Kitsap Real Estate Blog

The news about Fannie Mae and Freddie Mac will definitely mean more bad news for home values everywhere, including Kitsap County home values. Fannie and Freddie are the two largest holders of US home mortgages. They are public stock companies chartered by the federal government to provide liquidity for home loans. They purchase home loans from other originators and banks and either hold them or package and re-sell them as mortgage backed securities.

Even when these securities are sold Fannie and Freddie will usually hold some re-purchase risk in the event of default or other payment guarantees to the bond holders in the event of mortgage defaults. Thus, the financial guarantee that these companies are able to offer is determined by what regulators call tier one capital. The tier one capital of these companies has been depleted due to mortgage defaults and is thus reflected in a lowering of their stock prices.

This bad news and the failure of Indymac Bank due to the same phenomena follow all the previous 18-24 months bad news for home loans. They follow massive changes in lending rules addressing down payment requirements, income ratios and credit score based loan rates that cumulatively have reduced the supply of new mortgage money and disqualified more than half of potential home buyers due to credit.

Read about the recent developments in the mortgage market.

Less supply of buyers and mortgage money means falling prices. How is this reflected in Kitsap home sales statistics?

Number One: Inventory Is Up Year To Year:

Total actives in the month of June 2007 were 2,339 homes and in June 2008 there were 2,462 homes, up slightly. Interesting to note that the June 2007 ytd inventory was 3,746 and the June 2008 ytd inventory was 3,746 homes, down A LOT. This probably means that fewer people are even attempting to put their homes on the market and that the speculative “flips” are stopped dead in their tracks (professional investors excepted).

Number Two: Total Volume Of Sales Is Way Down.

June 2007 YTD units sold was 1,699 and June 2008 YTD units sold was 1,229, a 28% decrease.

Number Three: The Kitsap County Median Home Price Is Down 7.6%

The June 2007 median price was $292,000 and the June 2008 median price was $269,900

Number 4: The Number of Pending Sales In Kitsap County Has Decreased.

Pending sales in June 2007 YTD was 2,088 and in June 2008 ytd was 1,436.

Pending sales are a better short term indicator but the gross numbers do not reveal trend changes as accurately as trailing 12 month moving averages of the pendings/inventory ratio but they do reflect a bad condition. The question is: What does the future hold for sales volumes and prices?

My prognosis: With continuing reductions of home loan money and reductions of the pool of buyers due to credit adjusted underwriting sales will lag and prices continue to fall some more.

What can homeowners and the Kitsap community do? One suggestion is to work harder at economic development. Increasing incomes and economic opportunity attract new residents and strengthen existing ones to qualify for home loans. One great opportunity is to strengthen agriculture in the county. Have a look at the Kitsap Community and Agricultural Alliance who are working to do just that.