We now have the lowest mortgage rates since the '50s, so rate affordability won't get much better than now; however, the price distribution of homes sold has changed, and as a result the median price has gone up and overall affordability has gone down. This is a structural change that makes the numbers in this report inconsistent, but probably doesn't represent an actual rise in prices across our market. Market inventory is rising, so prices should be going down.

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 4.50%, a record low reflecting investment in US Treasuries as a safe haven. The July median closed sale price rose about 10% from June to $264,250. This big jump in median price represents a shift in the distribution of buyers rather than a rise in overall prices. There were fewer buyers of low priced properties because many had purchased earlier this year to take advantage of the homebuyer tax credit. For our calculations here, the rise in median price makes affordability worse even though we don't think real prices have risen. 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 appear to be resulting in a longer period of low US Treasury and mortgage rates. The inconsistency in the median price as the price distribution changes makes the information in this report less meaningful. It's important to understand that this same phenomena also affects the regional and national statistics being reported in by the news media.

The affordability index worsened to 1.12 in August from 1.23 in July. First time buyer affordability also worsened to .71 from .82 in July.  First time buyer affordability went down not only because of the median price rose, but also because the cost of mortgage insurance appears to have risen significantly. We use an automatic PMI calculator at a public web site. The first time buyer PMI for this month was about double what it has been in recent months. 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	4.50
Median Income	$54467	$58464	$61786	$60,668	$59135	$57724	$57724
Median Price	$206900	$250000	$275000	$290343	$265000	$244499	$264250
Monthly payment	$975	$1182	$1378	$1443	$1244	$1054	$1071
Affordable payment	$1135	$1218	$1287	$1264	$1232	$1203	$1203
Affordability Index	1.16	1.03	0.93	0.88	0.99	1.14	1.12
1st time buyer payment	$1002	$1214	$1408	$1478	$1277	$1089	$1182
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	0.71

This is a repost of our July newsletter at prowserealestate.com.

Bloomberg Businessweek supplied plenty of local news for Kitsap County last week, citing a study by Moody’s Economy.com and Fiserv that the Bremerton-Silverdale area would have the fastest price appreciation of any metropolitan statistical area in the United States over the next 4 years, a 44.7% increase in prices (or 9.7% per year). Some clients have contacted us about this prediction, wondering whether to bank on it by renting now and selling in a few years.

We wish a 44.7% price rise for every homeowner, but don’t know the assumptions of this nationwide study or what specific demographic trends drove its conclusion. The article cites our county’s lower unemployment rate and the lower percentage of distressed homes for sale. These assumptions are true - unemployment is about 7.2% here compared with a nationwide figure of 9.5%, and the percentage of distressed properties is about 14% (our calculation for residential single family homes in the Northwest MLS) versus 19% nationally. As with many other parts of the country, residential construction in Kitsap County has slowed down a lot. The main idea in the article seems to be that demand will return as our economy returns to normal, which will happen sooner here than other areas. The housing inventory won’t be able to keep up, leading to a rise in prices. In a sense, the analysis is a heads up to builders to start development sooner. There are a number of large residential projects in planning, Sterling Hills in Silverdale, White Horse and Arborwood developments in North Kitsap, and various Noll Rd development projects, as well as Poulsbo Place II, in Poulsbo, just to name a few.

The rise in prices in Kitsap County peaked with a 3 month moving average median residential closed sale price of $301,182 in September 2007. If we use the current 3 month moving average median of  $248,916 and raise closed sale prices by 9.7% per year, we can plot a graph of past and projected home prices and compare it with median incomes in Kitsap County (median price in 2014 would be $360,470). See the graph below.

Financial reform has taken away those creative (and unrealistic) lending programs that allowed people to purchase homes when prices were rising from 2004 - 2007 without a corresponding increase in incomes. The projected rise in home prices now can only occur if there is a corresponding rise in real median incomes to maintain current affordability. Assuming that the source of rising income and home prices is not inflation (which would make incomes and prices go up everywhere and not just here), it seems unlikely that home prices can rise as much as projected without choking off the supply of eligible buyers, given that a large percentage of jobs in our County come from the government, and that government everywhere is trying to cut back rather than increase their costs. A squeeze on affordability from rising home prices could result in higher monthly rates in our rental market.

Each month we report on affordability in Kitsap County. How much would median incomes need to rise to maintain current levels of affordability with the projected 44.7% rise in home prices? If we use the current affordability index of 1.2, which is still not back to the historical levels of the past 25 years for our County, the median household income would need to rise from the current $57,724 to $89,170, a rise of about 55%. John Burns Real Estate consulting currently lists the Bremerton metropolitan statistical area (Kitsap County) as the 5th most overpriced area in the country comparing current median home prices and median incomes to historical averages for our county over the past 26 years. It will be interesting to find out whether the predictions of the Bloomberg report come to pass.

The number of closed sales in Kitsap County in July fell about 23% from June. Pending sales rose 15%, now having risen two months in a row after falling by nearly 50% in May. In June, there were 266 closed sales and 239 pending sales. In July there were 204 closed sales and 276 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales. This graph shows how pending sales lead closed sales in direction if not magnitude - by about 2 months - and also shows the rise in pending sales at each of the homebuyer tax credit expirations (November and April) and the fall each took the subsequent month. Also based on this trend, we can expect a modest increase in closed sales next month.

Residential Highlights

Kitsap County's residential inventory in July (1944 listings) is about 4% higher than June and about 6% higher than a year ago. Inventory has been steadily rising this year, and is now at the highest we’ve seen since 2008. Some of the shadow inventory has become active again as bank owned and distressed sales and as sellers coming back to test the market. Distressed properties make up about 14% of our market. Closed sales were down 28% compared with July 2009. The more stable 3 month moving average number of Kitsap County closed sales is down 2% compared to a year ago, a sharp reversal from recent months of rising closed sales. 

Prices are steady...
The County’s monthly median closed sale price rose this month because the distribution of sales prices changed. Relatively fewer low priced homes were sold now that the tax credit is not there to lure 1st time buyers. At the same time almost no high priced sales occurred. July's median price ($264,250)  rose about 11% compared to June, and is 5% higher than a year ago. The more stable 3 month moving average (see graph below) of the median closed sale price ($248,916) rose about 5% from last month and is about 1.4% higher than a year ago. The current low median price coupled with record low interest rates offers good affordability, and it appears that some move up buyers are taking advantage in the $400-700k price range. Conventional mortgage rates are now about 4.57% for 30 year loans. Speculation that rates will rise later this year has been dampened by the debt crisis in Europe. Jumbo loans keep improving, and are now offered about 5.5%  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. Our median price graphs show a 3 month moving average of prices, which better shows trends and reduces the month-to-month fluctuations.

Seller expectations…
The July median list price (median of all properties listed for sale) fell to $304,450 from $319,000 last month (5% decrease). Median list prices have fallen significantly since a year ago as sellers became more aggressive in getting their properties sold.   The County has a listing inventory turnover rate of about 9.5 months, a slow down from the 7.1 month turnover in June.  Inventory turnover rate is calculated by dividing the number of homes for sale by the number of closed sales last month. This is a buyer’s market. The housing inventory increased for the 8th straight month, while the number of closed sales fell sharply in July. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-10.

The inventory turnover also varies 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 more difficult to reduce in inventory because today's lending environment has greatly reduced the pool of qualified buyers. This was a particularly daunting month in the higher price ranges, with only 1 closed sale in the County among 152 properties priced higher than $800k. See the graph below for a better perspective.  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 July was down 20% compared to a year ago and up 15% compared to June. The statistics for July pending sales varied for different parts of the County. Below is a graph showing the 3 month moving average of pending sales for different parts of the County.  Even though we said that pending sales increased last month, the 3 month moving average in all areas is still falling because of the overriding effect of May's big drop in pending sales. You can see that pending sales have fallen sharply in the lower priced (Bremerton) and higher priced areas (Bainbridge), while mid priced communities such as Poulsbo have seen lower magnitude fluctuations.

Congress is on the verge of passing a financial system overhaul that, among other things, gives regulators authority to break up troubled financial firms, forms a financial stability oversight council to address risks to financial stability, mandates a one time audit of the Federal Reserve’s lending programs, eliminates the Office of Thrift Supervision, limits the largest financial firms from investing their own capital in hedge funds and private equity funds, extends regulation to the derivatives market for the first time, limits derivatives trading by banks, sets tougher capital requirements on banks, mandates a fee on the largest banks to raise $19 billion to offset for the cost of the bill, establishes a consumer protection agency within the Federal Reserve to examine and enforce regulations for mortgage related businesses at banks and credit unions with more than $10 billion in assets (as well as other non-bank financial firms except auto dealers), applies stricter state statutes to national banks, increases the federal deposit insurance limit to $250k retroactive to January 1, 2008, establishes national minimum underwriting standards for home mortgages, and a raft of changes to protect investors from deals gone bad (thanks to the Wall Street Journal for the great summary). It’s a pretty sweeping bill, and some say it will be years before we will know the impact.

This massive bill, along with the health care overhaul and economic stimulus bills, have been part of an initiative to impose greater government control on our system of capitalism and free enterprise. Politicians have condemned and vilified many of our largest corporations and their executives as a way of justifying the need for these changes, and there has also been a vocal opposition to these measures. Recently, the number one best seller on Amazon.com became, at the suggestion of the flamboyant Glenn Beck, F.A. Hayek’s “The Road to Serfdom”, written in the ‘40s as, among other things, a warning about the ill effects of socialism and the benefits of free markets. Readers may be surprised that Hayek does not advocate a system of laissez-faire economics, but instead has a significant role for government in areas where markets do not provide the best outcomes, such as operation of the monetary system, enforcement of labor regulations, and dissemination of economic information (and probably oil spill cleanups as well). Here's another take on Hayek from the Russell Roberts at George Mason University.

A more readable and relevant book about the current financial crisis is University of Chicago Economist Raghuram Rajan’s new book, “Fault Lines: How Hidden Fractures Still Threaten the World Economy”. He relates the causes of the crisis on a much more global scale than most other accounts. While the same basic causes are there, the context and underlying forces are much broader, relating, for example, how US income inequality (look at how Kitsap County median incomes have changed in the table below), performance of our educational systems, and the choices of some governments (Germany, China, etc.) to focus on exports relate to the crisis. The article in the Financial Times (link above) notes:

“The circle of blame goes wider than greedy bankers and negligent regulators, Rajan emphasises. It includes you and me, and the politicians we elected. Almost all the culprits acted in good faith and even rationally, given the circumstances, he argues. If this were not the case, avoiding the next crisis would be much easier. We could thump the villains and move on. If only it were so simple.”

Rajan’s book sheds some light on the major issues confronting the G20 meetings in Toronto this week. It also questions whether the complex financial regulatory overhaul is addressing the underlying problems.

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 4.72%, a record low reflecting investment in US Treasuries as a safe haven. Even with the May median price rising about 7% from April to $243,498, affordability probably won’t get much better. 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 June sales by price range).

The affordability index degraded to 1.19 in June from 1.24 in May. First time buyer affordability also degraded to .76 from .84 in May. The first time buyer index was effected more than the regular index because of the increase in the cost of mortgage insurance. 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	4.87
Median Income	$54467	$58464	$61786	$60,668	$59135	$57724	$57724
Median Price	$206900	$250000	$275000	$290343	$265000	$244499	$243498
Monthly payment	$975	$1182	$1378	$1443	$1244	$1054	$1013
Affordable payment	$1135	$1218	$1287	$1264	$1232	$1203	$1203
Affordability Index	1.16	1.03	0.93	0.88	0.99	1.14	1.19
1st time buyer payment	$1002	$1214	$1408	$1478	$1277	$1089	$1114
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	0.76

June's APR is 4.812% on a 30-Year and 4.195% on a 15-Year, both conforming. May's rates were 5.065% on a 30-Year and 4.573% on a 15-Year, both conforming. The 15 year rate improved significantly over the past month. 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/.

Each month we publish a snapshot of several local markets to show variations in our larger Kitsap County real estate market. May's inventory of homes for sale (1846) rose 5% from April and is 4% greater than a year ago.  This rise in inventory did not occur last year and may indicate that some sellers who have been waiting to sell are now coming back into the market. The County has a listing inventory turnover rate of about 7.3 months, the same as in April. Since May pending sales have fallen 45%, it looks like turnover will slow in coming months. Inventory turnover varies greatly by price, with some higher price ranges having a turnover greater than 40 months. April's median price ($243,498) rose about 6% compared to April and was about 1% higher than a year ago.  The number of pending sales in May was down 32% compared to a year ago, and regional pending sales fell in several areas.  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 May median price of $457,500, about 18% lower than in April. The more stable three month moving average of closed sale price fell 12% from last month to $511,333 and is 19% lower than it was a year ago. The Kitsap County 3 month moving average median price is 3% higher than it was a year ago. The 3 month moving average for Bainbridge Island's number of closed sales is 63% higher than a year ago. The 3 month moving average of closed sales is up 25% Countywide from a year ago. The 3 month moving average number of Bainbridge pending sales in May rose 105% from a year ago. The number of active listings on Bainbridge (210) is down 9% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 6.9 months, better than last month and much better than a year ago. Bainbridge Island is a buyer’s market.

See tables and graphs and tables 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 $169,898 at the end of May, about 3% less than a year ago and about the same as last month. The more stable 3 month moving average median price was 7% higher than a year ago. The Kitsap County 3 month moving average median price is 3% higher than it was a year ago.  Bremerton's 3 month moving average for number of closed sales is 56% higher than a year ago. The 3 month moving average of closed sales is up 25% 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 (168) is 3% lower than a year ago. The inventory turnover (total Bremerton homes on the market divided by number sold last month) is 5.6 months (a small improvement from the 6.1 month turnover last month and better than the 10.8 month turnover a year ago). The Bremerton market is probably still a buyer’s market.

See tables and graphs and tables 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 $312,715 at the end of May, 4% lower than a year ago. The more stable 3 month moving average of closed sale prices is down 32% compared to a year ago - this has been affected by the very low median price of last month.  The Kitsap County 3 month moving average median price is 3% higher than it was a year ago. The 3 month moving average number of Kingston closed sales rose 350% from a year ago, while the number of pending sales is up 75% from a year ago. Recall again that our current pending sales include pending short sales that may not close. The 3 month moving average of closed sales is up 25% Countywide from a year ago. The number of active listings in Kingston (77) is up 24% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 7.7 months (worse than the 6.4  month turnover reported last month, but much better than a year ago). Kingston is still a buyer's market.

See tables and graphs and tables 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 May median sales price for Poulsbo was $290,087, down about 18% from a year ago. The more stable three month moving average closed sale price was $307,362, about 6% lower than a year ago. The Kitsap County 3 month moving average median price is 3% higher than it was a year ago. The 3 month moving average number of closed sales in Poulsbo rose 56% from a year ago. The 3 month moving average of closed sales is up 25% Countywide from a year ago.  Poulsbo’s 3 month moving average of pending sales fell 18% from a year ago. Recall this number includes pending short sales and new construction that may not close soon. The Poulsbo listing inventory (103) is 15% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 5.7 months, improved from the 8.2 months reported last month. Poulsbo is still a buyer’s market.

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

Silverdale Real Estate
Homes in Silverdale were selling for a May median price of about $245,000, 12% lower than a year ago. Silverdale's more stable 3 month moving average median closed sale price was $266,333, about 1% lower than a year ago. The Kitsap County 3 month moving average median price is 3% higher than it was a year ago.  The 3 month moving average for Silverdale's number of closed sales was up 17% from a year ago. The 3 month moving average of closed sales is up 25% Countywide from a year ago.  The number of Silverdale pending sales in May is up 5% from a year ago, but recall this number includes pending short sales that may not close. The number of active listings in Silverdale (98) is 14% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 7 months,  worse than the 5.9 month turnover reported last month. Silverdale is still a buyer's market.

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

This is an archive copy of our February Kitsap real estate market report - an March report will be out in a few days.

Pending sales in February rebounded while closed sales declined, following the pending sales trend of the past 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 January, there were 172 closed sales and 252 pending sales. In February there were 130 closed sales and 309 pending sales. Shown below is a graph of month-by-month pending sales vs closed sales. 

Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007-09.  The County has a listing inventory turnover rate of about 11.9 months, slower than January's 8.35 months and a significant slowdown from the end of last year. Inventory increased and the number of closed sales fell significantly in February. The inventory turnover also varies 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 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.  Note that inventory turnover above $1 million was positively scintillating - not a typical month for that price range. 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 February (1550 listings) is about 8% higher than January and down about 13% from a year ago. The number of listings rose a second month in a row and many months of decline. This may be evidence of 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.

Kitsap Listing Inventory

Pending and Closed Sales

The number of pending sales in February was up 21% compared to a year ago. The statistics for February pending sales (compared to February 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. The nearly uniform rise in pending sales bodes well for closed sales in future months, even though closed sales were weak in February.

Despite the weak closed sales in February, the 3 month moving average number of closed sales Countywide is up 37% compared to a year ago, down from plus 57% last month. The strength of pending sales indicates that closed sales should rebound in coming months. Closed sales were down 4% compared with February 2009.

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. February's median price ($252, 435)  rose about 5% compared to January (see graph of 3 month moving average below), and is 12% higher than a year ago. This rise in median price is almost certainly a change in the mix of homes selling rather than an across the board increase in home prices. The homebuyer tax credit now includes incentives for move up buyers, and there is more pressure on owners of higher prices homes to sell for a bargain, considering that unemployment continues to rise and that banks are now starting to end the trial loan modifications, which will put more underwater homeowners in danger of default and foreclosure. Even though the national unemployment has remained fairly flat at about 9.7%, Kitsap County’s unemployment has been rising, up to 8.3% in January from 7.8% in December.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.  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. 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 February median list price rose from $299.900 to $306,125, about a 2% increase with rise in inventory. Median list prices have fallen significantly since a year ago as sellers became more aggressive in getting their properties sold.

We have received many inquiries about assessed values. Assessed values rose at a double digit rate for 4 years in Kitsap County. and now that prices have been falling for two years, we are being asked by homeowners if they need to submit a request to the County for their assessed value to be rolled back. Our property tax system is quite complicated, but we’ll try to provide a simple explanation and refer you to where you may find more details. We have discussed the information below with the Assessor's Office.

First we quote a portion of the intro by Assessor Jim Avery in the 2009 Statement of Assessments for Kitsap County

In our budget based Washington property tax system, operating efficiently is the only way we in the assessor’s office can work toward lowering the property tax burden. My favorite saying during our past 5-6 years of rapidly escalating real estate values was: Rising real estate value does not mean rising real estate taxes. Regrettably, it is now time to alter that statement to its reciprocal: Reduced real estate value does not mean lower real estate taxes.

When the January 1, 2007 assessed value is compared to our January 1, 2008 assessed value most all non-waterfront residential property saw a decline in assessed/market value of 3-4%, while waterfront and commercial property, typically had no change in value. The vast majority of property owners will see almost no change to their property taxes when the Treasurer sends out the 2009 bills in mid February. The only exceptions to that are:

• Owners of waterfront and commercial property assumed a slightly larger tax burden because their values stayed the same while all others went down 3-4%.
• Any parcel where new construction was added last year will see an increase related directly to the value of the new construction.
• Significantly higher EMS levies were approved by voters in the City of Bremerton(57%) and the Poulsbo Fire District (66%).
• Bainbridge Island voters approved a 32% increase to their metropolitan park district levy. This will be offset slightly by a reduction to their bond levy.

Property tax relief continues to be available to seniors (over 61 years of age) and those disabled from full-time employment. Those who make less than $35,000/yr should definitely contact our office. This income threshold has not been changed by the legislature in six years. I fully expect the state legislature will address this in this year’s session. Eligible taxpayers who are close to the $35,000 limit should definitely be in touch with their elected state representatives and senators on this matter.

Even as assessed values were rising at double digit rates, the actual total amount of tax collected has not been rising at the same rate. For instance, although the total value of existing properties increased 14% overall in 2007 (which was the basis the the valuation for 2008), the amount of tax collected increased by 4%. As the assessed value of your property increases, the tax rate decreases to compensate, so a higher valuation doesn't automatically translate to higher taxes by the same amount. Our property values have risen faster than some other parts of the state, so for that part of the total tax that applies statewide (part of the school tax), our community has been paying an increasing portion compared to some other communities. With level or falling values the County expects that this disproportionate burden will subside. In 2008 the valuation for Kitsap changed very little (essentially 0%) from 2007. Nevertheless, taxes increased by 3% overall.

The law limits how much any taxing district (and there are 43 districts in our County - so here's part of the complication) can raise regular taxes (without voter approval) in any year. Basically, they are limited to a 1% increase. Voters can approve tax increases for school levies, capital projects (like a new city hall), etc. that add to this. Also new construction homes add to the total increase in taxes collected. The note from Jim Avery above identifies the voter approved measures that allowed the tax rate to change by more than 1% in some areas. Typical tax changes last year varied throughout the County.

Typical Tax Changes by Area for 2009

Bainbridge	2.5%
Bremerton	1.0%
Port Orchard	Essentially Zero
Poulsbo	1.0%
South Kitsap	Essentially Zero
Central Kitsap	-1.8%
North Kitsap	2.7%

So let’s turn to current assessed valuations and whether property owners need to take some action with the County. The County has a goal to inspect and reassess each parcel every 6 years. In addition, they make an annual adjustment that is estmated based on real estate sales. There are exemptions whereby you can reduce the amount of tax you owe on your property (such as the senior exemption, which is based on both age and income level to determine eligibility). There is also a program whereby certain homeowners can defer payment of taxes. The County also has procedures for a homeowner to question their assessed valuation. The Assessor’s Office reported that they often make adjustments based on information supplied by homeowners. Our advice would be not to request a change due to the market change alone, but to submit one if you can cite significant differences between how your property is assessed and how comparable properties in your neighborhood have been assessed.

All of what we’ve presented above is from the County Assessor's web site at http://www.kitsapgov.com/assr/. Download the Assessor's 2008 assessment for taxes payable in 2009 at http://www.kitsapgov.com/assr/levy/book_09.pdf. That document provides lots of details, including how to apply for exemptions, how to challenge your assessed valuation, and answers to frequently asked questions.