You can see our latest waterfront update by visiting the Kitsap Waterfront page or by downloading the waterfront update itself. Here's a quote from the report.

We have some great waterfront properties for sale. In fact, the whole high end waterfront property market is pretty well stocked. Whereas in July 2005, there were 106 active listings and 53 closed sales (about a 2 month inventory turnover rate), in August 2009 there were 202 active listings and 10 closed sales (a 20 month inventory turnover rate). With the paucity of move up waterfront buyers, the high end of our water- front market (and there are only a few waterfront homes not in the high end) is a true buyer’s market. Only the homes with best condition and value are selling.

This week there have been some doubts about the nascent economic recovery. The stock market seems to be “taking a breather”, and national sales of existing homes reversed the trend of recent months and fell 3% in August. While the housing market inventory turnover is improving, there is a large inventory (7 million homes) of potential foreclosure properties not yet on the market. This huge number is more than 30 percent higher than the annual rate of existing home sales in the US and is about twice as large as the current inventory of homes on the market nationwide. Calculated Risk points out that the Amherst Securities analysis does not see much impact from mortgage modifications programs. The time between first missing a payment and foreclosure has been lengthening. Banks are reluctant to take on more real estate and various moratoriums and judicial delays probably contribute as well.

All this means that the the time is ripe for the government to shift its incentive programs to encourage more expedient processing of short sales, as we described in a more detailed article earlier this week. Just a look at current numbers tells the story. In Kitsap County in August there were 92 bank owned active listings and 43 closed sales, while there were 142 short sale listings and only 12 closed transactions. So a bank owned (post foreclosure) listing is about 5 times as likely to sell as a short sale (preforeclosure) listing. Considering that virtually all parties derive added benefits from the short sale versus the foreclosure, you’d think we could make more of them close. With the first time home buyer tax credit expiring, we should consider that each additional purchase from this program was costing $43.4k, not $8k, if we consider the cost to obtain each additional sale. Maybe implementing a loan servicer incentive to complete short sales would be more effective stimulus - again see details.

Each month we look at affordability as a means of seeing how close our market is to returning to its pre bubble conditions. The Washington Center for Real Estate Research provides local affordability calculations that we can use to check on housing affordability using current median prices and interest rates. We assume that a buyer making the median family income puts 20% down on the median priced home and obtains a 30 year fixed rate mortgage. We assume that a first time buyer making 70% of the median income puts 20% down on a house priced at 80% of the median and obtains a 30 year fixed rate mortgage. We assume that both buyers can afford to spend a maximum of 25% of their monthly income on the principal plus interest of the loan. Using the annual averages of median price, median income, and average annual 30 year fixed interest rate since 2003, we plot an affordability index equal to the maximum affordable payment divided by the actual payment. When the index is greater than 1, the loan is affordable to the typical buyer. When it is less than 1 some buyers cannot afford to purchase. Our numbers for 2009 are estimates using the latest monthly data for median prices and interest rates (2008 has been updated with average annual values), and an estimated median family income for 2008 and 2009. With interest rates falling from 5.33% last month to 5.22% in September for a typical 30 year fixed rate conforming loan and the median price dropped a few percent in August to $245,000, affordability is very good. Thus for the first time in several months we see both interest rates and median price dropping. Keeping in mind how median prices can be deceptive, you should be aware that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges. The affordability index improved to 1.25 in August from 1.21 in July. First time buyer affordability improved to 1.10 from 1.06 last month. Affordability improved this month after 5 months of declines. Below is a  graph of the year-to-year changes in affordability and a second graph showing month-to-month affordability progress over the past year.

Year	2003	2004	2005	2006	2007	2008	2009
Annual Average interest rate	5.83	5.84	5.87	6.41	6.34	5.80	5.22
Median Income	$53,160	$53,923	$54,582	$58,304	$60,719	$65,000	$65,000
Median Price	$184000	$206900	$250000	$275000	$290343	$265000	$245000
Monthly payment	$867	$975	$1182.43	$1378	$1443	$1244	$1079
Affordable payment	$1,108	$1,123	$1,137	$1,215	$1,265	$1,354	$1,354
Affordability Index	1.28	1.15	0.96	0.88	0.88	1.09	1.25
1st time buyer payment	$693	$780	$946	$1102	$1155	$995	$863
1st time buyer affordable payment	$775	$786	$796	$850	$885	$948	$948
1st time buyer affordability index	1.12	1.01	0.84	0.77	0.77	.953	1.10

September's APR is 5.191% on a 30-Year and 4.700% on a 15-Year, both Conforming. August's rates were higher, 5.444% on a 30-Year and 5.078% on a 15-Year, both Conforming. If you qualify for FHA or VA loans (or the newly popular USDA loans), these programs have are attractive for low downpayment buyers. Limits for FHA and conventional conforming loans went up with the stimulus bill signed earlier this year. FHA maximum is $475,000, and the conventional conforming limit has returned to $475,000. Lending programs for jumbo loans have improved considerably, with the larger banks starting to come back to this market. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 5.895% on one major bank web site - down about half a point from last month). Local credit unions and savings and loans may be able to beat this rate for some jumbo loans. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/ .

Most everyone probably assumes that the $8,000 first time homebuyer tax credit will be renewed before it expires at the end of November.

The Senate bill sponsored by Johnny Isakson actually proposes to increase the credit to $15,000 and have it apply to all home buyers, not just first time buyers. The main arguement for doing this is that we currently have a market of about 40 percent first time buyers, 30 percent investors, and only 30 percent regular buyers who normally make up the bulk of the market. The move up buyer market is very thin. A $15,000 credit might get the move up buyers back into the market. Still with deficits running high there seems little chance that Congress will tack on to the existing arrangement.

In fact, there is opposition to any renewal from some camps, including from many economists. The argument is that most people who have purchased would have bought the house anyway, so as we've reported earlier, the cost for each additional buyer resulting from the credit is much higher than $8,000.

While Fed Chairman Ben Bernanke has pronounced that the recession is “very likely over”, there have been articles in recent news cycles drumming a different beat. “Halting Recovery Divides America in Two” and “The Two Track Economy” tell about how this recovery is playing out for the haves and have nots. Our banking system provides a good example, where discussions like “1,000 Banks to Fail in the Next Two Years” sit beside “Banks Too Big to Fail Have Grown Even Larger”. The term “too big to fail” refers to the FDIC term for when a bank is insolvent- it “fails” and FDIC closes it. According to Lawrence Ball’s, “Money, Banking, and Financial Markets”, in 1984 Continental Illinois bank, once the 7th largest bank in the US, became insolvent through bad loans to energy companies and the governments of developing countries. Regulators feared the effects of letting the bank fail since over 2000 smaller banks had accounts with the bank, 66 of which had deposits exceeding their total capital and 113 had deposits of more than half their capital. “Too Big to Fail” was coined with the bailout of Continental Illinois, which ironically was later absorbed into Bank of America.  Bailouts have created moral hazard among the large banks. While Fed and Treasury officials have not quantified the consequences of failure of Bear Stearns, Merrill Lynch, AIG, Wachovia Bank, Washington Mutual, and others in the same terms as Continental Illinois, each has received a government bail out of sorts rather than let the creditors suffer the consequences of “failure”. As a result, a “Raft of Deals for Failed Banks Puts U.S. On Hook for Billions”. Now 10 days before the G-20 Summit in Pittsburg, President Obama is urging world leaders to address financial regulatory issues, and economist Joe Stiglitz says that current banking problems are worse than they were when Lehman Brothers failed a year ago. As an example, Bank of America’s stock is more than 5 times higher now than it was at market bottom earlier this year, and they are now profitable enough to repay a portion of the bailout (in exchange for reducing the government’s involvement in its affairs). Meanwhile among those not too big, a thousand smaller banks will fail and “Millions More Foreclosures Are Coming”.

Each month we publish a snapshot of several local markets to show variations in our larger Kitsap County real estate market. August's inventory of homes for sale fell by 27% from a year ago and was 2% lower than in July. The listing inventory fell sharply late last year and has never recovered this year, implying that there is a considerable shadow inventory of homes with sellers waiting for a better market. The County has a listing inventory turnover rate of about 7.4 months, slightly worse than July's 7.1 months, but still considerably better that we've seen for the past year and a half. Inventory turnover varies greatly by price, with an inventory turnover as low as 3 months for the lower price ranges and 3 to 10 times longer turnover for homes priced above $400,000. August's closed sale median price ($245,000) was down 3% from July and was down 13% percent compared to a year ago.  The number of pending sales in August was up 24% from a year ago and just about the same as in July. The links to regional market trends below will show both tables and graphs that further enhance the data reported below.

See graphs at http://www.bprowse.com/kitsap_market_trends.

Bainbridge Island Real Estate
Bainbridge Island residential properties were selling for an August median price of $592,000, about 5% lower than in July. The more stable three month moving average of closed sale price rose 3% from last month to $695,400 and is 16% higher than it was a year ago (because of an exceptionally high median 2 months ago - recall that the median price can be misleading when the price distribution of sales is changing). The Kitsap County 3 month moving average median price has fallen 9% over the past year. The 3 month moving average for Bainbridge Island's number of  closed sales is 10% lower than a year ago. The 3 month moving average number of pending sales in August rose 21% from a year ago. The 3 month moving average of closed sales is up 12% Countywide from a year ago. The number of active listings on Bainbridge (251) is down 14% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 13.9 months, worse than the 10.5 month turnover rate of last month . Bainbridge Island is a buyers market.

See graphs at http://www.bprowse.com/bainbridge_island_market_.

Bremerton Real Estate
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 $165,000 at the end of August, about 10% lower than a year ago and down 3% from last month. The more stable 3 month moving average was 9% lower than a year ago.  The Kitsap County 3 month moving average median price has fallen 9% over the past year.  Bremerton's 3 month moving average for number of closed sales is up 11% from a year ago (compared to a Countywide rise of 12%). The 3 month moving average number of Bremerton pending sales is up 46% from last year, but recall this number includes pending short sales that may not close. The number of Bremerton active listings (178) is 31% lower than a year ago. The inventory turnover (total Bremerton homes on the market divided by number sold last month) is 8.2 months (significantly worse than the 4.9 last month but definitely improved from 13.6 months a year ago). The Bremerton market is probably still a buyers market because of shadow inventory that has been pulled off unsold.

http://bprowse.com/bremerton_market  

North Kitsap Real Estate
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 $242,000 at the end of August, 51% lower 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 18% compared to a year ago.  The Kitsap County 3 month moving average median price has fallen 9% over the past year.  The 3 month moving average number of Kingston closed sales is the same as a year ago, while the number of pending sales is 25% 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 12% Countywide from a year ago. The number of active listings in Kingston (68) is down 35% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 13.6 months (worse than the 8.5 months last month). Sales in North Kitsap still seem to be slower than farther south in the County. Kingston is a buyer's market.

http://bprowse.com/north_kitsap_market  

Poulsbo Real Estate
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 August median sales price for Poulsbo was $282,960, down about 17% from a year ago. The more stable three month moving average closed sale price was $309,320, about 8% lower than in August 2008. The Kitsap County 3 month moving average median price has fallen 9% over the past year. The 3 month moving average number of closed sales in Poulsbo rose 6% from a year ago. The number of closed sales is up 12% Countywide from a year ago.  August pending sales were down 19% in Poulsbo. Recall this number includes pending short sales and new construction that may not close soon. The Poulsbo listing inventory (111) is 35% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 4.4 months, better than the 6.4 months reported last month. 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 it looks like it has improved recently.

http://bprowse.com/poulsbo_market  

Silverdale Real Estate
Homes in Silverdale were selling for a August median price of about $270,000. This median is down 2% percent from a year ago. Silverdale's more stable 3 month moving average median closed sale prince in August of $308,500 was up about 9.4% from a year ago. The Kitsap County 3 month moving average median price is down 9% compared to a year ago.  The 3 month moving average for Silverdale's number of closed sales was 36% higher than a year ago, compared to a rise in closed sales of 12% for the County as a whole. The number of Silverdale pending sales in August is up 33% from a year ago, but recall this number includes pending short sales that may not close. The number of active listings in Silverdale (88) is 34% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 5.5 months, worse than last month's rate of 3 months but still very good compared to many areas. 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.

http://bprowse.com/silverdale_market  

Closed sales this year are 4% behind last year (6% behind last month), pending sales are running 27% ahead (27% ahead last month). The County has a listing inventory turnover rate of about 7.4 months, down from July's 6.4 months but still pretty good compared to earlier in the year and in 2008. In July, there were 284 closed sales and 346 pending sales. In August there were 243 closed sales and 348 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales. 

A typical pending sale should close within 60 days, so we should see the closed sales lagging pending sales by about 2 months. However, in our situation the closed sales level has not reached the pending sales level for 6 months, so something else is up. Tighter lending standards, delays in approving short sale offers, and sellers and bank owned properties with little room to give have made it more difficult for Realtors to close sales. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-09. TThe inventory turnover also varies significantly by price range, with higher priced homes selling more slowly than lower priced homes. See the graph below for a better perspective - note that this month’s graph shows that while turnover is still very fast below $200k, it actually got worse in the $200 to 300k range. However, in the higher price ranges it is definitely improving even though it is still slow. 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.

Listing Inventory

Kitsap County's residential inventory in August (1793 listings) is about 2% lower than July and down about 27% from a year ago. This trend is counter to most years and suggests, at least at this point, that a portion of last year's sellers may be waiting for conditions to improve.  In part inventory has been held down artificially by the accounting for short sales, where properties with offers still awaiting bank approval are shifted to pending status even though many of these properties are still open to receive other offers.

Kitsap Listing Inventory

Pending and Closed Sales

The number of pending sales in August was up 24% compared to a year ago and about the same as July. The statistics for pending sales (compared to August pending sales last year) varied for different parts of the County. Below is a messy graph showing the 3 month moving average of pending sales for different parts of the County. Note the improvement in Bainbridge Island and Poulsbo, where the median home prices are higher, while areas like Bremerton appear to have leveled off. Also the strong rise in Port Orchard stood out.

The 3 month moving average number of closed sales Countywide is up 12% compared to a year ago, improved from plus 10% last month.

Median Sales Price
The median price in Kitsap County has been pretty steady this year, and is up slightly from the beginning of the year. August's median price ($245,000) was down 2.6% from July (see graph of 3 month moving average below), and is about 13% lower than a year ago. This low median price coupled with historically low interest rates (but higher than earlier this year) has maintained good affordability. Conventional mortgage rates have been holding fairly steady. Jumbo loans are becoming more accessible - they are offered at about .8 to .9% higher than the 30 yr fixed rate conventional.  With passage of the President's Stimulus Program, the conventional, VA, and FHA loan limits were restored to $475,000 in Kitsap County, which should give a lift to sales of higher priced homes. We have reworked our median price graphs to show a 3 month moving average of prices, which will better show trends and reduce the month-to-month fluctuations.

Kitsap Median List Price

The August median list price fell from $339,250 to $337,500, continuing the downward trend of last month. This market is in transition, with the percentage of sales in the upper price ranges still depressed compared to the past several years and what could be a large number of listings withdrawn into a shadow inventory that could return to the market if prices improve.