With the January median price for Kitsap real estate ($224,450) near it's lowest level in several years and the continued availability of low conventional loan rates, our affordability report this month looks very good. We expect the median home price will rise back to typical levels from last year as sales pick up this spring, but the big question is what will happen to mortgage rates when the Federal Reserve stops purchasing debt and mortgage backed securities from Fannie Mae and Freddie Mac. Supposedly rates have been driven down by this policy for the past year or more, and some parties see rates rising to near 6% by the end of this year. However, an analysis on the blog Calculated Risk disputes the magnitude of the rise, saying he expects .35 to .5% increase and citing an analysis by Amherst Securities that expects perhaps as little as .25% increase.

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. Note that unlike the discussion above these calculations only compare the affordability of standard conventional loans, not the different types of loan products that have been offered. 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 remaining nearly level at 5.12% in February for a typical 30 year fixed rate conforming loan and the median price falling in January to $224,450, affordability is improved and remains very good. The outlook for rates is that they will continue to rise in the coming year, with some experts predicting they'll reach 6% by the end of 2010. 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 1.39 in January from 1.29 in December, almost entirely due to the lower median price. First time buyer affordability improved to 1.21 from 1.13 last month. These are big improvements, but we probably cannot expect the median price to remain this weak going into spring. 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.

February's APR is 5.065% on a 30-Year and 4.573% on a 15-Year, both conforming. January's rates were 5.191% on a 30-Year and 4.573% on a 15-Year, both conforming. If you qualify for FHA, VA, or USDA loans , these programs have are attractive for low downpayment buyers. Limits for FHA and conventional conforming loans went up with the stimulus bill. The 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 5.643% on one major bank web site - lower than 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/ .

Each month we publish a snapshot of several local markets to show variations in our larger Kitsap County real estate market. Kitsap County's residential inventory in January (1437 listings) is about 5% higher than December and down about 20% from a year ago. This is the first rise in the number of listings in some time, and may be evidence that we'll see a more typical seasonal listing curve, with then number of properties for sale rising into mid summer and falling off as the we get later into the year. We may at least see some of the shadow inventory become active again as foreclosures increase and sellers come back to test the market. The County has a listing inventory turnover rate of about 8.35 months, slower than December's 6.0 months.  Inventory turnover varies greatly by price, with an inventory turnover as low as 6.5 months for the lower price ranges and four or more times that long for homes priced above $400,000. The 3 month moving average number of closed sales Countywide is up 57% compared to a year ago, up from plus 38% last month, but temper this with knowing that we were at the very bottom of our market a year ago. Closed sales were down 11% compared with December 2009. January's closed sale median price ($239,700) was almost the same as December, and is less than 1% higher than a year ago.  The number of pending sales in January was up 5% compared to a year ago.  Regional pending sales have tailed off after peaking in October 2009.  The links to regional market trends below will show both tables and graphs that further enhance the data reported below.

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

Bainbridge Island Real Estate
Bainbridge Island residential properties were selling for a January median price of $553,500, about 10% higher than in December. The more stable three month moving average of closed sale price rose 4% from last month to $515,500 and is 4% higher than it was a year ago. The Kitsap County 3 month moving average median price is about 2% lower than it was a year ago. The 3 month moving average for Bainbridge Island's number of closed sales is 20% higher than a year ago. The 3 month moving average number of pending sales in December rose 31% from a year ago. The 3 month moving average of closed sales is up 57% Countywide from a year ago (when sales were very weak). The number of active listings on Bainbridge (166) is down 14% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 10.3 months, slower than the 7 month turnover rate of last month. Bainbridge Island is a buyers market.

See tables and 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 $129,300 at the end of January, about 31% lower than a year ago and down 16% 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 about 24% less than it was a year ago. Bremerton's 3 month moving average for number of closed sales is up 10% from a year ago, but for January, there were only 10 closed sales. This will make the inventory turnover (see below) look large. The 3 month moving average of closed sales is up 57% Countywide from a year ago.  The 3 month moving average number of Bremerton pending sales is up 9% from last year. Recall this number includes pending short sales that may not close. The number of Bremerton active listings (150) is 12% lower than a year ago. The inventory turnover (total Bremerton homes on the market divided by number sold last month) is 15 months (way slower than the 5.1 last month and from 10 months a year ago). While prices are way down the rate of sales fell off as well. We'll look to see if this trend continues or is just an isolated case last month. The Bremerton market is probably still a buyers market.

See tables and graphs at 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 $299,000 at the end of January, 36% 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 up 41% compared to a year ago.  The Kitsap County 3 month moving average median price is about 2% lower than it was a year ago.  The 3 month moving average number of Kingston closed sales rose 167% from a year ago, while the number of pending sales is unchanged from a year ago. Recall again that sales at the end of last year were very few and far between and that our current pending sales include pending short sales that may not close. The 3 month moving average of closed sales is up 57% Countywide from a year ago. The number of active listings in Kingston (59) is down 13% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 14.8 months (a sharp slowdown from the 4.7 months last month). Kingston is still a buyer's market.

See tables and graphs at 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 January median sales price for Poulsbo was $287,500, down about 6% from a year ago. The more stable three month moving average closed sale price was $277,709, about 17% lower than a year ago. The Kitsap County 3 month moving average median price is 2% lower than it was a year ago. The 3 month moving average number of closed sales in Poulsbo rose 67% from a year ago. The 3 month moving average of closed sales is up 57% Countywide from a year ago.  The 3 month moving average of pending sales was up 44% in Poulsbo. Recall this number includes pending short sales and new construction that may not close soon. The Poulsbo listing inventory (80) is 46% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 6.2 months, a bit worse than the 5.9 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.

See tables and graphs at http://bprowse.com/poulsbo_market  

Silverdale Real Estate
Homes in Silverdale were selling for a January median price of about $230,000. 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 $259,667was up about 2.5% from a year ago. The Kitsap County 3 month moving average median price is 2% lower than it was a year ago.  The 3 month moving average for Silverdale's number of closed sales was 57% higher than a year ago. The 3 month moving average of closed sales is up 57% Countywide from a year ago.  The number of Silverdale pending sales in January is up 10% from a year ago, but recall this number includes pending short sales that may not close. The number of active listings in Silverdale (65) is 14% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 7.2 months, slower than the 5.2 months last month. Silverdale is probably still a buyer's market because of the shadow inventory of unsold homes not currently on the market that will deter prices from rising.

See tables and graphs at http://bprowse.com/silverdale_market  

Our most recent market report newsletter from Prowserealestate.com is reposted here in its entirety.

A recent Wall St Journal Article by Economics Editor David Wessel ("Geithner Gets Some Credit–But Still No Cheers") highlights the current paradox with the economic recovery. Stocks have rebounded, helping banks raise more capital. Mortgage rates have come down, but the value of commercial and industrial loans held by commercial banks continues to fall, recently down about 18% from a year earlier (while their cash assets have increased almost 30%). While the Treasury Secretary's policies have worked better, faster, and more cheaply in getting capital flowing back into the big banks, the lack of commercial lending hurts all but those corporations large enough to sell their own bonds. Large banks see their stock rising and want to return to paying large bonuses to their employees, while main street sees 9.7% unemployment and 15% of homeowners (almost 25% of all borrowers) owe more than their homes are worth. For them, to be told things could be worse is not comforting.

The Making Home Affordable loan modification program is in flux as officials now realize that the present program of reducing payments by adjusting interest rates and loan terms rather than reducing principal is not helping several million homeowners as anticipated. Fewer than 100,000 permanent modifications have been approved to date. Experts are predicting many additional foreclosures, since the trial modification period is approaching for many homeowners. Others are debating the merits of revising the program to allow principal reductions, allowing homeowners to stay and rent, or pushing for more short sales or deed in lieu of foreclosure sales. For those buyers making offers on short sale properties, the biggest drawback has been that the bank loss mitigation departments are understaffed and overloaded with offers and associated seller financial paperwork, thus taking far longer to respond to sellers than the typical buyer is willing to wait.

As we look at our January Kitsap real estate market, there are some other trends around the country worth noticing:

• The latest survey of refinancing by Freddie Mac shows that 33% of owners refinancing are putting cash in to reduce their loan balances, an all time high.
• The number of million dollar sales in California declined by 24% last year. In Kitsap County, while total closed residential sales in 2009 exceeded 2008 by 8%, the number of 2009 sales above $1 million fell by 12% compared to 2008. The number of sales above $2 million fell by 86% in 2009 compared to 2008.
• Half of off all outstanding mortgages are at rates that exceed 6%. Despite the current low 30 year fixed conventional rates of about 5%, the wave of refinancing is mostly over, with many homeowners (more than 25 million) lacking equity to refinance and lower their payments.

Pending sales in January rebounded while closed sales declined, much as pending sales had declined in the previous two months. Short sales, foreclosure sales, and even some non distressed sales are delayed or are failing to close because of the added difficulties in getting bank approvals and the more difficult lender climate, which makes it more difficult for any borrower to obtain a loan. In December, there were 228 closed sales and 196 pending sales. In January there were 172 closed sales and 252 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales. 

Residential Highlights
Kitsap County's residential inventory in January (1437 listings) is about 5% higher than December and down about 20% from a year ago. This is the first rise in the number of listings in some time, and may be evidence that we'll see a more typical seasonal listing curve, with then number of properties for sale rising into mid summer and falling off as the we get later into the year. We may at least see some of the shadow inventory become active again as foreclosures increase and sellers come back to test the market. The number of pending sales in January was up 5% compared to a year ago. You may recall that financial crisis really hit a year ago in December with the failure, takeover, or bailout of the largest banks, investment banks, AIG, Fannie Mae and Freddie Mac, and other entities - so the comparative numbers with the previous year will start looking better as we go forward.  The 3 month moving average number of closed sales Countywide is up 57% compared to a year ago, up from plus 38% last month, but temper this with knowing that we were at the very bottom of our market a year ago. Closed sales were down 11% compared with December 2009.

Prices are steady...
The median price in Kitsap County has been pretty steady this year, and is up slightly from the beginning of the year. January's median price ($239,700) was almost the same as December (see graph of 3 month moving average below), and is less than 1% higher than a year ago. The current low median price coupled with historically low interest rates offers good affordability. Conventional mortgage rates are now just below 5% for 30 year loans. There is speculation that rates will rise later this year, and one significant factor is the Federal Reserve's stated intention to curtail its purchases of GSE (Fannie Mae and Freddie Mac) mortgage backed securities. Jumbo loans are offered at about .8 to .9% higher than the 30 yr fixed rate conventional.  Earlier this year passage of the President's Stimulus Program restored the conventional, VA, and FHA loan limits to $475,000 in Kitsap County, which has helped sales of higher priced homes. Now the homebuyer tax credit has been reworked to give some incentive to move up buyers as well as first time buyers. Our median price graphs shows a 3 month moving average of prices, which better shows trends and reduces the month-to-month fluctuations.

Seller expectations…
The January median list price fell again from $309,000 to $299,900. This is significant since our market median list price remained nearly steady at $350,000 for a couple years before falling off significantly late in 2009. The trend of falling sale prices has convinced many sellers who remain on the market to lower their asking price. The County has a listing inventory turnover rate of about 8.35 months, slower than December's 6.0 months. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-10.

Last month’s slowing of inventory turnover rate was the result of fewer closed sales and the first increase in inventory in some time. The inventory turnover also varies significantly by price range, with higher priced homes selling more slowly than lower priced homes. We've made the point recently that the higher price ranges will be much more difficult to reduce in inventory because with today's lending environment the pool of buyers have been greatly reduced. See the graph below for a better perspective. With this month's slowing in inventory turnover, the turnover in the upper price ranges fell significantly. 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.

The number of pending sales in January was up 5% compared to a year ago. The statistics for January pending sales (compared to January sales last year) varied for different parts of the County. Below is a busy graph showing the 3 month moving average of pending sales for different parts of the County. Notice how pending sales have fallen off since their peak last fall.

That's our report for January! We look forward to having the opportunity to help with your future purchase or sale.

Brenda Prowse