The Great Recession
Missoula Real Estate: The Good, the Bad and the Ugly
Is the Missoula housing market in a slump, or is it holding up well compared to the rest of the nation? Well, both.By Travis Koch, 7-14-09
Above: Dean Stone Drive in Mansion Heights has a nickname: "Prudential Drive." Middle: Canyon Creek Village. Photos by Travis Koch/NewWest.Net. Photo slideshow below by Greta Rybus.
If you look at the most basic measure of the health of the local real estate market, you might conclude that Missoula doesn’t have much to worry about. The median home price in Missoula County—$217,000 as of June 30—has fallen less than 1 percent since its peak in 2006, according to the Missoula Organization of Realtors. By comparison, the National Association of Realtors reports that the median home price in the U.S. has dropped 21 percent during the same period, from $219,000 in 2006 to $173,000 in May of this year.
But when you dig a little deeper, you find plenty of indicators that all is not well in the local real estate market—especially when it comes to new development.
New construction has hit a 20-year low, foreclosures are on the rise, and the list of active real estate listings is growing long enough that prices may continue to creep downward. Some two-dozen conversations with local builders and realtors, moreover, reveal no small amount of nervousness about the state of the business.
“So far we’ve fared fairly well,” said Bryan Flaherty, president of the Missoula Organization of Realtors (MOR).
The lower end of the market in particular is continuing to see a lot of activity, and some realtors are reporting sales numbers that are comparable to years past. Remodeling activity is also stable, and helping to keep some contractors in work.
But even Flaherty admits to seeing worrisome signs.
Here are some of the most telling numbers that NewWest.Net has compiled from various mid-year reports::
--During the first half of this year, only 142 building permits were issued for new construction of single-family homes, according to the Missoula Building Inspection Division’s monthly building permit report. That’s lower than any other mid-year tally since 1989, and represents a 38 percent decrease from the same period last year. It’s also a 69 percent decline off the 2005 high mark, when 457 permits were issued from January to June.
--The number of new construction building permits for all residential and commercial structures issued in the first half of 2009—274 total—is down 50 percent from the 20-year average of about 600, a number that had been relatively stable since the early 1990s.
--The total monetary value of new construction projects so far this year—$64 million, as calculated by the City of Missoula’s Building Inspection Division—has taken a $70 million hit this year, down 52 percent from last year’s total of $133 million.
--Missoula area foreclosures in the first half of this year -– at 131 -– are far above last year’s mid-year total of 42, and have already surpassed the 127 foreclosures for all of last year, according to data provided by MOR. (By comparison, the annual foreclosure total for 2006, before the recession hit, was 73.)
Now here’s some better news, with a few caveats:
--Missoula real estate appears to be doing much better than other regions around the country, based on median sales price data from the Realtor organizations.
--Building permits issued for residential remodels in the first half of 2009 have remained steady at 768, down by only 75 from this time last year and slightly above the comparable 20-year average. While the value of remodels is down significantly from last year, it’s in line with historical levels.
--Houses in the $150,000 to $350,000 range are still selling … though at about half the volume. Some realtors say this is a healthy sign, considering the carnage elsewhere. According to the MOR, there were about 470 houses, primarily in this price-range, that sold in Missoula County between January 1 and June 30 of this year, down from 575 during the same period last year. (By comparison, 913 houses sold in the first half of 2006, when the market was at its hottest.)
How do these numbers translate into activity on the ground?
A simple drive around Missoula on a recent day confirms that new construction is hard to find. Visit any of the subdivisions that were booming a few years ago—Apple Grove in the Rattlesnake, 44 Ranch on Mullan Road, or Mansion Heights in the South Hills, just to name a few—and you’ll be hard pressed to find a foundation being dug or a house being framed.
Construction is still in progress at some of the larger, less expensive subdivisions, such as the 450-home Canyon Creek Village on Expressway Blvd. and the Pleasant View Homes development behind Home Depot (with 630 home sites), where crews are actively framing and finishing new houses.
But even these mega-developments are building far fewer houses than in previous years. Dave Curtiss of Wesmont Builder-Developers, the firm that owns Canyon Creek Village, said the company built 92 new houses in the subdivision in 2004; 52 houses in 2005; and 42 in 2006. This year they plan to build 13 to 20 homes on some of the 100 remaining lots.
Curtiss also said the company had recently adjusted its housing model offerings and pricing in Canyon Creek Village, trying to attract buyers by providing even more affordable options. They now offer models for as low as $137,000.
Russ Aldrich, a construction worker with Edgell Homes and Development who was working at the Windsor subdivision near Canyon Creek Village one recent afternoon, said he was very glad to have the work. “We’re in a lot better shape than most,” said Aldrich. “I know people who are getting laid off right now.”
Upper-end developments in Missoula—those with lots priced above $100,000 and homes over $500,000—may be suffering the most. Mansion Heights, with its 158 home sites in the South Hills, has sold one bare lot this year—two less than last year.
“As far as I know, there are no houses going into the ground here,” said Lewis Matelich, a Prudential Montana realtor who has been involved in the Mansion Heights subdivision for 11 years.
Matelich said he thought some of the parcels in Mansion Heights were developed and put on the market prematurely. “There are still people who want to build a home here, but they can’t sell their million-dollar house right now,” said Matelich.
The Ranch Club on Mullan Road (with 198 home sites, 72 townhouse/condo sites and 95 club lodge sites) has gotten aggressive in combatting the slowdown at the high end of the market. Last month the golf-course community, formerly called Phantom Hills, offered 25- to 30-percent discounts on its lots for a limited time, attracting 11 buyers, nine of whom have already closed. The deep discounts were accompanied by a special financing package through First Interstate Bank, according to Geoff Peddicord, who manages the development.
Flaherty of the MOR confirmed the sharp drop in activity, especially in the upper end of the market. “There’s not a lot going on out there,” he said. “Houses priced at around the $250,000 level are what’s moving. Anything over $350,000 is quiet—$500,000 and up is very quiet.”
Flaherty attributed the sluggish development situation to the decreasing availability of financing. “Banks aren’t financing subdivisions or spec houses. Outside of federally guaranteed loans, financing is really hard to get,” he said.
Ryan Morton of the Missoula Building Industry Association pointed to the psychological factors that often weigh heavily in the real estate world.
“I think perception is probably the biggest factor,” said Morton. “People think this isn’t the right time or that they can’t buy or build a home,” and so they don’t.
Perceptions definitely differ among Missoula realtors, who have a wide variety of opinions about whether this year’s market is good or bad. With 650 Missoula Organization of Realtors (MOR) members and less than 500 house sales this year, some realtors are bound to be feeling happier than others.
Carroll Anne Sowerby, a realtor with Prudential Missoula Properties (not to be confused with Prudential Montana), is one of the optimists. “I’m personally busier now than I’ve been in the four years of my real estate career,” she said.
Sowerby reported increased sales volume and higher prices for houses under the half-million mark and said she was beginning to see signs of life among houses priced in the million dollar range.
Others realtors are more cautious. Sam Anderson, a realtor with Clearwater Montana Properties, said he’s been busy, but is concerned about the growing number of houses on the market.
“Prices are holding pretty well right now, but there is a downward pressure,” as Flaherty, the MOR president, described it. The pressure is a result of fewer people being able to obtain loans to buy a house, which elevates inventory and drives down prices. (For a quick lesson on this, check out the video below.)
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
A closely-related factor, according to Flaherty—but one that’s impossible to calculate—is the number of people who want to sell their house but haven’t put it on the market because they don’t think they can get the price they want. As people leave the sidelines and start selling, the supply will likely sustain the high housing inventory and keep downward pressure on prices for the next several years.
Flaherty remains cautiously upbeat. “We didn’t get into the recession as soon or as deeply as other places, and we didn’t develop as many lots as the Bitterroot or Flathead,” he said. “Maybe our difficult development approval process held us back and saved us inadvertently from having a lot of developed land that won’t sell. Sales are not wonderful, but we’re still selling real estate. The important thing is to find the bottom—wherever it is.”
One indicator that real estate professionals watch closely is foreclosure activity, which can be hard to assess accurately. When a lending institution posts a notice of foreclosure on a particular property, the owner still has several months to try to sell the property before the bank repossesses it. So, at any one time, the County Clerk will have multiple foreclosure notices on record (277 so far this year), many of which will be cancelled or end in a sale by the owner before they are actually foreclosed on.
Still, it’s clear that foreclosure activity has increased substantially over past years. Halfway through this year, Missoula is already approaching last year’s total number of foreclosure notices—313 last year compared to 277 in the first half of this year. The county has already surpassed the total number of foreclosures for all of 2008.
In the 44 Ranch subdivision, located on Mullan Road a mile west of Reserve, one homeowner, who requested that his name not be used, said he recently purchased his house for $130,000 less than the listed price. The brand-new 5-bedroom, 3-bath house had been repossessed by the lender. His offer of $215,000 was accepted.
Those types of losses for banks aren’t typical … or at least not yet. “We’re starting to see more foreclosure activity in the Missoula market,” said Flaherty. “But lenders are still getting fair prices for foreclosed houses.” Flaherty said he is closely monitoring the situation. “If we start seeing a foreclosure bubble, that’s a problem,” he said.
The increase in foreclosures can create a vicious circle: Lenders are under pressure to get rid of foreclosed properties, often at deep discounts, adding to already over-inflated inventory. In addition, if people can’t make the payments on their houses, they are unlikely to have money to spend with other businesses in town - and in turn the owners of those businesses are less able to invest in real estate..
Another sign of market weakness is the rise in “short sales.” A short sale is the sale of a house by owners for less than what they owe the lenders. In this situation, the lending institution must approve the discrepancy between what is owed and the offered price. If lenders decide to allow the sale, they will write off the loss as bad debt.
“There have been a fair share of short sales in Missoula recently,” said realtor Anderson, who described one short sale in which a home was purchased for $350,000, listed in 2007 for $419,000 and sold this year for $240,000.
“In my estimation, it may not be the best time for some people to buy,” said Flaherty. “But then again, it’s certainly a good time to keep your eyes open and watch what’s happening.”
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"Why does progress look so much like destruction"?, John Steinbeck in Travels with Charlie when he viewed Seattle in 1962 after many years of not seeing it. Nuthin' wrong with keeping Montana the way it was.
I can't help but read this article and wonder how all of this economic reality fits into efforts by Tester, Schweitzer and others to "save the timber industry." After all, do you think the timber industry, developers and the housing market might be connected?
Take some time off from the polarization , go fishing and enjoy what we have in Montana.
The air pollution we see over us is from Asia, not Seattle. Boeing builds the airplanes somewhere else now, and the lumber is milled somewhere else now. And the person who breaks into your house to steal the TV and sound system made somewhere else and imported to Montana, will find a buyer who will pay what US wages can afford a fence. Thieves are locavores. Cuttng trees, and saving the timber industry is not even on the mind of anyone I know, including my son who is still working as a logger. He has a job. He is cutting down trees owned by a hedge fund in Boston. I guess they need to make new soapboxes for your ilk. He will work until the work is gone, and then find another job. You might not like loggers for environmental reasons, but you also might not like them because they can work your ass into the ground and will if given the chance.
For what it is worth, in the poor parts of my hometown, no for sale signs. None. The people who own their homes, albeit small and old homes, inexpensive, plain homes, have no reason to sell. They are not hurting. But you go to the chi-chi part of town, and half the houses are for sale. Add to that, in Portland, the SE side of town has a 5 month inventory of unsold existing homes, and on the SW side of town, a 5 year inventory of existing unsold homes. That is what a half million dollars of difference in home price does. The affordable homes sell, can be financed, and they are meeting the demand and the pool of qualified buyers. The issue in Missoula, and elsewhere, is that what you want and what you need, in a home, is sometimes not affordable. Those who have less need, who have not quite so high expectations and sense of entitlement, are doing just fine. The high flyers are having a devil of time with it all. The world will be better off with an adjustment of expectations relative to needs and wants. People might just be happier, too, after finding that balance.
If you want to deflate housing, and raise taxes, change tax law to NOT allow home interest to be deducted or property taxes to be deductible on the Federal income tax. Poor people financed about every big ranch sold in Montana in the last two decades. The old "conservation easement devaluation" deduction for "charitably giving" the development rights to some NGO like Matthew's, and when the smoke cleared, the high roller had bought a ranch for $10 million, and given half the value in a conservation easement, and still has the "No Trespassing" signs up, and tax relief on his or her income of a quarter or more of what was paid for the ranch. And, can sell the ranch at a loss and still make money. Friends in Congress like Baucus keep them whole.
So beat up on Baucus instead of Tester. Tester is going to bring home some bacon. And while you are at it, why not show us a map of NW Montana, with all the Indian lands, Glacier NP, the existing Wilderness, all blacked out, and the say with a straight face that there is too little Wilderness and protected land, and mark the tree you fear might get cut. You know, show some graphics, and then overlay NREPA. Get the sympathy vote.
Meanwhile, the payroll taxes on the person working for minimum wage still took 15% or more of the first dollar and the last dollar of that person, and of all the dollars in between. And no deduction for paying rent. Oh, and no payroll taxes on rents and royalties. No social security taxes.
So, in my little mind, Matthew's work is to take money from the poor and give it to the government to buy more land or keep more land from participating in the resource economy. Talk about a buzz killer!!! Matthew's work kills the economic buzz and he is proud of it!! His job is to keep the hoi poloi out of the forest and the heavy hitters in protected seclusion from the commoners.
Want to hear my joke about David Letterman, son Harry, and Barney Frank at the baseball game?
nice rant
Back to subject . Real estate hasnt crashed in Missoula yet. The trust fund bubble might be able to keep it afloat. There should be some shit coming though.
Around me construction has been dead for 2 plus years, tons of platted lots , price drops of 20% to 50%. Foreclosures everywhere.
How low does it go nobody knows.
Missoula is a trust fund town, so it probably wont be as bad.
If less trust funders show up and it is up to earnings divided by mortgage payment to fill up inventory. If no jobs are added it could be some way to bottom.
Booms have consequences. This one was widely foreseen, on the one hand by environmentalists who warned that the rate of logging was unsustainable, and on the other hand from many in the financial sector who warned that the lending was unsustainable.
During the long American home construction boom, many pointed to all the jobs it was creating. Now those jobs are vanishing, in both the lending and logging industries.
Logging is going, going gone because of no trees to log. That does not translate into there are no trees. There is more timber by volume on public lands than when the USFS was formed as an agency to manage the unclaimed public domain, and the lands withdrawn from the Homestead Acts. And the US has grown more timber on public lands since 1990 than was cut on public lands from 1946-1990. No loss. Even with unrestrained wildfire, we are growing more timber than the land can support. That is the reason for the more intense fire situation. Too much fuel. The forests grow, even in drought years. And longer each year if global warming is indeed fact. Either way, logging is not in need of a bailout. People who normally be selling logs from their property are not about to sell them for less than logging costs, which is about where logs are now priced. Homebuilding might need a bailout if there is no logging in the US. Logging is a pointless act if there is no milling capacity to use the logs. And that is where we are headed. No market for lumber, no houses selling, a US homebuilding rate of 300,000 starts per year, the lowest it has been since before WWII when we had a third of our current population. Sawmills shut their doors permanently every week. And that does not portend a demand for logs.
You can buy a "bloodless" diamond from First Nations people in northern Canada. Nobody is killed, or forced to labor to recover those diamonds. Hence the bloodless label. We won't be able to say the same thing for lumber in the US. Our lumber future is going to come from third world nations in revolt. Trees cut to buy guns and ammo. Bloody lumber. Or trees grown on tree farms in South America, replacing native species with exotics like ponderosa pine and radiata pine. Or douglas fir from France or sitka spruce from England. Ecosystems ruined to provide the good ole USA with lumber because we don't cut our trees.
The Missoula housing boom is over for now. It will be about how many government jobs Missoula can keep and grow in number as to how the economy goes there. Lots of regional and state offices for branches of Federal government, and lots of State offices for Western Montana are there, along with the university. And Baucus in control of the purse strings. Government will grow in Montana. Drive through West Virginia, and your are never out of sight from something with Senator Byrd's name on it. When he was a Senate Finance operative he brought home the bacon to Hillbilly country and beyond.
The Trust Puppy house market will rebound only as stocks regain value. Those born with a silver spoon in their mouth are only as rich as their stocks perform, and pay dividends. Right now they are not as rich as they were, and so it is a conservative time. And maybe it will remain that way for some time. The big money was not in second homes. It was in 5th homes or tenth homes. I was hip to own a home in Montana. Movie stars, basketball coaches, big name financiers all owned something in Montana. Those people right now probably can get by on only a half dozen or so homes, and won't be building any new ones in the meantime. Unless, of course, the GoldmanSachs bonus is a big one. That might bring some more action in the Bitterroot Valley.
The real indicator of where and how wealth is performing in the US will come later this summer at Sturgis. How many architects and lawyers show up with the big support trailers will be telling as to how the economy is working. My hope is that we don't get much more change....for the bad. I have had enough of that for now.
According to the FHFA data, Missoula house values fell 0.52% in the first quarter of 2009. Second quarter data will be out soon.
Another measure of house values is the MT Dept of Revenue's 2009 property tax appraisals. According to their website, http://mt.gov/revenue/forindividuals/property/reappraisal/CountySummaryTable.pdf, house prices in Missoula rose "just" 60% from the Jan 2002 to July 2008. This is in sharp contrast to the 100-150% increases sellers seem to think they can get in the Missoula market right now. No wonder sales have fallen so much. Buyers are clearly waiting for prices to come down. When houses are priced fairly, they sell quickly.
I suspect that a lot of listing agents have their fingers in the dike avoiding the truth - that their Sellers need to get real - especially true for the upper end of the market. Get the prices down to reality and sell something!!