Bob,

Thanks for covering this, but could you give us some numbers?

You say that "Unlike the biggest boom markets in California and Florida, for instance, home prices in this region never pushed into the stratosphere. Construction of new homes remained relatively modest. That’s not to say that prices here haven’t outstripped incomes."

What was house price appreciation in CA and FL compared to CO, WA, OR, MT, and WY? I doubt they were really that different. According to UM economist Paul Polzin, Missoula house prices rose at about the national average in 2001 and 2002 and rose FASTER than the national average in 2003 and 2004. Polzin also says the MT housing market during the boom years was totally tied into the national market. http://www.mtinbusiness.com/current/bus01.php

This makes me wonder if construction rates were really different in the RM West than elsewhere. Numbers, please?

And how about the incomes issue? Many Rocky Mtn towns, like Missoula, Bozeman, and Jackson have "house affordability" statistics similar to San Diego and Miami. Sure, if you factor Havre into the equation MT will look divine. But 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).

Finally, it's important to point out that although MT and WY have low foreclosure rates compared to other states, these rates have jumped dramatically in percentage terms over the last year. According to Realty Trac, in MT, the increase was something like 200% from early 2007 to early 2008.

So, kudos on being the only journalist in MT to cover the housing market. Now, can you help us figure out just how bad it is? Being "better than Miami" is really no consolation.

Hi Kasey,

Thanks for writing. I'll do what I can to succinctly answer your overarching questions. First, Montana's home prices (with the exceptions of a few places in Big Sky and the Kalispell area and perhaps one or two other specific developments) has not been tied directly into the nation's housing markets. No place in our region, except Boise, Salt Lake City and the Denver area, is. That is to say, the speculative bubble that resulted in massive developments with tens of thousands of homes apiece, with mortgages selling those homes being tied together into bonds (which raised massive amounts of capital), with the wholesale use of funky (in my opinion, basically fraudulent and bogus) loan packages to make those mortgages happen... that stuff didn't happen here. And that stuff drove home prices in about 10 states in the country through the roof. We're talking about $330,000 for a home in Orange County, Calif., in 2002 selling for $550,000 two years later.

Here's what happened here in Montana, where very few of those funky loans happened, where we have no publicly traded residential construction companies, where our population is so small that the big financial boys around the rest of the country can scarcely be bothered to glance around to see if a respectable profit can be made: here we felt the echo of the rises elsewhere. People sold out in other cities, moved to Missoula and other towns, and bought homes that seemed ungodly expensive to us and quite reasonable to them.

Maybe you're thinking, geez, our foreclosure rates are up, Bob's probably just toting the Realtor's line. Actually, we did have some variable-rate mortgages. I know a young couple who got talked into one of those deals. Yes, they do exist. But those represent a tiny percentage of our overall mortgages, in part because the state banking regulators stepped in last legislative session and put a halt to those practices.

So our foreclosure rates are similar to our increases: the percentages themselves may appear dramatic, but those big increases mask the true differences in scale between places like Montana and Wyoming, for instance, and California and Nevada.

Look at the numbers from RealtyTrak: all told, Montana had 137 foreclosures last month. Is that high? Compared to what? Well, we've got one of the lowest rates, and one of the lowest in terms of raw numbers, in the country. But it's higher than last year. And I can tell you, for those 137 families, it probably feels like it's higher than hell.

I'm not going to trot through my home price database right now. But I will direct you to look at the first issue of the magazine, in which we explored the peak and downturn in prices around the region. You'll see that our Missoula prices are actually quite modest, compared to the rest of the region. Does that mean our prices are affordable? Once again, that depends on who's talking. A recent arrival from New Jersey would probably holler gleefully about our low prices. Someone from North Dakota or Ohio, on the other hand, might holler for the opposite reason. Are our home prices out-of-whack with our incomes here? Absolutely. See the story above for main reason why.

I hope that answers your questions.

Thanks again for commenting.
Bob

Bob,

Sure, the volume was different. The population in CO is much larger than MT, so no wonder there are no 10,000 house subdivisions in Missoula. But in percentage or per capita terms, the results will be much the same, not only because the local credit situation was not as old-fashioned as you suggest but also because of the spin-off effects on credit and purchasing power from the national market. Not only will out-of-staters stop buying second homes at a furious rate, those who already own them will have to drop them on a market where it's just as hard to get credit as it is in Miami and San Diego. And that's not even to mention the problems local folks will have as their HELOCs get pulled.

As for folks in the mountain states not speculating, take a look at this piece on Coeur d'Alene, in which the head of the realtor organization says, "There was a speculative market with unsophisticated real estate investors... They were playing it loose and buying homes 10 at a time and trying to turn them. Now, the market has petered out and they're stuck with those homes." http://www.cdapress.com/articles/2008/06/13/news/news04.txt

I think you need to decide what you mean by "the region." When the trouble is in the Flathead and Coeur d'Alene, don't you think it's getting pretty close to home?

--Kasey

Bob,

Is this the NW magazine article you wanted me to read? http://www.newwest.net/topic/article/western_economic_outlook_partly_sunny_with_a_chance_of_recession/C561/L555/

Seems to me you make the case for me. You wrote, "A single-family home in Big Sky, Mont. — at a median price of $1.6 million in 2006 — fell 12 percent to a median of $1.4 million in 2007 and likely has more to go. Prices are still more than triple what they were in 2003."

There are other ways to explain another statistic you cited in that article -- that "the top five states for price increases in single family homes in 2007 (yes, we’re talking increases) were Utah, Wyoming, Montana, New Mexico and Washington."

One possibility: they are just late to the party (evidence: NM has tanked since you wrote the piece, and WA and UT are falling fast.

Another possibility: lack of market transparency. UT, MT, WY, and NM do not require sales price disclosure, so trends take longer for consumers to perceive.

--Kasey

Hi Kasey,

I agree with you on the lack of market transparency. It's ridiculous, and covers up a lot more than market trends. For instance, it can hide land deals by public figures who have an impact on land values - for example, say, commissioners who improve roads could potentially buy land beforehand, and sell it afterwards at a huge profit... but those potentially corrupt deals are very difficult to track here.

As for your predictions, maybe you're right. I do report on forecasts, as you know, but that's something I'm very careful about. That doesn't mean I miss the big issues. I reported about the bubble heavily in 2004 and 2005, for instance. I spend a lot of time talking to a lot of buyers, developers, agents, bankers and others all across the region, which does include CdA and Big Sky. (My reporting region includes Montana, Idaho, Wyoming, Colorado, Utah and the eastern portions of Washington and Oregon.) As you pointed out, it's always iffy when you make blanket statements about any region, however small. Missoula has dozens of distinct sub-markets, for instance. Not all homes or neighborhoods in the Rattlesnake neighborhood are equal. On the other hand, one danger with journalism is you get too bogged down in one particular place. Big Sky is not the Montana market. It's more of an anomaly than anything. So, you can miss the forest for the trees, too. I don't think I do that, but I guess one rarely thinks oneself guilty of that.

Thanks for keeping an eye on things. I'll be exploring more of the secondary effects of our housing slowdown/downturn in the coming weeks and in the next issue of the magazine. Keep an eye out for it. Also, read the story about Angry Hanks in Billings in the last issue, that'll give you some insight into the ripple effects through the community from the upswing in home prices; as well as some notion of how slowdowns here will dampen local economies. As for your ideas about the prevalence of sketchy loan packages, I think you're wrong, because the Montana did step in year ago to regulate and put a halt to those types of mortgages. But I'll have to look into that more. As far as I know, only one Montana company has gone under because of that phenomenon, and nothing the size of Washington Mutual has been significantly hurt.

Best,
Bob

Are you sure about very few of those "funky" loans happening?

Missoula is the only Montana county listed as "distressed" and as such, there are limits on certain loans. I got that information (the limits on loans) from a local mortgage company's newsletter - and as for the "distressed" statement, I pulled that out of a news story a while back: http://toledoblade.com/apps/pbcs.dll/article?AID=/20080327/BUSINESS07/803270339 and http://hosted.ap.org/dynamic/fronts/HOUSING_LOANS?SITE=TNNAT&SECTION=US

Regarding the foreclosures - every week foreclosures are listed in both the Missoulian and The Independent's legal notices. I've noticed that there seems to be one law firm in SD that handles a whole bunch of them. I also found this nifty website this week - which currently shows 69 foreclosures around town. If you know your way around town, click on the map and then you can go drive by and see the house yourself, with a realtor or just a plain old "for sale" sign on it. Foreclosure link: http://www.greatplacestoretire.com/foreclosure_search.php?city=Missoula&zip_codes=59801, 59802, 59803, 59804, 59808

Also - regarding the ranking of foreclosures by state - ranking by the number of foreclosures isn't really relative - California, for example, has how many more houses than Montana? Overall? So an accounting of foreclosures, say, per capita or per household might be better as a statistic.

Montana may 'only' have lost 26 soldiers in both Iraq and Afghanistan, but that figure is the highest per capita of any state.

Realtors will make anything sound like a good deal.

Bob,

Today I went to the MT banking dept website, http://banking.mt.gov/ and it looks to me like the legislation you mention didn't pass until mid-2007. Since ARM and other risky loans were made for years before that, it will not make the MT market significantly different from any other.

Another reason not to be too confident about the supposedly down-home style of MT mortgages is that, across the country, the problem is not just in sub-prime. As prices stabilize and fall, people owe more on their homes than they're worth, especially if they've take out home equity lines of credit. Because the MT market is softening and because incomes don't support the high level of mortgage payments, we should expect more defaults, more inventory, and lower prices.

I saw on KPAX the other day that experts who attended a MT housing conference sponsored by the MT Org of Realtors and the Dept of Commerce, agreed that the problem has come to MT. http://www.montanasnewsstation.com/Global/story.asp?S=8467234&nav=menu227_6 "Home prices in Montana have fallen almost 5% during the past year, and new housing starts are down statewide more than 34%. Experts blame low consumer confidence in the housing market, and prices that are still beyond the budget of many working families."

If there is a silver lining in the region, it is that the downturn came later. Maybe it will give the state a chance to learn from the problems other states have had.

--Kasey

Hey Kasey and jhwygirl;

Thanks for your comments, etc. In looking further into the numbers, I've found some troubling trends. My main interviews won't be able to happen today - just too many people out of the office. But I should get the story up tomorrow. So thanks for prodding me.

Best,
Bob

Good news, Bob! And remember it wasn't just local banks operating in MT. Take a look at this list of the top 20 sources of Missoula mortgage loans in 2005. http://www.allmortgagedetail.com/mortgages/missoula_mt_montana.asp?type=sp&yr=2005

Since then, New Century and American Home Mortgage have gone bust, and Countrywide (#1 lender in 2005), Wells Fargo (#2), and everyone else are no longer making subprime and liar loans. Last summer, I spoke with a loan officer at Wells who told me that "almost all" of the mortgage loans they had been making were subprime.

Credit was national, so the crunch will be too.

Thanks Bob - Kasey too!

The whole idea that the Missoula Realtors is putting out there - that Missoula, that Montana, is immune or somehow insulated to these woes is ludicrous, as Kasey is pointing out. Financing was national.

I have a friend who was out house shopping on Friday with a Lambros realtor - and of course she was telling my friend - who was going to sell her house in the course of purchasing a new one - that the "market was strong" and that she'd "Have no problem selling her house" blah, blah, blah....

Meanwhile, the median prices on Missoula homes have been slipping (good news for purchasers, bad news for owners, especially those who want to sell) - and the new finance terms laid upon Missoula County by the finance institutions indicate - as Kasey is pointing out - that many owners are now upside-down.

It's hard to face or think about or realize: After all, everyone else in Missoula, including friends and neighbors, have bought and sold and made out a bundle with special innovative loans and consistently rising home prices. An owner who now is thinking they are positioned to do the same finds it hard to believe that the gravy train has slowed. It doesn't seem fair.

Besides all that - realtors that aren't able to push UP housing prices with as much predictability as they have been for the last 10 years are finding it hard to believe that, they too, aren't going to be rolling in that cash any more. They've GOT to keep that train a'rollin', even if it means telling little white lies to buyers and sellers (sometimes both one in the same).

If it were me and I were buying in Missoula? (And, honestly, in full disclosure, I AM hoping to buy), I'd wait it out until AT LEAST this fall. It's "real estate season" now - and sellers will be holding on to whatever price it is that they are asking for. Come fall, when the bulk of those sellers haven't gotten what they've wanted, and the season is then telling sellers that they've either got to drastically cut to sell by the end of the year or wait, prices will be really low. Even then, for me, I'll still be assessing the situation, and if I think that waiting, still, until spring 2009 is advantageous, I'll do it.

Montana has always been at least a year behind the rest of the world in everything - why should the real estate meltdown be any different?

Hi jhwygirl,

Thanks. Clearly, you're right about the real estate industry. I talked to a Countrywide lender a few months ago who still said troubles in the housing market were a product of the media, not a bubble or anything else. Wow. But as for Montana's place in the national financial or lending scenes, it's too simple to say Montana is simply behind or is a small part of that national meltdown.

Thanks for writing. More to come.
Bob

Countrywide? Really? A few months ago? The links I gave you above, and the story I posted at 4&20blackbirds;back in March, came from a Countrywide emailing (http://4and20blackbirds.wordpress.com/2008/03/29/mortgage-insurance-companies-not-willing-to-hedge-their-bets-anymore/).

What I said regarding "behind" may be simplistic, but it isn't untrue.

The Rocky Mountain West may weather the mortgage financial meltdown a bit better than the rest of the U.S., due mainly to its desireability as a place to live, but it's still going to take a hit.

Missoula, in particular, has held unsustainable valuation increases for too many years. Time to take some medicine. Exhibited by new finance rules - although some local finance companies are apparently ignoring the warning signs that the big banks are taking seriously.

I see two foreclosures in today's Missoulian, BTW.

Here's a post from the April 14, 2008 Housing Bubble Blog, http://thehousingbubbleblog.com/?p=4392, that shows that subprime, fraud, and all the rest of it DID happen in MT:

"The Independent Record reports from Montana. “Speaking at a seminar on foreclosures and their impact on Montana families, Sue Woodrow, community affairs manager for the Helena Branch of the Federal Reserve Bank of Minneapolis, said there are some hotspots of foreclosure activity in Montana, but that the situation here is nowhere near as grim as in parts of the Southwest, Midwest and Florida. Woodrow cautioned that one in five loans made in Montana in 2006 was a high-cost loan, a category that includes adjustable rate mortgages.”

“‘So the thing we’ll be watching out for is what happens when those start to reset,’ she said.”

“Sheila Rice of the Montana Homeownership Network in Great Falls said there are only six bank-owned homes that have been foreclosed in the Helena area, compared to 60 in Great Falls. She cautioned, though, that her organization typically counts around 800 foreclosures a year in Montana, but anticipates 1,200 before 2008 is done.”

“She said that in addition to creative financing, many borrowers ramped up credit card use and home equity lines, which put further stress on family budgets.”

“‘There was a feeding frenzy there for a long time, where people felt like if I didn’t do this now, I will never be a homeowner,’ she said. ‘And in fairness to the buyers, in 40 to 50 percent of the subprime loans, they could have gotten a prime loan and were up-sold.’”

Here's the link to the full text of that story http://www.helenair.com/articles/2008/04/09/top/70lo_080409_foreclosures.txt

Good links.

In the last week or so I read a story about the montana housing market where the person being interviewed said that here we are only 1/3 of the way through the crisis. Darned if I can't find it.

Today's Housing Bubble Blog has a bunch of stories about housing troubles in the Rocky Mountain West, including WY, ID, WA, and OR. The one about WY is a mind-blower. Talk about banking irregularities:

“Kurrin Bickmore, a Utah-based investor, said ... most of the investors had no knowledge of Evanston, nor any intention of owning property here for any time over the 120 days. Few, if any, knew what they were buying.”

“‘We all lied. Everybody that has a lot - we signed and said we were making the down [payment] and making payments. Maybe we did it naively, but we did it,’ said Bickmore.”

http://thehousingbubbleblog.com/?p=4650#comments

Also - let's take into consideration the rising price of gasoline. Some people bought homes in remote locations. I'm sure they are now re-considering their commutes to work.

this article is so off the mark and misleading...

recently sold by Hall and Hall



http://www.hallhall.com/ranches-for-sale/properties.php?type=sl

Bob Fanning-

You state that this article is "off the mark" and "misleading." You support these remarks with a link to a boutique real estate firm that trumpets the sale of $17-million-dollar ranches near Dillon and other real estate deals in the stratosphere.

Bob, these high-end sales to millionaires have nothing to do with the mortgage crisis and softening of the residential market discussed in the article.

If for example you included a web link proving a boost in sales and prices of Missoula residential property, hen you'll have might have some street credentials. But let's not trumpet multimillion-dollar land sales in Montana as an indication that we aren't facing a serious softening of the residential market in our state.