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

August's APR is 4.559% on a 30-Year and 4.069% on a 15-Year, both conforming. July's rates were 4.686% 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 - 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. July's inventory of homes for sale (1944) rose 3.5% from June and is 6% larger 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 9.5 months, a big slowdown from June’s 7.1 months. Inventory turnover varies greatly by price. In July, there was only 1 sale among 152 Kitsap County properties priced greater than $800k, so turnover in the higher price ranges was very slow. July's median price ($264,250) rose about 11% compared to June and was also about 5% higher than a year ago.  This was primarily the result of a change in the price distribution of homes  sold, rather than an across the board increase in home prices. With expiration of the homebuyer tax credit, the number of sales of lower priced properties fell by a large percentage. Sales of mid priced homes was affected less, so the median (middle) price of the homes sold moved higher. The number of pending sales in July was down 20% compared to a year ago, but was up 15% compared to last month. You may recall that pending sales fell nearly 50% in May and have been rising again the past 2 months.  The links to regional market trends below will show both tables and graphs that further enhance the data reported. 

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

Bainbridge Island Real Estate
Bainbridge Island residential properties were selling for a July median price of $529,500, about 19% lower than in June. The more stable three month moving average of closed sale price fell about 1.5% from last month to $547,333 and is 19% lower than it was a year ago. The Kitsap County 3 month moving average median price is 1% higher than it was a year ago. The 3 month moving average for Bainbridge Island's number of closed sales is 54% higher than a year ago. The 3 month moving average of closed sales is down 3% Countywide from a year ago. The 3 month moving average number of Bainbridge pending sales in July rose 29% from a year ago. The number of active listings on Bainbridge (268) rose 3% from June and is up 6% from a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 12.2 months, slower then the 8.1 months in June and the 10.5 months of a year ago. Bainbridge Island is a buyer’s 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 $167,450 at the end of July, about 1% less than a year ago and about 1% less than last month. The more stable 3 month moving average median price ($168,949) was about 6% less than a year ago. The Kitsap County 3 month moving average median price is 1% higher than it was a year ago.  Bremerton's 3 month moving average for number of closed sales is 12% lower than a year ago and 15% lower than last month. The 3 month moving average of closed sales is down 3% Countywide from a year ago.  The 3 month moving average number of Bremerton pending sales is down 44% from last year. With expiration of the homebuyer tax credit, pending sales in Bremerton have fallen sharply. The number of Bremerton active listings (186) is 2% higher than a year ago. The inventory turnover (total Bremerton homes on the market divided by number sold last month) is 13.3 months (much slower than the 6.5 month turnover last month and 4.9 month turnover a year ago). The Bremerton market is slowing down and is a buyer’s market.

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

North Kitsap Real Estate
Statistics here are for Kingston, the largest housing market in North Kitsap. Activity in Kingston should be representative of the other areas in North Kitsap. Kingston homes were selling for a month end median price of about $208,725 at the end of July, 54% lower than a year ago. The more stable 3 month moving average ($253,480) of closed sale prices is down 28% compared to a year ago. The Kitsap County 3 month moving average median price is 1% higher than it was a year ago. The 3 month moving average of Kingston closed sales rose 39% from a year ago, while the number of pending sales is unchanged from a year ago. The 3 month moving average of closed sales is down 3% Countywide from a year ago. The number of active listings in Kingston (73) is up 7% from a year ago and down 16% from last month. The inventory turnover (total homes on the market divided by number sold last month) is 12.1 months (slower than the 9.7  month turnover reported last month and the 8.5 month turnover of a year ago). Kingston is still a buyer's market.

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

Poulsbo Real Estate
These statistics are for Poulsbo, including the downtown core, from the head of Liberty Bay southeast to Ne-Si-Ka Bay, and parts north to Sawdust Hill Rd. Other parts of Poulsbo and its suburbs should have similar trends. The July median sales price for Poulsbo was $317,750, up about 12% from a year ago and down about 11 % from last month. The more stable three month moving average closed sale price was $322,446, about 4% higher than a year ago. The Kitsap County 3 month moving average median price is 1% higher than it was a year ago.  The 3 month moving average number of closed sales in Poulsbo rose 2% from a year ago. The 3 month moving average of closed sales is down 3% Countywide from a year ago.  Poulsbo’s 3 month moving average of pending sales fell 41% from a year ago. The Poulsbo listing inventory (103) is 11% lower than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 4.7 months, faster than the 6.4 months reported last month and better than most other areas in the County. Poulsbo is still a buyer’s market.

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

Silverdale Real Estate
Homes in Silverdale were selling for a July median price of about $383,500, 25% higher than a year ago. This rise is the result of a change in the price distribution of  homes sold - fewer low priced sales and more mid to high priced sales. Silverdale's more stable 3 month moving average median closed sale price was $301,150, about 18% higher than a year ago. The Kitsap County 3 month moving average median price is 1% higher than it was a year ago.   The 3 month moving average for Silverdale's number of closed sales was down 30% from a year ago. The 3 month moving average of closed sales is down 3% Countywide from a year ago.  The 3 month moving average of Silverdale pending sales in July fell 52% from a year ago. The number of active listings in Silverdale (109) is down 2% from last month and 35% higher than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 9.1 months,  slower than the 8.5 month turnover reported last month. Silverdale is still a buyer's market.

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

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.

 

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/.

Though the Home Buyer Tax Credit has been criticized in some quarters as bad policy, there was little political will in the house to oppose extending it through September 30, 2010. This will allow transactions already in progress to close. It only applies for buyer's who met the requirement of having a signed contract in place by April 30, 2010. The Senate is expected to approve this measure tomorrow.

http://www.reuters.com/article/idUSN2916439020100629

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.

 

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/.

As we approach the end of January, some of the economic optimism of late 2009 has faded, and Americans are reassessing their outlook for this year.  The stock market has fallen more than 500 points, but the market that in many ways continues to be the most central concern is real estate. Calculated Risk blog published an article about the Special Inspector General's quarterly report on the Troubled Asset Relief Program (TARP), which asserts:

"...the Federal Government's concerted efforts to support home prices risk re-inflating that bubble in light of the Government's effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market."

The Calculated Risk article also published this graphic from the report, showing the different ways that the government is currently supporting residential real estate and lending in our markets. The report also outlines why "too big to fail" institutions benefitted from the TARP while contributing to the problem, and that these institutions have grown larger and more problematic as a result.

As portions of government support for home prices wind down and withdraw price support as our economy recovers, the article speculates that home prices will continue to fall. Interest rates will rise and demand for housing will fall.  Our own opinion is that we'll see a greater adjustment in higher priced homes than at the low end of the market since loans are more difficult to obtain and an increasing number of owners of higher priced homes will be subject to defaults and foreclosures.

While the wave of subprime adjustable rate mortgage payment resets has passed, a new wave of resets, most prominently option-ARM mortgage payment resets, is about to begin. Many of the Option ARM loans went to purchase more expensive homes, so we expect more defaults in higher priced homes this year. See this graphic published by the IMF posted in an older article on the Calculated Risk Blog.

Also, unemployment continues to force defaults even among conventional borrowers, who now make up the largest group of defaults and foreclosures by loan type. See this graph, again from Calculated Risk, "Statistical Recovery and Human Recession," showing how unemployment in this recession compares with other recessions since World War II.

While this discussion at the national level will have an impact on our local market, it is important to distinguish that not all markets will be effected in the same way. For instance, Kitsap County has only 7.5% unemployment, while the national rate is 10%. Fewer defaults occur in Kitsap County as a result of unemployment.

The Washington Center for Real Estate Research provides local affordability calculations that we can use to check on housing affordability using current median prices and interest rates. Note that unlike the discussion above these calculations only compare the affordability of standard conventional loans, not the different types of loan products that have been offered. We assume that a buyer making the median family income puts 20% down on the median priced home and obtains a 30 year fixed rate mortgage. We assume that a first time buyer making 70% of the median income puts 20% down on a house priced at 80% of the median and obtains a 30 year fixed rate mortgage. We assume that both buyers can afford to spend a maximum of 25% of their monthly income on the principal plus interest of the loan. Using the annual averages of median price, median income, and average annual 30 year fixed interest rate since 2003, we plot an affordability index equal to the maximum affordable payment divided by the actual payment. When the index is greater than 1, the loan is affordable to the typical buyer. When it is less than 1 some buyers cannot afford to purchase. Our numbers for 2009 are estimates using the latest monthly data for median prices and interest rates (2008 has been updated with average annual values), and an estimated median family income for 2008 and 2009. With interest rates rising from 5.34% in December to 5.13% in January for a typical 30 year fixed rate conforming loan and the median price falling in January to $239,950, affordability is improved slightly and remains very good. The outlook for rates is that they will continue to rise in the coming year, with some experts predicting they'll reach 6% by the end of 2010. Keeping in mind how median prices can be deceptive, you should be aware that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges. The affordability index improved to 1.29 in December from 1.27 in November. First time buyer affordability improved to 1.13 from 1.11 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	2003	2004	2005	2006	2007	2008	2009
Annual Average interest rate	5.83	5.84	5.87	6.41	6.34	5.80	5.13
Median Income	$53,160	$53,923	$54,582	$58,304	$60,719	$65,000	$65,000
Median Price	$184000	$206900	$250000	$275000	$290343	$265000	$239950
Monthly payment	$867	$975	$1182.43	$1378	$1443	$1244	$1046
Affordable payment	$1,108	$1,123	$1,137	$1,215	$1,265	$1,354	$1,354
Affordability Index	1.28	1.15	0.96	0.88	0.88	1.09	1.29
1st time buyer payment	$693	$780	$946	$1102	$1155	$995	$837
1st time buyer affordable payment	$775	$786	$796	$850	$885	$948	$948
1st time buyer affordability index	1.12	1.01	0.84	0.77	0.77	.953	1.13

January's APR is 5.191% on a 30-Year and 4.573% on a 15-Year, both conforming. December's rates were 5.444% on a 30-Year and 4.952% on a 15-Year, both conforming. After rates rose somewhat in December, they are again back at very attractive levels. If you qualify for FHA, VA, or USDA loans , these programs have are attractive for low downpayment buyers. Limits for FHA and conventional conforming loans went up with the stimulus bill. The FHA maximum is $475,000, and the conventional conforming limit has returned to $475,000. Lending programs for jumbo loans have improved considerably, with the larger banks starting to come back to this market. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 5.895% on one major bank web site - unchanged from last month. Local credit unions and savings and loans may be able to beat this rate for some jumbo loans. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/.