Even when these securities are sold Fannie and Freddie will usually hold some re-purchase risk in the event of default or other payment guarantees to the bond holders in the event of mortgage defaults. Thus, the financial guarantee that these companies are able to offer is determined by what regulators call tier one capital. The tier one capital of these companies has been depleted due to mortgage defaults and is thus reflected in a lowering of their stock prices.

This bad news and the failure of Indymac Bank due to the same phenomena follow all the previous 18-24 months bad news for home loans. They follow massive changes in lending rules addressing down payment requirements, income ratios and credit score based loan rates that cumulatively have reduced the supply of new mortgage money and disqualified more than half of potential home buyers due to credit.

Read about the recent developments in the mortgage market.

Less supply of buyers and mortgage money means falling prices. How is this reflected in Kitsap home sales statistics?

Number One: Inventory Is Up Year To Year:

Total actives in the month of June 2007 were 2,339 homes and in June 2008 there were 2,462 homes, up slightly. Interesting to note that the June 2007 ytd inventory was 3,746 and the June 2008 ytd inventory was 3,746 homes, down A LOT. This probably means that fewer people are even attempting to put their homes on the market and that the speculative “flips” are stopped dead in their tracks (professional investors excepted).

Number Two: Total Volume Of Sales Is Way Down.

June 2007 YTD units sold was 1,699 and June 2008 YTD units sold was 1,229, a 28% decrease.

Number Three: The Kitsap County Median Home Price Is Down 7.6%

The June 2007 median price was $292,000 and the June 2008 median price was $269,900

Number 4: The Number of Pending Sales In Kitsap County Has Decreased.

Pending sales in June 2007 YTD was 2,088 and in June 2008 ytd was 1,436.

Pending sales are a better short term indicator but the gross numbers do not reveal trend changes as accurately as trailing 12 month moving averages of the pendings/inventory ratio but they do reflect a bad condition. The question is: What does the future hold for sales volumes and prices?

My prognosis: With continuing reductions of home loan money and reductions of the pool of buyers due to credit adjusted underwriting sales will lag and prices continue to fall some more.

What can homeowners and the Kitsap community do? One suggestion is to work harder at economic development. Increasing incomes and economic opportunity attract new residents and strengthen existing ones to qualify for home loans. One great opportunity is to strengthen agriculture in the county. Have a look at the Kitsap Community and Agricultural Alliance who are working to do just that.

Due primarily to military deployments Bremerton actually lost population from 2004 to 2005. Despite the loss of population average home sale prices for Bremerton Wa real estate rose dramatically with an average gain of about 16% for 2006. That could be due in part to the fact that Kitsap county ranked 7th in the state for family income at $51,982 in 2005. Kitsap County as a whole ranked the lowest for population growth of the six counties including Kitsap, King, Snohomish, Pierce, Mason and Jefferson in 2006.

Bremerton plays a larger role in the economy of the county because it is the site of the Puget Sound Naval Shipyard and a homeport for several U.S. Navy ships. With over 13,000 civilian employees plans for the shipyard and homeport affect the economic outlook for the entire Kitsap County. During World War II employment at the shipyard grew to over 80,000 people. Housing was scarce and much of the housing stock in existence today was constructed with orders from the military. Much of that older housing stock was actually pretty good quality but today many real estate investors and homeowners are buying Bremerton Washington houses on developed lots to tear them down and re-build.

The State of Washington recently reported strong growth in the construction and services sector which partially offset osses at the shipyard due to a re-organization of the mix of activities conducted there. While is has slowed from that torrid pace average Bremerton Washington houses average sale prices may rise 5-8% again in 2007, particulary because of the successful development of Bremerton condos along the waterfront. That combined with massive public investment in the ferry-Kitsap Transit intermodal development, government office buildings, a waterfront park and convention center, marinas, hotels and street retail has everyone buzzing about the bright future of Bremerton. Some of those people working in the more than 130,000 jobs in downtwon Seattle, only half of whom living in the city own their homes, might well be attracted to lower cost housing in a newly developed exciting small urban center less than an hour commute away by water. Forward looking people investing in real estate might well see many opportunities with a move to Bremerton as an attractive Seattle area real estate alternative.

What is often overlooked though is that it is the people that have perceptions about values and make decisions based on those perceptions are the true drivers of markets. Let me give you a recent example that I was involved in. I had listed a small stand alone, owner occupied commercial building in Poulsbo. One of the owners, Gary Anderson CPA, along with his partners had just acquired another accounting practice and had outgrown his practice and therefor needed to move to larger quarters. They listed the property with me, Jim Freeman, and I began the marketing process.

Gary Anderson CPA, by the way, is a great public accounting firm in Poulsbo. Gary, a number of his associates and a greater number of his clients are real estate investors and owners. He has helped a great number of people become seriously wealthy with his tax and structuring advice. I definitely rely on him for counsel in complex transactions.

Kitsap Real Estate Markets Cooling(???)

Statistics from the last quarter of 2006 definitely indicate a slowdown in sales, an increase in days on market, an increase in the number of listed homes in inventory divided by the number of sales for Kitsap real estate housing markets. The “trend reversal” was rather dramatic from the 3rd quarter to the fourth quarter of ’06. Nobody rang a bell but people’s perceptions had changed on the buyers’ side in just about that length of time but sellers’ perceptions were still lagging.

But what about Kitsap commercial real estate markets? Is there a correlation as the statiticians would say. When Gary Anderson’s building came on the market the bloom was defintiely off the rose in housing but within about 2 weeks we had procured multiple offers and the building sold eventually for $223 per square foot, “just like the good old days” of less than 6 months prior in housing markets. 

So, are Kitsap real estate markets really cooling? The Anderson CPA firm’s perceptions of the future growth of business in Kitsap county real estate was demonstrated by their decision to acquire another firm so they could improve the quality and breadth of their service to a growing market. Their decision to sell their building in what others may have perceived as a declining market proved otherwise. Does the successful marketing of their owner occupied commercial building portend business confidence in Kitsap real estate and possibly indicate growth in jobs? Will those jobs fuel greater demand for housing?

I’ll be talking more about insider secrets in Kitsap commercial real estate in  the next few posts and what affect that may have on housing values. Stay tuned.

But what about homes that are not completed but under construction? Then, maybe we could count the numbers of homes under construction on that day and estimate their completion schedule to add a little more to our count but what day do you want to say is the right day to count them. Oh and by the way, how about homes permitted but not yet started? Or how about those that are designed but not yet submitted for permits? How about those that are just a gleam in the developer’s eye?

Another thing, maybe our boundaries are flawed. Should we only think about homes within the city limits? Don’t homes adjoining the borders in the suburbs count? What about the condition of the homes included inthe count? Will some Bremerton homes or silverdale real estate for sale just be uninhabitable? How would you tell that? Can’t prospective buyers for Bremerton consider other Kitsap real estate areas like Silverdale real estate or Port Orchard real estate? Sure they can. People looking in Bremerton might also consider Pierce, King, Mason or Jefferson Counties but a smaller number will consider ranging that far afield.

Jim Avery, Kitsap County Assessor tells me that there are about 85,000 one to four family dwellings in the county and maybe up to 90,000 living units within that data set. How do these factors affect housing prices and values? What other factors influence values? What are the most important factors? Do they change over time?

There are some big changes in store for Kitsap County real estate due to the entry into the market by large homebuilders like D.R. Horton and Quadrant Corporation. They have purchased large tracts of land for housing development that when completed will represent a huge change in Kitsap real estate and way of life. What are your thoughts? We will continue this thread in future posts.