Much recent news has focused on the economic slowdown. 2nd quarter GDP fell to an annual growth rate of 2.4%. With concerns about high unemployment and high government debt, government economists are weighing their options. The media have reported that economists predict a gloomier national housing market. July closed sales in Kitsap County appear to have fallen significantly (perhaps because of the rush to complete sales by the end of June), while July pending sales appear to have held fairly steady.

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’ve recently updated the income and 1st time buyer assumptions for this comparison to conform with current methods at WCRER. These updated data and calculations show not only that affordability has suffered because median household incomes have fallen the past few years, but also that affordability has not yet returned to where it was at turn of the century. Note that these calculations only compare the affordability of standard conventional loans. During the era of zero down subprime lending, other products with adjustable interest rates, interest only, or option ARM loans were used to qualify buyers for higher loans. History has shown that many of these were ultimately unaffordable. 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 10% down on a house priced at 85% of the median and obtains a 30 year fixed rate mortgage with mortgage insurance. 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 2001, 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 2010 are estimates using the latest monthly data for median prices, interest rates, and median income.

The interest rate for a typical 30 year fixed rate conforming loan has fallen to about 4.59%, a record low reflecting investment in US Treasuries as a safe haven. The June median closed sale price fell about 2% from May to $239,000, further enhancing affordability. Rates have been expected to rise at some point in the coming year, with some experts predicting they'll reach 6% by the end of 2010. However, fear of a European sovereign default and other signs of continued economic weakness may result in a longer period of low US Treasury and mortgage rates. Keep in mind that median prices can be deceptive and 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 1.23 in July from 1.19 in June. First time buyer affordability also improved to .82 from .76 in June.  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	2004	2005	2006	2007	2008	2009	2010
Annual Average interest rate	5.84	5.87	6.41	6.34	5.80	5.03	4.59
Median Income	$54467	$58464	$61786	$60,668	$59135	$57724	$57724
Median Price	$206900	$250000	$275000	$290343	$265000	$244499	$239000
Monthly payment	$975	$1182	$1378	$1443	$1244	$1054	$979
Affordable payment	$1135	$1218	$1287	$1264	$1232	$1203	$1203
Affordability Index	1.16	1.03	0.93	0.88	0.99	1.14	1.23
1st time buyer payment	$1002	$1214	$1408	$1478	$1277	$1089	$1031
1st time buyer affordable payment	$794	$853	$901	$885	$862	$842	$842
1st time buyer affordability index	0.79	0.70	0.64	0.60	0.68	0.77	0.82

July's APR is 4.686% on a 30-Year and 4.195% on a 15-Year, both conforming. June's rates were 4.812% on a 30-Year and 4.195% on a 15-Year, both conforming. If you qualify for FHA, VA, or USDA loans , these programs have are attractive for low downpayment buyers. The conventional and FHA loan limits remain at $475,000 in Kitsap County, which has helped sales of higher priced homes. The VA loan lender imposed limit is back to $417,000. The homebuyer tax credit was reworked last year to give some incentive to move up buyers as well as first time buyers.  A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 5.264% on one major bank web site - down from 5.643% last month. You should also check with local credit unions and savings and loans for jumbo loan rates. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/.

The news cycle continues to focus on the not yet stopped BP oil leak in the Gulf of Mexico (see this recent tech update on what they have been doing) and the warlike hostilities on the Korean peninsula. The stock market fell sharply in May because of investor fears that Greece or other members of the European Union might default on sovereign debt. These coupled with the flurry of real estate activity at the expiration of the homebuyer tax credit leave us with a lot of unanswered questions as we start into the summer. Kitsap County has the most housing inventory since 2008, and pending sales last month were the highest since mid 2007. Despite these upbeat indicators and interest rates near a record low, US home prices as measured by the Case Shiller Index have fallen for 6 straight months, and some are guessing that prices will continue to fall. The good news for buyers is that affordability continues to get better.

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’ve updated the income and 1st time buyer assumptions for this comparison to conform with current methods at WCRER. These updated data and calculations show not only that affordability has suffered because median household incomes have fallen the past few years, but also that affordability has not yet returned to where it was at turn of the century. Note that these calculations only compare the affordability of standard conventional loans. During the era of zero down subprime lending, other products with adjustable interest rates, interest only, or option ARM loans were used to qualify buyers for higher loans. History has shown that many of these were ultimately unaffordable. 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 10% down on a house priced at 85% of the median and obtains a 30 year fixed rate mortgage with mortgage insurance. 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 2001, 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 2010 are estimates using the latest monthly data for median prices, interest rates, and median income.

 The interest rate for a typical 30 year fixed rate conforming loan has fallen to about 4.87%, mostly the result of investors fleeing the Euro and buying US Treasuries after the Greek debt crisis. With the median price falling to $228,750, it’s ironic that first time home buyers can probably save more now than before the end of the homebuyer tax credit. Rates have been expected to rise at some point in the coming year, with some experts predicting they'll reach 6% by the end of 2010. However, fear of default by Greece or another of the suspect countries in the European Union may result in a longer period of low US Treasury and mortgage rates. Keep in mind that median prices can be deceptive and that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges (see graph showing distribution of May sales by price range).

The affordability index improved to 1.24 in May from 1.14 in April. First time buyer affordability improved to 0.84 in May from 0.77 in April. Below is a  graph of the year-to-year changes in affordability and a second graph showing month-to-month affordability progress so far this year. Affordability has still not recovered to the levels of 2001 and 2002.

Year	2004	2005	2006	2007	2008	2009	2010
Annual Average interest rate	5.84	5.87	6.41	6.34	5.80	5.03	4.87
Median Income	$54467	$58464	$61786	$60,668	$59135	$57724	$57724
Median Price	$206900	$250000	$275000	$290343	$265000	$244499	$228750
Monthly payment	$975	$1182	$1378	$1443	$1244	$1054	$968
Affordable payment	$1135	$1218	$1287	$1264	$1232	$1203	$1203
Affordability Index	1.16	1.03	0.93	0.88	0.99	1.14	1.24
1st time buyer payment	$1002	$1214	$1408	$1478	$1277	$1089	$1002
1st time buyer affordable payment	$794	$853	$901	$885	$862	$842	$842
1st time buyer affordability index	0.79	0.70	0.64	0.60	0.68	0.77	0.84

May's APR is 5.065% on a 30-Year and 4.573% on a 15-Year, both conforming. April'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. The conventional and FHA loan limits remain at $475,000 in Kitsap County, which has helped sales of higher priced homes. The VA loan lender imposed limit is back to $417,000. The homebuyer tax credit was reworked last year to give some incentive to move up buyers as well as first time buyers.  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 - same as last month. You should also check with local credit unions and savings and loans for jumbo loan rates. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com.

 

The Daily Show recently offered this commentary on the current profitability of large banks:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
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www.thedailyshow.com
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The gist of the Daily Show’s segment is that 4 banks profited every trading day during the last quarter basically by borrowing short term from the Federal Reserve at almost zero interest and lending the same money back to the government at 3.5% by purchasing 10 year Treasury bonds. They are the profit taking middlemen in a washing machine to fund large deficits to stimulate the economy. Note that the Federal Reserve and Treasury are aiding the banks in this arrangement. The public animosity towards the bank profiteers no doubt played a part in passing more vigorous reforms to financial regulations.

While on the one hand bank earnings in 2010 have been more than 4 times the earnings of the S&P 500, banks also have about $1 trillion in second liens on their books, with more than $400 billion on the books of the 4 largest banks. On the financial blog Rortybomb, Mike Konczal reports that the Bank Stress Test adverse scenario documents expected losses of 13-14% on these second liens (so banks value the second lien assets at 86% of their face value). He asserts that the current housing market might see real losses of 40-60%, considering that most of the second liens are worthless after the fall in home prices. There are 11 million plus underwater homeowners, almost 25% of all homeowners with bank loans. Konczal thinks the difference in the real losses to the big banks might be as much as $150 billion, which would require them to raise large amounts of additional capital. One analyst has predicted that the big banks will need to set aside an extra $33.2 billion starting this year because of home equity loan losses, enough to wipe out most of their estimated profits for the year. Home equity loans are a particular problem because long after the homeowner stops making payments, the banks continue to count the loan as current by adding the interest not paid to the loan balance. Second lien holders are balancing delaying the loan modification or short sale process and urging the homeowner to continue paying with action to avoid foreclosure, where the second lien holder will probably receive nothing.

Our anecdotal experience has been that most distressed homeowners have second liens. In most cases second lien holder banks have been unresponsive in releasing liens to allow short sales.  As an example, we can document a short sale that took us 13 months to complete, and we have others where the seller (and of course the buyer) has been waiting more than 5 months for a response from the second lien holder. Literally hundreds of other agents in the Certified Distressed Property Agent network are reporting the same thing. Millions of distressed homeowners are being punished by the unnecessary delay in resolving second liens. With financial reform at our doorstep, it would seem that the government could trade some of the good will that is helping the banks to profit for their cooperation in helping homeowners more quickly sell their homes.

March is rapidly coming to an end, and we still want to report on the affordability numbers. Going into the new month there’s still lots of controversy about our economy and the near term for our real estate market. Let us try to focus only on two (of a nearly infinite number of) aspects:

The new issue of The Economist proclaims “Hope at Last” and tells a story of a reviving and changing (for the better) United States.

America has relied for decades on its consumers’ willingness to spend, borne up by borrowing and the false comfort of bubbles in asset prices. Now Americans are saving more and borrowing less because the collapse in home prices has eviscerated their wealth. Bankers and regulators who once celebrated the democratisation of credit now ration it. Businesses from General Electric to Citigroup that prospered from the consumption culture are rethinking—and often shrinking—their loan books. Property developers are building smaller, simpler houses. The country’s geography is changing. Recession has slowed the rush to sun and sprawl. People are moving out of Florida and into North Dakota. Foreclosures and costlier commutes have laid low the distant suburbs, or exurbs.

On the other hand, Northwest Economist Bill Conerly tells why the latest of many attempts to help homeowners stay in their homes won’t work, titled “Mortgage Modifications Will Not Solve the Housing Problem.”

Both rental and owned vacancy rates are too high, well above historic norms.  If we keep some families in their owned property, they don't have to move to rentals.  If we offer a first-time home-buyers tax credit, we can move some families out of rentals into owned housing.  But we cannot do any more than push the peas around on the plate.

He also mentions what will solve the housing problem.

What will help?  The standard old answer is population growth.  More people means more demand for housing.  We simply built ahead of our needs and now are waiting for our needs to catch up.

Second, an improving job market will help some young adults move out of their parents' homes, and others will be able to afford to live without roommates.  That will stimulate the demand for housing units in total, and some of that demand will spread over into the owned housing market.

The February median price for Kitsap real estate ($252,435) is up about 5% from January’s low. The Federal Reserve is winding down purchases of mortgage backed securities and debt from Fannie Mae and Freddie Mac, operations which have helped to hold down mortgage interest rates and promote a fragile real estate market.  Mortgage interest rates have so far not moved much in response. As we predicted last month, the median price has moved back up to about where it was for most of last year after dipping at year end when sales were very weak. Thus the affordability numbers this month, though worse than last month, are still at about the low range of where they were over the past year.

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 2010 are estimates using the latest monthly data for median prices and interest rates (2009 has been updated with average annual values), and an estimated median family income for 2008-2010.

With interest rates remaining nearly level at 5.12% in March (same as last month) for a typical 30 year fixed rate conforming loan and the median price rising about 5% in February to $252,435, affordability has dropped from near all time high last month back into the range we saw for most of last year. 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 fell to 1.23 in February from 1.39 in December, almost entirely due to the higher median price. First time buyer affordability fell to 1.08 from 1.21 last month. 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	2004	2005	2006	2007	2008	2009	2010
Annual Average interest rate	5.84	5.87	6.41	6.34	5.80	5.03	5.12
Median Income	$53,923	$54,582	$58,304	$60,719	$65,000	$65,000	$65,000
Median Price	$206900	$250000	$275000	$290343	$265000	$244499	$252435
Monthly payment	$975	$1182.43	$1378	$1443	$1244	$1054	$1099
Affordable payment	$1,123	$1,137	$1,215	$1,265	$1,354	$1,354	$1,354
Affordability Index	1.15	0.96	0.88	0.88	1.09	1.28	1.23
1st time buyer payment	$780	$946	$1102	$1155	$995	$843	$879
1st time buyer affordable payment	$786	$796	$850	$885	$948	$948	$948
1st time buyer affordability index	1.01	0.84	0.77	0.77	.953	1.12	1.08

March's APR is 5.318% on a 30-Year and 4.573% on a 15-Year, both conforming. February's rates were 5.065% 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. The conventional and FHA loan limits remain at $475,000 in Kitsap County, which has helped sales of higher priced homes. The VA loan lender imposed limit is back to $417,000. The homebuyer tax credit was reworked last year to give some incentive to move up buyers as well as first time buyers.  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. You should also check with local credit unions and savings and loans for jumbo loan rates. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/.

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

 

Recent news from the National Association of Realtors is that December home sales were down 16% nationally compared to November, yet 15% higher than December 2008. You'll recall that November ended the initial first time homebuyer tax credit, so sales then were inflated by buyers rushing to meet the deadline. Even though the tax credit has been renewed and expanded, there isn't the same urgency on the part of buyers. With so many Americans having lost equity in their homes (we calculated 8949 homeowners underwater in Kitsap County - but many more have lost a sizable amount of equity), few are in a position to benefit from the new tax credit for move up buyers.

There is still a great deal of uncertainty in our economy, and there will be more trials over the next year. Congress (through the Stimulus bill), Treasury and the Federal Reserve (though a near zero Federal Funds target rate and the purchase of debt and mortgage backed securities from Fannie Mae and Freddie Mac) have pumped a huge amount of money (more than $200 billion by Treasury and about $1.25 trillion by the Fed) into our economy. As demand for goods and services increases, there will be a threat of inflation (too many dollars chasing too few goods). One uncertainty is whether the Federal Reserve will have the resolve to raise their target rate in spite of political pressure to keep rates low. Related to this, the Treasury has stopped purchasing mortgage backed securities from Fannie Mae and Freddie Mac, and the Federal Reserve has announced it will stop purchasing these securities at the end of March. Another uncertainty is how much interest rates will rise to attract private investors back into this market. While some experts expect mortgage rates to rise only a few tenths of a percent, others have predicted that rates will be 6% by year end. These uncertainties are playing a role in the doubts currently circulating about whether or not to confirm the nomination of Ben Bernanke to continue as Chairman of the Federal Reserve Board of Governors.

There is also uncertainty about what will be done to alleviate the perception that some of our financial institutions are too big to fail. Despite being saved by the the taxpayers late last year, many of these institutions have profited and grown this year, now making the influence of the largest bank (actually bank holding companies) considerably greater than it was when markets failed in fall 2008. The administration has recently proposed curbs on the lending and investing activities of these big banks, and while it might appear that this was a reaction to the Democrats recent loss of a Senate seat in Massachusetts, the program, at least according to one source, has been in preparation and review for many months. Just a case of bad timing.

Each month we publish a snapshot of several local markets to show variations in our larger Kitsap County real estate market. December's inventory of homes for sale fell by 25% from a year ago and was 10% lower than in November. 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 6.0 months, somewhat better than November's 6.1 months, and 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 4 months for the lower price ranges and as much as 25 months turnover for homes priced above $800,000. December's closed sale median price ($239,950) was about the same as in November and was 8% higher than a year ago (median price dipped very low in December 2008 before rebounding somewhat to near its current level).  The number of pending sales in December was up 38% from a year ago (recall that December 2008 was a very bad month for our economy) even though pending sales have fallen steeply the past 2 months (as the first time homebuyer tax credit deadline passed). Regional pending sales have tailed off after peaking in October.  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 an December median price of $505,000, about 3% higher than in November. The more stable three month moving average of closed sale price fell 1% from last month to $495,000 and is 5% lower than it was a year ago. Sales at the top of the market, while still pretty slow, did improve somewhat compared to previous months. The Kitsap County 3 month moving average median price is just about the same as it was a year ago. Note that prices tailed off at the end of last year so this parity is not unexpected. The 3 month moving average for Bainbridge Island's number of  closed sales is 50% higher than a year ago. Recall that sales were very weak at the end of 2008 and the number of closed sales at the end of last year was improved. The 3 month moving average number of pending sales in December rose 53% from a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago. The number of active listings on Bainbridge (162) is down 16% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 7 months, improved from the 11.7 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 $153,150 at the end of December, about 2% higher than a year ago and down 4% 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 just about the same as it was a year ago. Bremerton's 3 month moving average for number of closed sales is up 13% from a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago.  The 3 month moving average number of Bremerton pending sales is up 13% from last year. Recall this number includes pending short sales that may not close. The number of Bremerton active listings (138) is 25% lower than a year ago. The inventory turnover (total Bremerton homes on the market divided by number sold last month) is 5.1 months (better than the 6.1 last month and from 8.7 months a year ago). The Bremerton market is probably still a buyers market because of shadow inventory that has been pulled off unsold.

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 December, 94% higher than a year ago - December 2008 was a terrible month for Kingston home sales. 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 13% compared to a year ago.  The Kitsap County 3 month moving average median price is just about the same as it was a year ago.  The 3 month moving average number of Kingston closed sales rose 175% from a year ago, while the number of pending sales is 100% higher than a year ago. Recall again that December 2008 had very low sales and that our current pending sales include pending short sales that may not close. The 3 month moving average of closed sales is up 39% Countywide from a year ago. The number of active listings in Kingston (62) is down 21% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 4.8 months (better than the 8.7 months last month, not to mention the 78 month turnover of last year). Our guess is that Kingston is still a buyer's market because of the shadow inventory.

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 December median sales price for Poulsbo was $254,250, down about 30% from a year ago. The more stable three month moving average closed sale price was $282,709, about 18% lower than in December 2008. The Kitsap County 3 month moving average median price is just about the same as it was a year ago. The 3 month moving average number of closed sales in Poulsbo rose 50% from a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago.  December pending sales were up 50% in Poulsbo. Recall this number includes pending short sales and new construction that may not close soon. The Poulsbo listing inventory (98) is 36% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 5.9 months, somewhat worse than the 4.2 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, but looks like it has improved recently.

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

Silverdale Real Estate
Homes in Silverdale were selling for a December median price of about $274,000. 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 $275,417 was up about 5% from a year ago. The Kitsap County 3 month moving average median price is just about the same as it was a year ago.  The 3 month moving average for Silverdale's number of closed sales was 8% higher than a year ago. The 3 month moving average of closed sales is up 39% Countywide from a year ago.  The number of Silverdale pending sales in December is up 44% from a year ago, but recall this number includes pending short sales that may not close. The number of active listings in Silverdale (62) is 25% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 5.2 months, better than the 5.7 months last month. 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.

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

The headlines today are about November's 7.4% rise in the number of closed home sales nationally. This spike in sales was fueled by the expiring 1st time homebuyer tax credit - 51% of the sales were to first time buyers. However, we want to talk about the inventory of homes for sale. The National Association of Realtors reported that the national inventory of homes for sale is at a 44 month low. The inventory of homes for sale in Kitsap County has been very low this year compared to the last two years, as shown in this graph.

You'll see in the local area write-ups below that although the inventory turnover has fallen to 6 months or less in some areas, we continue to predict that we have a buyer's market because of shadow inventory. Recently an article in Housing Wire cited a report from First American Core Logic stating that nationally there are now 1.7 million homes in the shadow market as of September 2009, up from 1.1 million a year ago (about a 55% increase).

How many homes are there in the Kitsap County shadow market? The shadow market consists of bank owned properties not yet on the market, foreclosures in process and seriously delinquent loans, new high rise condos (not significant in our area), and homeowners waiting for a better market. If we make the assumption that the shadow market consists entirely of underwater or near underwater homeowners, we can come up with an approximate number for our county. According to Census information, there are 100,924 total housing units in Kitsap County, with about 63,029 owner occupied units. Of these, 47,105 have mortgages. We choose only to look at owner occupied units because the Home Affordable Modification Program (HAMP) only applies to owner occupied units, and the mortgage modifications of this program are delaying the majority of foreclosures.

The number of homeowners with negative or nearly negative equity varies greatly by state, as shown in this article in Calculated Risk. In Washington State, the percentage of homeowners underwater or nearly underwater is about 19%, about in the middle nationally. So in Kitsap County there might be 8,949 owner occupied units underwater or nearly (within 5%) underwater. If nationally there are 10.7 million homes with negative equity plus 2.3 million with near negative equity (total 13 million), and the shadow inventory is 1.7 million, and the greatest number in the shadow inventory come from those with negative equity, we can approximate the shadow inventory in Kitsap County by using the ratio of national shadow inventory to national negative equity - about 13%. That would mean about 1,092 Kitsap homes could be in the shadow inventory. This calculation is inexact, but probably a reasonable order of magnitude.

Since there are currently only about 1500 homes listed for sale in Kitsap County, flooding our market with a thousand more units of shadow inventory might mean that there will be another dip in the housing market, prices again falling as a small pool of buyers purchase only the best values available. Some groups, like Radar Logic in a report on Housing Wire, assert that the banks are now controlling the rate at which foreclosures now come on the market so that there won't be a flood of new foreclosure inventory if a large number of loan modifications don't convert to permanent.

"Thanks to federal bailout money and a general improvement in their financial health, banks have been relieved of the urgent need to liquidate their assets. As a result, lenders and government entities like Fannie Mae and the FDIC have been able to curtail sales to raise prices and avoid recording losses on properties", according to the report.

Meanwhile an analysis from Deutsche Bank states that nationally prices will drop another 10-12% in the coming year as the governments policy actions will be no match for high unemployment, tight credit, and rising negative equity. Just to add a little confusion, there are conflicting reports about whether current prices are going up or down. The Case Shiller Index, which is yet to be released, has shown a modest rise recently. A Housing Wire article states that Global Insight shows a .2% rise in prices over the 3rd quarter, but warns against extrapolating on the trend. The same article noted that FHFA's index is rising. Now Calculated Risk has reported that October home prices are falling based on First American Core Logic's Loan Performance House Price Index.

Stay tuned - there are lots of conflicting statements and signals in our market right now.

The Blog Calculated Risk has for some time been commenting on the "distressing gap" between the Nation's new home sales and existing home sales. The two categories normally track closely together, but now display a divergence, which in the past Calculated Risk has attributed to the inability of builders to compete with the Foreclosure/REO market, often for similar homes in the same neighborhoods. The gap has recently widened further as a result of the first time homebuyer credit.

We think another factor in the paucity of new construction sales is affordability, as discussed in our most recent monthly evaluation of affordability in the Kitsap real estate market.

According to this report, the first time home buyer tax credit legislation with be expanded to include certain qualifications of move up buyers.

From Calculated Risk blog:

The details:

•  Income eligibility for first-time home buyers stays at $75,000 for individuals and $150,000 for couples.
•  For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.
•  There is a minimum 5 year residency requirement in their current home for move-up home buyers.
•  The tax credit is the lesser of $7,290 or 10% of the purchase price.
•  The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
•  Expect bill to be signed by Friday.

Another report earlier in the day from Simon Johnson and James Kwak in the Washington Post argues that this tax credit is throwing good money after bad and making unaffordable homes temporarily affordable.

We've passed earlier information about the economic impact of the $8,000 first time home buyer tax credit. Basically the analysis is that most buyers would have purchased anyway, so the actual cost of each home purchased because of the tax credit is over $40,000 per sale. Still it's hard to evaluate the impact of incentives on motivating people to act.

However, it appears that the first time home buyer credit will be extended, if for no other reason than to make sure that the people currently in the que can obtain the credit. At least one form of proposed extension will phase out the credit over a longer period in 2010.

As the economy jives and shimmies its way out of recession, an observer confronted with the facts of high unemployment and continued banking and credit problems nevertheless might conclude that though the picture doesn’t look too good, there is a certain optimism. Mortgage rates for 30 year fixed rate loans have again fallen below 5% (driven down by Federal Reserve policies) and jobs don’t appear to be coming back. The local Kingston Share Net food bank sees no drop off in demand.

Credit markets are still hurting. Consumers and small businesses find themselves unable to get credit - while large well capitalized companies can obtain credit easily. The problem is that many investors are reluctant to buy securitized debt, which funded most credit in the past few years. The blog Baseline Scenario mused that there is no reason why the next bubble has to be in securitized debt - why not something else, and Paul Krugman is cited for his advocacy of a return to traditional bank lending. The exception to this credit shortage is housing, where consumers can still get low downpayment loans from FHA, VA, and Department of Agriculture. Now there is concern that FHA may need a bail out as their reserves have fallen below the minimum required by Congress. Also, while the well capitalized big banks have picked up more than half of the home mortgage lending market, small independent mortgage lenders have been frozen out by the high cost of capital and lack of access. Now Fannie Mae has launched a program to guarantee the debt of these smaller lenders providing they make home loans conforming to standards of Fannie and Freddie Mac. Since Fannie is already guaranteeing the debt of these loans, some observers think this is just another opportunity for Fannie to fail.

So with all of these negative reports related to the progress of our recovery, the Central Bank of Australia surprised everyone last week by raising their short term interest rate target - which is to say they think the boom is coming and are acting now to prevent inflation. The exchange rates for the US Dollar plummeted against most major currencies as investors fled safety to pursue opportunity and higher interest rates elsewhere. While the favored political position is always to back a strong dollar, the weakening of our currency is an opportunity to sell more US exports and relieve our country’s trade imbalance.

We have repeatedly advocated more government and banking industry support for short sales as the most efficient course to sell off most of the distressed property inventory. The government recently announced that the Home Affordable Modification Program has met its goal of 500,000 trial loan modifications. Almost at the same time, the Congressional Oversight Committee challenged the efficacy of the program, noting that only slightly more than 1% of the trial modifications had thus far become permanent. As an aside, much of the  current debate in government policy concerns whether the government has the wisdom to implement efficient policies to correct our economic problems - versus a point of view that these problems are so complex and unpredictable that the unintended consequences will not be worth the effort. New York Times columnist David Brooks recently provided a clever depiction of the problem.

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”.

A Wall Street Journal "Real Time Economics" post this afternoon presents some interesting reading from several analysts about the state of the housing market. Among the points:

• June 2009 single family sales were better than June 2008 and have risen for 3 consecutive months for the first time since 2004.
  
• The percentage of single family sales that were distressed properties has fallen from about 50% a few months ago to 31% last month.
  
• Downward pressure on prices is likely to continue. The weak labor market is big factor.
• There are still challenges in the coming months. Unemployment and the impending rise in resets of prime and option ARMs will cause more distressed sales in the middle and upper end of the market.
• The inventory of unsold homes still needs to come down further.
  

Most of these assessments apply in the Kitsap real estate market as well as nationally.

One aspect of the government's financial stabilization program has been a program to improve home affordability. A program goal was to create a comprehensive stability initiative that would reduce monthly payments for 3 to 4 million homeowners to help keep them in their homes in spite of falling home prices and negative equity. Last week the Treasury Department prodded large banks to devote more resources to the program. The Washington Post article notes that loan modifications have been offered to about 270,000 homeowners, and it is unclear how many loans have actually been modified. While the program seeks to reduce payments, it does little to reduce the principal owing, thus little to alleviate the homeowner's problem of owning more than the house is worth.  The Federal Reserve Bank of Boston recently released a study titled, "Why Don't Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures, and Securitization." It indicates that about 30% of the time, homeowners who are more than 60 days behind on their payments cure their own default. It also indicates that homeowners of only about 3% of loans 60 days delinquent receive a concessionary modification to the loan, and only about 8.5% of homeowners receive any kind of modification at all. It also indicates that among modified loans, the overall re-default rate is 40-50%. The paper makes the case that the lender's costs to modify the loan would be wasted 30% of the time because owners cure the problem, and would be wasted in another 40-50% of the cases because the owners of modified loans would eventually default. Thus programs to keep people in their homes face an uphill battle.

One the other hand, a recent New York Times article, citing a Valparaiso University Study, identified that lenders were losing about 60% of the original loan balance in foreclosure sales. Since the numbers don't seem to work out for loan modifications, we once again wonder why lenders aren't ramping up the process for short sales to help improve their margins.

This posting at Calculated Risk applies to our market. Southern California sales (number of closed sales) have risen for the 11th consecutive month. This month was the first since 2007 where year-over-year median sales price increased. The article explains that this doesn't show the home prices to be rising, but rather the mix of sales has shifted to fewer low end sales and more mid to high priced sales, making it look as if the median (middle) price among sold homes is rising. More mid and high end sales are probably occurring because owners of these homes are more aggressively dropping their prices. Low interest rates and better availability of jumbo mortgages are also a factor.

You can see this same effect in the median price graphs for Bainbridge Island and Poulsbo.

It's good sometimes to get a feel for how the real estate market is doing in other parts of the country. Here's an article about real estate in Detroit.

Although news of the recession continues to show in many cases that it is worse than expected, bond investors and the Federal Reserve have been caught off guard the past couple weeks as the spread in interest rates between the 2 year and 10 year Treasury bonds jumped to a record 2.75 percent. 30 year conventional mortgage rates have risen from under 5% to about 5.5% in the same period. These fluctuations in bond prices are reducing affordability in our weak housing market. A finance textbook describes this steepening of the yield curve as a sign that short term rates are expected to rise. Short term rates could rise because the Fed needs to tighten monetary policy to fight inflation as a result of the enormous recent increase in the money supply or because the economy could be turning around. Another reason could be eroding confidence in the country’s credit rating.

Standard and Poor’s recently degraded the long term outlook for Great Britain’s AAA rating, and Japan had its rating lowered in the ‘90s after generating an enormous amount of public debt. The US debt is rising from a relatively stable 41% of GDP in 2008 to a projected 82% in the next 10 years. The NY Times David Leonhardt provides an analysis of the sea of red ink, which wasn’t born yesterday. Check out this debt calculator for some up to date numbers. With our low savings rate, foreign countries buying our debt may well demand a higher risk premium for longer term issues, considering this projected weakening of our financial balance sheet. Ben Bernanke, Chairman of the Federal Reserve, urged the House of Representatives to “begin planning now for the restoration of financial balance.” PIMCO’s Bill Gross echoes this message. Kansas City Fed President Thomas Hoenig has called for raising short term interest rates now.

None of this has prevented US News and World report from predicting that the Bremerton-Silverdale area will have the best home price appreciation in the country from 2008 to 2018. Did I mention that now is a good time to buy real estate?

You might be wondering what positive signs are being reported about the economy. The National Association of Homebuilders (NAHB) Confidence Index increased after months of record lows. The Federal Reserve's Beige Book reports some signs of improvement. Southern California just had its 9th consecutive month of year-over-year sales increase. The President was out touting some early successes of his Recovery Act. At Morehouse College in Atlanta, Fed Chairman Ben Bernanke reported that the sharp drop in economic activity appears to be slowing, and that he is fundamentally optimistic about our economy's longer term prospects.

There are also "perma-bears" who continue to report on the potential that things will get worse. Noriel Roubini, for instance, does not see a recovery beginning before 2010. Large banks have resumed foreclosures after a moratorium of several months, and foreclosure activity is spreading to higher priced properties. Still, if the shoots of optimism had green tips, we might be able to envision a garden, however spotty, by summer.

The President's new budget represents a new way forward, but will only have real effect to the extent that Congress acts upon his proposals. The new budget proposes as one of its tax revenue schemes to limit the deductions of those tax payers in the 33% and 35% tax brackets to the amounts that could be deducted if they were in the 28% tax bracket. This will impact the very popular home mortgage interest deduction, causing those in the higher brackets to give up 20% of the interest they could previously deduct.

Here's the Executive Summary of the Administration's Homeowner Affordability and Stability Plan - posted to the Washington Wire blog page at the Wall St Journal. Also here is a link to the examples illustrating how the plan would work.

Washington Realtors published this summary of the Economic Stimulus Bill signed today by President Obama:

The $790 billion stimulus package signed by President Obama today increases the home buyer tax credit to $8,000, drops the repayment feature, reinstates last year's 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans, and provides $2 billion in additional funding for states and localities to be used to purchase, manage, repair and resell foreclosed and abandoned properties. (Note: If FHA and conforming conventional limit of 2008 for Kitsap County are restored, FHA will rise from $307,000 to 475,000 and conforming will rise from $417,000 to $475,000).

Other elements of the package are listed below:

Homebuyer Tax Credit. The bill provides for a $8,000 tax credit that would be available to first-time home buyers (those who haven't owned in at least three years) for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment for buyers who hold onto their property for at least three years. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser's income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

NAR has sought removal of the repayment requirement because it discourages buyers from taking advantage of the tax credit. The three-year minimum holding period is a safeguard against speculators' use of the credit. The legislation also extends the effective date of the credit to December 1 from June 30, and extends eligibility to borrowers who buy their home with the help of state or local financial assistance that comes from the proceeds of tax-exempt mortgage revenue bonds.

The start date for the first time homebuyer credit is January 1, 2009 through and before December 1, 2009.

FHA and conforming loan limits. Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher. Additional increases in individual communities may also be available at the discretion of the secretary of the U.S. Department of Housing and Urban Development.

Foreclosure mitigation and neighborhood stabilization. Funding for states and localities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized. Some news reports put the funding level at $2 billion.

Rental assistance. Up to $1.5 billion to provide short-term rental assistance and other aid for families during the economic crisis.

Transportation infrastructure. Up to $29 billion for highway construction projects, $8 billion for rail projects.

Rural housing development. Increased funding for the Rural Housing Service direct and guaranteed loan programs.

Low-income housing grants. Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.

Tax-exempt housing bonds. Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.

Energy efficient housing. Grants for energy retrofits for federally assisted housing (Section 8), funding for energy efficiency and conservation block grants to states, increases in the residential tax credit through 2010 for certain energy efficient upgrades and $5 billion to weatherize low-income homes.