2009 was a year of great uncertainty in the west sound real estate market. At the beginning of the year, prices were still falling, and it was not at all clear when they would level out. By the end of the year it was clear they had leveled, but it was still unclear how long they would stay that way.

In North Kitsap (NK), unit sales for the year were actually up 3.6% over 2008, going from 524 homes sold to 543 homes sold. That statistic could be misleading however, since unit sales in 2008 were down 18.6% compared to 2007.

While unit sales were up in NK, dollar volume was down from $181.8 million in 2008 to $175.7 million in 2009. This indicates both a reduction in the price for individual properties, and a shift in purchases away from upper end homes towards medium and lower priced homes. Fewer upper end home sales are largely a result of difficulty in obtaining jumbo loans for higher priced homes and the inability of potential buyers to free up the necessary funds by selling their homes in depressed markets. The increased sale of medium and lower priced home was aided by the first time home buyer tax credit that favored lower priced homes. Also, first time home buyers are not constrained by the need to sell an existing home.

These numbers are summarized for NK as well as Bainbridge Island (BI) and South East Jefferson County (SEJ) in the tables below. Both SEJ and BI have had larger declines in unit sales and prices than North Kitsap.

North Kitsap

South East Jefferson County

Bainbridge Island

This Year - 2010

We have just gone through a rough year in the economy as a whole and the real estate industry in particular. Industry experts are viewing 2010 with very mild optimism. The consensus is that price declines in the Puget Sound area will stop if they haven�t already, but price increases are not expected this year. I believe it will be at least a year, and possibly two years before we can expect any significant price increases in our area.

Economic theory predicts that price deflation stifles economic activity because buyers put off purchases, expecting that they can get a better deal at a later date. That certainly seems to have contributed to the slower pace of real estate purchases through 2009. If prices continue to remain stable, we should see some of those buyers who have been holding off beginning to enter the market.

Another factor putting upward pressure on prices is the lack of new construction creating new inventory. There is very little new building at the moment, and building permits are down sharply too, indicating that builders are not planning to start new building any time soon.

One factor putting downward pressure on prices is the entry of foreclosed properties onto the market. There has been concern that the banks will begin to dump this inventory onto the market at a faster pace driving prices down further. At a recent presentation I attended, a real estate industry economic expert pointed out that this would not be in a bank�s best interest, because it would drive down prices for their other property holdings, as well as properties in the neighborhood in which they hold mortgages. He concluded that, while these foreclosure properties will have a moderating effect on prices, they are unlikely to cause the overall prices to tumble.

On the other hand, interest rates are believed to be as low as they will go at about 5% for a 30 year mortgage, and rates at about 6% are predicted by year end.

In summary:

*Real estate prices are expected to remain flat throughout 2010 and possibly beyond.

*Unit sales are expected to increase, probably at a moderate pace.

*Affordability will decrease moderately as the year progresses due to mortgage interest rate increases.