New West Network

New West Real Estate Conference: Past Present & Future

By Lance Olsen, New West Unfiltered 9-08-08

Last fall, thanks to some welcome help from New West, I attended its Fall 2007 Real Estate Conference. Based on what I saw and heard there, I’d recommend this year’s conference to anyone interested in the industry’s outlook and its many implications for the Rocky Mountain West.

I was impressed with the straight talk I heard in 2007. Realism generally trumped any temptation toward boosterism. Prior to the conference, there’d been some buzz that real estate in Montana was somehow de-coupled from the national market’s already-scary prospects but, while speakers emphasized that Montana wouldn’t be as badly affected as elsewhere, they pulled few punches.

For example, a Bozeman banker on the opening day's morning panel cited the disparity between Bozeman-area wages and its house prices, and said they don’t add up. Fair warning, that. And his wasn't the only sober voice, so, when the lunch break came I was sure that the conference was more about bringing market realities to light than it was about bringing hype to psych up the boots on the ground.

And yet, at lunch, sitting at a table with three realtors, a bit of what the conferees weren’t saying crept into my consciousness. So, in the course of conversation while we sat waiting for our plates to be delivered, I dropped a couple factoids onto my lunchmates’ laps.

Ireland, said I, was looking headed into a busted lending/building bubble a lot like America’s. And Spain’s property bubble was, according to some at the time, already a bust. Then I mentioned that Australia and the UK seemed in a similar situation, with The Economist calculating that UK housing should drop by 30 percent. Closer to home, I mentioned that The Economist had warned of big trouble back in 2001, when it described Fannie Mae and Freddie Mac as “Big Scary Monsters” that might end demanding a big scary bailout. If all that happens, said I, we might see a global credit tightening that not even Montana can escape.

None of the three real estate agents gave me a brushoff, so, as our brief conversation proceeded, I dropped that topic and went on to another : climate. If I were a buyer, I said, particularly a buyer of large acreage for the joy of owning a genuine “ranch,” or for possessing a fishing- hunting paradise, I’d only buy low elevation acreage with plenty of water, and senior water rights.

The name of the investment risk I’d reduce, not avoid, is drought. If, as now seems increasingly plausible, our mainstem rivers will be flowing lower, that’s because their tributaries will be flowing lower. And if the tributaries are going to flowing lower, it’s because their own tributaries will be flowing lower, until, as we work our way upstream, we get drought at higher elevations.

I doubt that many prospective real estate buyers know it, but the entire American West may be in for drought at significant levels and for a way long time ahead. While that likely doesn’t mean that our bigger rivers and streams will disappear, it sure doesn’t bode well for the littler flows, including the small tributaries we find at elevations above the valley floors. Sure, there are tributaries at those elevations that are secure water rights, but the water has to be there before the rights to it matter.

I don’t know how many land buyers or sellers read the science journals, but what I read there prompts me to look at the West – and its real estate market, among other things -- in a new light. For example, one team of researchers found evidence that shrinking Arctic ice will be a prelude to drought in the West. Another team, using an ensemble of climate models known to lightly estimate drought risk indicate high risk of drought in the West. Yet another team, looking at interaction of the Indian and Pacific Oceans, found evidence of drought for all the mid-latitudes. And a British team using the Hadley Centre model found evidence that “extreme drought,” which only affects one percent of Earth’s land surface today could affect about 30 percent in the future. Just try and tell the world that none of this would matter to the buyers and sellers of real estate, including not just big chunks of land but even a simple residence dependent on water from a spring or well.

Beyond the risk of losing your trout stream and/or your water well, there’s fire. If I were selling some beautifully forested patch of Rocky Mountain real estate, I’d be feeling awkward about failing to disclose that it’s increasingly vulnerable to fire. So far, the media are carrying the industry’s water on this topic, but there was none of this climate-linked risk of dried-up streams or flaming forest presented at the conference. So I can’t give New West’s 2007 real estate conference perfect marks.

But there was easily enough realism there to give the boots on the ground a good heads-up, and a realistic basis for evaluating the news stories that have surfaced since.

I’d give it a B, because while it did a good job of what it did, it left key topics off the table. And I’d urge New West to integrate its upcoming conference on water with the facts of fire, and I’d further urge it to integrate both topics as permanent features in its fall conferences on real estate.