interested in poorly constructed securities by, well, not buying them this put a little hitch in the giddyap of mortgage money supply. We probably all remember what happened next. Money supply goes away. No one can borrow money to buy houses. The roller coaster comes to a halt. Home sales volume plummets. New home builders go out of business. Banks take back sub-divisions. Lehman Brothers, Bear-Stearns and AIG go bust and the federal government ride to the rescue with the troubled asset relief program or TARP.

So, just what was TARP again? Well, the Federal Reserve created $1.3Trillion of new money out of thin air and used it make “open market” purchases of secondary mortgage market securities and treasury securities. They bought mortgage backed securities bonds in part through the government sponsored enterprises (GSE’s) like Fannie Mae and Freddie Mac. The FHA became the largest purchaser of newly originated loans and the federal government stepped back to watch private investors return to the capital markets.

Guess what?

The private investors haven’t returned yet. In 2009 and through the present in 2010 the GSEs purchased more than 90% of loans purchased and Moody’s noted since Q307, the Fannie and Freddie reported seven consecutive quarterly losses totaling $86.9Billion and $63.7Billion, respectively. So what, you ask, for Kitsap real estate?

A month ago Fannie Mae thought its forecast for mortgage funding would rise 2.8 percent in the first quarter of 2010, but now they’re saying it could drop 17.2 percent. On top of that they slashed their forecast for new loans for the year from 1.97 trillion in 2009 to 1.31 trillion in 2010.  That’s a 33% drop, one third less.  “I still don’t think investors and the media at large have grasped the variety of consequences that a year over year drop in mortgage volume in 2010 will bring. Just think about all the lost jobs and income or how many times ‘mortgage banking revenue’ has driven bank earnings,” warns mortgage industry analyst, Mark Hanson.  “A $1 trillion origination year would be down about 66% from the bubble years average and 75% from the peak.”  The fact that mortgage rates are so ridiculously low right now, and yet loan volumes and refinances are not gaining, is not a good sign.
Could this mean that less money will be available for home buyers for the rest of this year? Will congress renew the first time home buyers tax credit scheduled to expire on April 30, 2010? What will it mean that new home construction is at records lows for the entire time that the government has been collecting that information, reducing the supply of housing coming into the market? What does it mean that 17% of the “supply” of foreclosures in Kitsap County have entered pending status in the last 30 days?

I am not a genie so I can’t tell the future with any certainty. However, I would not waste what could be the perfect storm of low home prices, low mortgage rates, relative abundance of mortgage money and an $8,000 tax credit to go by the wayside.

Anthony Cota of Sound Lending is a good fellow to contact to see if you can get a home loan today before things change. You can call him at 877-312-5100.

The five properties that we had on the tour were chosen because our poll of area real estate agents had indicated that they were special values based upon their listing price. And guess what? Every one of those properties has gone under contract.

And, the inventory of foreclosure properties has been reduced by quite a bit. Maybe the government is serious about the first time home buyer tax credit deadline of April 30? Could be. It seems that a lot of buyers are taking it seriously because as of Friday morning the inventory of foreclosed properties in the Bremerton area was 20 homes. But, the number of properties that had gone pending was 31. Normally, the ratio of active to pendings is more like 5 or 10 to one. In normal markets this would signal a probable rise in prices. Of course, this is what we saw before last year when the first tax credit deadline approached.

To quench the fire of your statistical inquiry even further just a couple of weeks ago the total inventory of foreclosed homes in Kitsap real estate was exactly 100. The inventory today is only 83. Hmmmm. What could that mean?

This is the type of real time information and insight that you need to make successful foreclosure purchases.

If you have a friend that could use this information and help please forward this message to them. They can register for the tour by visiting Kitsap and Gig Harbor Foreclosure Tours.

Will Farms In Kitsap Be Preserved As Productive Farmland and Open Space or Subdivided For Housing?

Hansville Nursery

Jim Freeman, associate broker at Coldwell Banker Park Shore announced on February 15, 2010 the listing of the 144 acre Hansville Nursery land for sale. Also known as the Old Homestead Plat the owner, Olympic Property Group LLC, a subsidiary of Pope Resources Group, has operated the land as a Douglas Fir tree nursery for more than 20 years. Recent price and volume declines in the lumber industry forced a decision to shutter the nursery operation in 2009 and put the property on the market.

Download a sale brochure for the Hansville Nursery here.

The infrastructure improvements installed to support the nursery operation make it an ideal site to consider conversion to pastured grazing and eventually vegetable and fruit production. The improvements include a cold storage warehouse, a processing warehouse, a two bay equipment maintenance garage, a five bay tractor shed, four miles of drain tile to collect and manage water storage ponds, a well, an irrigation system, truck dock, three phase power, an office, restrooms and crew room. The entire property is surrounded by an eight foot deer fence and adjoins densely populated housing subdivisions known as Shorewood. Neighborhood residents often enjoy walks through the property and many have asked about the possibility of preserving the property from further subdivison.

What's Next For Kitsap Farm?

Because of the old Homestead Plat plans a portion of the property enjoys paved and gravel roads. Public water is available from a system that adjoins the southern boundary. No sewers are available in the area.

Farms play a significant role in Kitsap cultural, historical and economic life although most people are unaware of this. The Kitsap Conservation District has estimated that there are 9 major watersheds in the county and a greater number of lesser watersheds with 1,874 tax parcels as being used for agriculture not including Christmas tree farms. The total area of these parcels is 10,819 acres with an average size of 6.3 acres. That being said the trend in recent years has been a diminishing acreage under cultivation in the county and a trend away from local food production to things like hay production and equestrian uses.

As a member of a community organization dedicated to building a local food network Jim Freeman and the Kitsap Community and Agricultural Alliance have been active in efforts to preserve farmland in Kitsap County and plan for succession of aging farmers. The KCAA has efforts underway to apply for farmland preservation grants through the Washington State Conservation Commission and the Recreation and Conservation Office. Discussions have also been held with the PCC Farmland Trust and the Great Peninsula Conservancy.

Other uses for the property as improved include tree nurseries, forest land and open space. Otherwise, the property is capable of subdivision into as many as twelve building lots due to the current zoning and historical entitlements.

For more information please visit Land For Sale In Kitsap County.

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.

Foreclosures are on everyone’s mind these days. The media, homeowners facing foreclosure, lenders, real estate licensees, first time home buyers and move up buyers. I have reported earlier on how the foreclosure homes inventory has reached such proportions that when viewed as a class, foreclosure home sales have become the elephant in the room determining the price of just about every other home on the market.

As far as buyers are concerned the question is not so much about foreclosures as about questions like:

• How can we buy a house?
• How do we get a good deal?
• How can we find money to buy a home?
• Can we do any of these with our credit the way that it is?

Buying a home successfully is a question of following a duplicatable system. It is possible to make some huge mistakes in buying, possibly costing you tens of thousands of dollars or sticking your family in a home that just will not work for them or you. Buying bank foreclosures does not necessarily mean that you will get a good deal. Buying the right home in a market dominated by foreclosure pricing can be.

I have assembled some awesome tools for first time and move up buyers alike at www.KitsapRealEstateAdvisor.com. You can search for properties in Kitsap and Gig Harbor ( or really anywhere within the territory covered by the Northwest Multiple Listing Service), request custom lists of special properties such as bank owned properties, zero down homes, waterfront homes, new construction, golf course properties, land and commercial properties.

Registered members of the site can save their multiple searches for later review and comparison. We have weekly tours for these properties that give people who are still trying to decide if they wish to begin the home hunting process a chance to get inside some homes that might be a really good deal and see how it feels without any cost or obligation.

Over time we will be adding more content and value to the site including an online course to teach buyers the get-it-right-every-time system for buying a home the right way. Please visit www.KitsapRealEstateAdvisor.com for the next few weeks to see what is new. See you there

Search For Foreclosures In Kitsap

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.

Sign Up Here For Weekly Kitsap Foreclosure Tours

]]> 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