Real Estate News
Missoula’s Market: Worse Than You Think
By Robert Struckman, 6-17-08
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If you’re thinking the housing bubble in Missoula, and Montana, will somehow remain full of air, think again. The situation is probably worse than you think. Median home prices, as recorded by real estate organizations, have been relatively stable, but some indicators suggest a downturn could be just around the corner.
Why? Because homes have been sitting on the market for months and months, while sellers have begun to slowly lower their asking prices. A rash of foreclosures may force prices down, which will greatly increase the downward pressure on all home prices. Foreclosures have remained relatively low, but the state has 4,581 subprime mortgage loans, according to data from the Federal Reserve Bank of New York. County-by-county data was recently removed from the Fed’s site, so it’s hard to know exactly how many of those risky loans were in Missoula. It is clear, though, that hundreds of homes in each of Montana’s top markets could face foreclosure in the coming months.
The New York Fed’s numbers only take owner-occupied homes into account. These numbers do not include builder- or investor-owned homes. See the New York Fed’s study here.
One major difference between Montana and the states that have been worst hit by the housing crisis is that Montana banks and financial institutions did not invest much in mortgage-backed securities, said Annie Goodwin of the Montana Division of Banking and Financial Institutions. That means that the bubble hasn’t hammered banks, as it has damaged big national and international financial institutions.
Still, dropping home values could hurt Montana’s economy by making it harder for small businesses to get startup cash (many small business owners use their homes as collateral for their first business loans, so a rising real estate market acts like a wide-spread cash injection into the economy, and a falling market has the opposite effect).
On the other hand, Montana’s economic climate remains relatively good, with low unemployment and continued signs of economic strength such as strong commercial construction. And that’s probably the best news about the state’s real estate market: that there may still be significant demand for housing, just at slightly lower prices than the median in the state’s hotter markets. Once prices become affordable to local buyers - and people regain confidence in homes-as-investment-vehicles - the numbers of home sales, and prices, will again edge upward.
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You're right, Bob. "Once prices become affordable to local buyers - and people regain confidence in homes-as-investment-vehicles - the numbers of home sales, and prices, will again edge upward." But that's a long ways off, for several reasons:
1. The Missoula real estate market is not just local. Last year, a realtor told me about half of the area's sales were to out of towners. The national market is putting a big damper on that.
2. The Montana credit market is not just local. Thank heavens we have some sane local banks. But they have not been writing the majority of the local mortgages, so the national credit crunch will affect us, too. See my earlier post at http://www.newwest.net/topic/article/echo_effect_slows_regions_real_estate/C35/L35/
3. The housing downturn is not just about housing anymore. Now it's also about rising oil prices and food prices, which make it harder for people to afford their current mortgage payments and to qualify for new mortgage loans. New West had a great story about this last week, showing that MT is far more affected by rising oil prices than other states. http://www.newwest.net/topic/article/gas_prices_hit_rural_northern_rockies/C559/L559/
4. Before 1, 2, and 3 got going, house affordability in Missoula was in the pits. According to the 2007 Missoula Housing Market report, even if 4 working people earning the median salary pooled their income they could not afford the median house in Missoula (http://www.missoularealestate.com/docs/2007MissoulaHousingReport.pdf, page 11).
To me, this says that we will get back to the land of rising home sales and rising prices when Missoula wages double or Missoula house prices fall by 50%.
And that’s probably the best news about the state’s real estate market: that there may still be significant demand for housing, just at slightly lower prices than the median in the state’s hotter markets. Once prices become affordable to local buyers - and people regain confidence in homes-as-investment-vehicles - the numbers of home sales, and prices, will again edge upward.
ahhh - the conundrum for the wise buyer. How long to wait.
Those that couldn't afford - that can't afford now - should save every penny that they can for that first down payment once prices get to the bottom.
It's sad, I realize - but many out there, if they are smart, will be able to purchase their first home at a time when they'll get not only a great deal, but during a down cycle which should safely ensure increased equity for the next 20-30 years. Comment By me, 6-23-08
Missoula is a great place for trustfunders who are 35 but act like threy are 21.
Jobs will NEVER pay good in Missoula. Never have never will.
Right now it is very trendy nation wide to move to Montana and in particular Missoula. When that stops Missoula's biggest industry - constrcution and housing will come crashing down, causing an exodus, just like in the 80s. Which in the end will acheive the 'affordable' housing that everyone talks about but just can't seem to figure out how to do. I welcome the crash, maybe then the local kids growing up will again have a chance at buying a home.
Comment By TeaBag, 7-28-08Hav a nice day with a cup of Tea.
Greetings from TeaBagOpenMic!
Bob,
Here's a good source for state-by-state statistics on adjustable rate mortgages http://www.newyorkfed.org/mortgagemaps75/index.cfm
The Montana numbers are worse than I expected:
62.9% of housing loans are ARMs
43% of ARMs will reset in 12 months
44% of ARMs have already had one late payment in the last 12 mos
Oops! I read that wrong. Here's the correct info:
0.93% of MT loans are subprime
of those, 62% are ARMs
43% of the ARMs will reset within the year
0.75% of MT loans are Alt-A
of those, 27% are ARMs
72% were made with little or no documentation