Housing Boom in Billings 2008 Transcript
Notes:
Unless otherwise noted, all images, graphs, and video created by Doug Armknecht and Copyright © 2008. Graphs have the data sources listed on the image.
YC# xxxxxx indicates a Yellowstone County recording document number.
Facts or other items with sources are bolded in the transcript, and the source is given directly below the paragraph.
If you have any questions or corrections, please let me know. Billingsboom .. at .. gmail dotcom (remove all the spaces and dots)
Text: In 1882, the town of Billings was established in Montana Territory
Text: Rapid growth earned this new town a nickname “The Magic City”
Text: Today Billings is at the end of yet another housing boom
Text: And only time will tell when the magic might run out…
Title: Housing Boom in Billings .. 2008 Edition
NARRATION: It has now been two years since I started reporting on the Billings housing market.
Seasons have come and gone. Building has continued. Some parts of town have changed a lot
Some have changed a little
And some have not changed much at all
Some houses are still searching for market value, two years later
On the national housing scene, we’ve seen things are moving quickly (Bloomberg video). Events that were hard to imagine just a few years ago are here.. plunging home prices in some areas, investment bank failures, and a trillion dollars worth of panicked government intervention. The housing crisis has led to a financial crisis, and Montana is not unaffected (images).
SOURCES:
http://housing.mt.gov/Hous_BOH_SF.asp (archived)
http://www.bloomberg.com/apps/news?pid=20601087&sid=anQ2BNJxVVM8
http://billingsgazette.net/articles/2007/11/03/news/local/34-layoff.txt
Unfortunately, the National Association of Realtors has been in denial this entire time.
First in 2006 they said it was a good time to buy or sell a house (image).
SOURCE: http://bigpicture.typepad.com/comments/2006/11/its_a_great_tim.html
Then when some markets started plummeting, they came up with a new line (NAR video)
Every market is different, and real estate is local. Which is true. But it just so happened that every market shot up due to easy credit, and virtually every market is now dropping (Case-shiller graph)
SOURCE:
http://Calculatedrisk.blogspot.com
And finally, the latest ads from the NAR don’t even try to claim the market is good. They downplay market conditions and tell you to just buy a house anyway (video, NAR).
I have nothing against Realtors, and in fact many here in Billings have told me they enjoy my videos. But it’s a shame that their national trade organization has encouraged people to buy even in the face of ruinous declines (image: California market graphs).
SOURCE:
http://www.IrvineHousingBlog.com
Montana Realtors correctly say that our prices will not drop as far as California’s or Florida’s. But with those other markets tanking 30 to 50 percent, that may be a small comfort. Montana’s market had a pretty significant run-up, and there’s still room for a major correction (Montana graph).
SOURCE:
http://www.dqnews.com/Charts/Monthly-Charts/CA-City-Charts/ZIPCAR.aspx
Since my last report in 2006, nothing drastic has happened. The Billings market has kept chugging along.
The second quarter of 2008 finally saw a drop in the house price index. This was the first decline since 2001 and the largest single-quarter drop in 11 years. It will take time to see if this is a trend developing.
If it continues for another few quarters, we will have the first year-over-year home value decline since the 1980’s.
SOURCE:
Analysis of OFHEO House Price Index data for Billings
http://www.ofheo.gov/hpi.aspx
With all the negativity surrounding price declines, politicians felt compelled to do something. Our own Senator Max Baucus is the chairman of the Senate Finance Committee, and he has taken an interest in the housing downturn (C-Span.org Video).
This is a December 2007 statement from Senator Baucus. He uses a Missoula family as an example of the type of people needing help in the housing crisis. Their situation is not unique.
SOURCE:
http://www.finance.senate.gov/hearings/statements/121307mb.pdf
When their adjustable rate mortgage payment went from $1400 to $1800 a month, this family simply couldn’t pay it anymore. In fact, their housing bills were eating up roughly 50% of their gross income, and probably close to 70% of their take home pay. Nobody can live like that for any length of time. (House images)
SOURCE:
http://www.forsalebyownercenter.com/listing-50820-Missoula-MT-59803-RealEstate.aspx
When you take out a loan with an adjustable rate mortgage, as this family did, you sign this adjustable rate rider. It shows you exactly what the initial interest rate is, exactly when it will adjust, and exactly what your rate could be when it adjusts. This is something you can plan ahead for.
The simple truth is that this family bought a house they could not afford. There is nothing the government can to remedy that. No politician is going to say this, but I will because it’s true. Senator Baucus wants to bail out people who bought too much house.
The idea of keeping people in their homes sounds nice, but nobody is doing a family a favor by trying to keep them in a house they could not afford in the first place.
Senator Baucus said in a statement that he wants to keep property values up. What he misses is that high prices are the problem. I *do* think it’s a shame that a working family can’t buy a decent house in most of Montana. But throwing money around and loosening credit is not the answer. Allowing the market to correct is the only way to remedy this.
SOURCE:
http://finance.senate.gov/press/Bpress/2008press/prb040208.pdf
Senator Tester was also in favor of the recent housing bill (C-SPAN Video). Representative Rehberg voted against the house version of the bill.
SOURCE:
http://clerk.house.gov/evs/2008/roll519.xml
But maybe all the talk about bailouts didn’t matter much anyway. Although it was big news when it was passed in July, the Housing and Economic Recovery Act of 2008 appears to have had little effect. Housing markets are still crashing.
Foreclosures
It has often been said that rich out-of-staters find Billings housing cheap and will help prop up our market.
But here’s a look at one out-of-stater’s investments in Billings that went horribly wrong.
This house in Ironwood subdivision was purchased in January 2006. The buyer was from Orange County California, and the loan had an adjustable rate. Total amount borrowed? $463k
SOURCE: YC# 3362754, 3362753
Over a period of seven months, she purchased four different houses in Yellowstone County.
In addition to the Ironwood property, there was one in Lake Hills in the Heights,
SOURCE: YC# 3346437
This one on the outskirts of Laurel,
SOURCE: YC# 3370478
And this house in Laurel which was on the market due to the previous owner’s bankruptcy.
SOURCE: YC#3351684, YC#3351685
And on top of the houses, in May 2006, CitiBank extended this borrower an extra $90k Home Equity Line of credit on the Lake Hills house.
SOURCE: YC# 3375816
In all, close to a million dollars in loans on these four houses – and all in adjustable rate mortgages.
But all good things come to an end, and in late 2006, this would-be real estate mogul began defaulting on her loans. Foreclosures began in 2007, and by mid-2008 all four houses had been lost.
SOURCE: YC#3434112, 3431693, 3427391, 3424722
In the wake of this small-scale debacle, the Billings area was left with four vacant bank-owned houses and inflated property values around town. In addition, four banks suffered huge losses. Two of the lenders, New Century and NationPoint, imploded in 2007 thanks to bad mortgages like these (New Century Graph).
SOURCE: finance.yahoo.com
During my research, I noticed that real estate professionals were not immune from housing trouble.
Remember this “sign of desperation” from a few years back? This is a house that a real estate agent had built. Her webpage used to tout herself as “Billings’ Best Realtor.” All attempts to sell this spec home failed, and it was foreclosed upon in 2007.
SOURCES:
Various documents relating to REITER-BESWICK SUB AMD 1-2/3 Lot 1A
Including YC#3359966, YC#3359967, YC#3403813, YC#3421709
www.Billingsbestrealtor.com (archived copy)
Then there’s a Realtor bought his house near downtown in 2001. He started with a loan from a local bank, then refinanced into an adjustable rate mortgage with a now-defunct California lender. The Realtor defaulted on his loan, although he has since become current.
SOURCES:
YC#32XXX19, YC#34XXX68, YC#33XXX62
And finally, there’s a bizarre case of a former Wells Fargo loan officer who also helped found an affordable housing organization. He acquired three properties beginning in 2002. One of the houses went into default in July 2005, but the very next month he purchased yet another property. Eventually Trustee’s Sales were schedule for all four houses, and by 2007 they had all been lost. This man joined a local mortgage lender this year and is currently listed as a loan officer.
SOURCES:
YC#34XXX68, YC#33XXX63, YC#33XXX85, YC#33XXX02, YC#33XXX48, YC#31XXX45
http://billingsgazette.net/articles/2005/[redacted]42.txt
http://billingsgazette.net/articles/2003/[redacted]68.txt
http://[redacted]detail.aspx?LONum=10
I’ve heard several people argue that Montana would not have mortgage trouble because local bankers were conservative and did not make risky mortgages.
Assuming that’s true, what does it mean for Billings? Who actually loaned the most money here?
During the boom years of 2005, and 2006, this unassuming building in a west-end strip mall was the driving force behind mortgage lending in Billings. Countrywide handed out $300 million worth of loans to Billings residents in these two years alone.
SOURCES:
http://www.allmortgagedetail.com/mortgages/billings_mt_montana.asp?type=sp&yr=2005
http://www.allmortgagedetail.com/mortgages/billings_mt_montana.asp?type=sp&yr=2006
More than Wells Fargo, more than First Interstate.
Countrywide started making headlines in a big way this year, but not for the right reasons. Turns out that Countrywide made so many bad loans across the country that they were insolvent.
A Notice of Trustee’s sale is the first step towards foreclosure, and indicates that a borrower is behind on payments. Here’s a graph of total Trustee Sale Notices in Billings since 2000. You can see there’s a slight upward trend, but so far Billings has not seen major ill effects from bad loans.
In the Yellowstone county courthouse, you can find notices for trutstee’s sale after trustee’s sale on loans handed out by Countrywide.
And with so many loans out there from Countrywide, ($316 million 2005-2006),
Washington Mutual 93.5 + 36 = 129.5
CitiMortgage 34.2 + 53.8 = 88.0
Suntrust 44.7 + 28.1 = 72.8 and
Ameriquest 49.4 + 13 = 62.6
, anything can happen.
SOURCE: See AllMortgageDetail.com link above
As for Montana banks, their main risk might lie in the loans to developers and builders. New West reported recently that the Glacier Horse Ranch development in Kalispell filed for bankruptcy protection. First Interstate Bank was the largest creditor, having lent $6.2 million.
SOURCE: http://www.newwest.net/topic/article/glacier_horse_ranch_files_for_bankruptcy_reorganizes1/C35/L35/
And there’s the ill-advised Glen Ranch, which proposed 2,600 residential lots (image) in the middle of nowhere just north of Three Forks. They are also bankrupt, and the Helena Independent Record reports that a Helena bank was owed $750k on the project.
SOURCES:
Bozeman Chronicle archive story
http://www.helenair.com/articles/2008/09/10/top/60lo_080910_bankrupt.txt
Warren Buffet said that It’s only when the tide goes out that you see who’s swimming naked. In the housing market, ugly loans don't really start to show themselves until the boom is over.
Foreclosures are real, and they are here. My guess is that the foreclosure story is far from over in Billings. Multiply some of the stories I’ve told by a couple million across the country, and you know why we have a huge financial crisis right now.
Speaking of foreclosures, here’s another look at the Northern Hotel. It was purchased again in 2007 by a developer with big plans and promises. Once again, all of the grand ideas have fallen through and the San Francisco owner is in default. The next foreclosure sale is scheduled for January 9.
SOURCES:
http://www.billingsgazette.net/articles/2008/01/22/news/local/18-northern_x.txt
YC # 3475646
The Northern Hotel owner also has a condo project in Livingston. This is the former Guest House motel, and this is the new exterior. On the inside, former motel rooms were being remodeled to look like, well, remodeled motel rooms. Most of the condo units were either 290 square feet, or 580 square feet with side-by-side rooms.
SOURCE: www.Guesthousecondos.com
The Billings Gazette reported that nine of the units had sold starting in 2007, for an average price of $80,000. Seven of the nine were bought by Californians, and none of the units were purchased by local residents.
This year the owner defaulted on his loans, and he now has $200,000 in liens. This project may never finish.
SOURCE:
http://www.billingsgazette.net/articles/2008/01/22/news/local/18-northern_x.txt
Some Montanans like to claim that our state ignored the recent real estate gold rush, but this is simply not true. Most of Montana saw a breathtaking price boom, both in residential housing and raw land. Just pick up a 10 year old Montana magazine and observe how things have changed.
One of the most stunning examples of this can be found in the Big Sky area south of Bozeman. In 1992, a group purchased 140,000 acres here from the Plum Creek Timber Company. The price? A mere $25 million, or $179 bucks an acre.
SOURCE:
http://www.billingsgazette.net/articles/2007/01/29/news/state/39-home.txt
This group making the purchase was headed by Tim Blixseth, who went on to develop the exclusive Yellowstone Club on some of that land. Members were required to pay a $300k initiation fee, $16k annual dues and build a large house.
SOURCE:
http://bozemandailychronicle.com/articles/2008/03/31/news/10club.txt
And to build a house, you needed to buy a lot. Some lots went for over $1 million an acre.
SOURCE:
http://www.billingsgazette.net/articles/2007/01/29/news/state/39-home.txt
So, let’s see. 1992, the land went for $179 an acre
2008, the Yellowstone Club was selling lots for $1 million an acre
A 558,559% increase in 16 years. Depending on how you look at it, that’s either a fabulous investment or the signs of a ridiculous land bubble.
Blixseth also had plans for the most expensive spec home ever.. $155 million, but instead he had to sell the 20 acres it was going to sit on to get cash.
SOURCE:
http://bozemandailychronicle.com/articles/2008/03/28/news/000club.txt
The rest of the Big Sky area appears to be a resort and second home paradise. The vast majority of these developments have popped up in the last 15 years. This area is massively overbuilt, and today there are hundreds of houses and condos for sale.
In a recent search, I found 586 properties for sale in this relatively small resort area. For comparison, this is more inventory than you will find in the entire city of Great Falls, population 60,000.
SOURCE:
Realtor.com search
If you count residential units only, the inventory stands at 350. According to 2007 Census data, this means that around one in five Big Sky housing units are for sale.
SOURCE:
Wikipedia.org
The views here are larger than life, and so are the prices. But with this much inventory, prices might be moving rapidly soon.
Bozeman sale prices reached absolutely silly levels compared to local wages in the past few years. After pushing $300k, the average price has finally started down (image). Thanks to rampant overbuilding, the Gallatin Valley now has 1,500 homes and 2,000 lots for sale.
SOURCE:
Realtor.com market conditions report (archive)
Realtor.com search
And if you want to know what’s driving this area’s economy, just take a look at advertising. These ads for real estate companies seem to overpower the actual news on the Bozeman Chronicle website. And of course, don’t forget to conserve Montana while you’re at it.
SOURCE:
Bozeman Chronicle website (2006 archive)
Realtor.com search
Closer to home, not even Red Lodge escaped the resort mentality. Heavy development has been going on next to the golf course for several years now. Just north of the golf course, you’ll find the new Spires at Red Lodge development. This subdivision has plans for 400 housing units in a town that currently has just 2,500 people.
SOURCES:
http://www.spiresatredlodge.com/
http://en.wikipedia.org
Although it’s billed as a sustainable, green development, the Spires is up on the hill and not easily walkable or bikeable to downtown. The website says that Red Lodge property values will soon be up there with Sun Valley’s and Jackson Hole’s. Lots here start at $90k.
SOURCES: Various documents at http://www.spiresatredlodge.com/
I found the entire development for sale on Craigslist recently, with a price tag of $12 million.
SOURCE: Archived page from craigslist.org
Down in Red Lodge, one developer believes that people wanting to get away from it all actually want to live in a shared building when they get here. These condo units are close to downtown and have Rock Creek right out back. And they don’t come cheap. This unit goes for half a million dollars, and that gets you 2,200 square feet.
SOURCE: http://www.islandatrockcreek.com
Head back towards Billings and you’ll find the troubled Dot Calm Ranches subdivision near Roberts. This flier excitedly promoted the grand opening two years ago, but now things aren’t looking so good. Despite the street network being in place, there’s only one house here, and 159 lots. And the developer has run into major legal problems lately.
SOURCE: http://www.montanarealtycompany.com
The rest of Montana has its own trouble, but let’s take a quick look at our own downtown condo projects and see how they’ve fared. Keep in mind that most of these units have been on the market now for 2-3 years.
The Universal awards building. Units didn’t sell for $145k, didn’t sell for $130k, and finally didn’t sell when all bundled together. Currently renting as apartments.
SOURCES: Historic price tracking, Billings Weekly Real Estate Portfolio 2007
SoNoMa Lofts. 12 units are planned, starting with the four in this new building. So far only three have sold. Original price was $125k, but the asking price on the final unit is $110k.
SOURCES: YC# 3470956, 3453854, 3443245, Realtor.com
Skyline court. Four buildings of this size are eventually planned, but this one is having a hard enough time getting off the ground. Only one unit has sold to the public.
SOURCES: YC# 3441231, unit 643 is the only one to have sold to the public
Note: YC#3453419 and YC#3453421 indicate sales of units 639 and 631. However, in each case the Grantee is a partner on the original project
Grand Park Townhomes. The developer has only sold two of the original five townhomes. One of those has then been resold twice. The three unsold units are being rented.
SOURCES: YC#3364220, YC#3338674, YC#3384022, YC#3441664
The Stapleton building was the most successful in terms of sales. Unlike other developments, it has a great location right in the actual core of downtown.
11 of the 14 residential units were pre-sold before construction was completed in late 2007. On the surface this appears to be a nice, if expensive, development promoting downtown living. However, it is interesting to note that 6 of the 13 current residential units have owners listing out-of-town addresses.
SOURCES:
www.finduahome.com (archived image)
Yellowstone County tax data
This brief flurry of downtown condo building brought 37 units online in about two years, more than tripling the previous supply. Right now they’re still trying to work through the backlog.
There’s still a lot of bare land on the west end, but the Shiloh area has still been undergoing rapid transformation these last few years.
Shiloh Crossing is finally getting underway, with a new Kohl’s store set to open.
Across the street, growth at the 5-year-old Montana Sapphire commercial subdivision has been very sluggish. This is one area I highlighted previously for its extremely high asking prices for raw land. Currently there are just four buildings here, and they just might be a cross section of commercial real estate in Billings. There’s a casino, adding to the 100+ already in Billings, a bank, and two buildings that are currently vacant.
On the residential side, all that explosive growth has really begun to slow. This is a graph of building permits dating back to 1984. After the 80’s housing bust, construction dipped sharply and scraped along the bottom for 7 years. We reached a new peak in 2003, and have had solid growth until a sharp downturn this year.
Tightened lending standards and slow sales are driving construction levels much lower. If 2008 projections hold, this year will be a 56% drop from the 2003 high.
In the far northwest of Billings, there are four mostly high-end subdivisions that are worth watching. This image from 2006 shows construction just ramping up in the area.
SOURCE: http://www.mapcard.com, USDA Montana NAIP 2006 imagery
Ironwood has continued to expand, just more slowly. The southeast portion is filling in, and the subdivision is growing to the northwest. Spec homes are rare now, and inventory is low. Asking prices per square foot are slightly higher than in 2006.
SOURCE: Historic data and Realtor.com property comparison
Augusta Ranch has seen some very expensive homes built. This one was apparently too expensive.. it was foreclosed on last year.
SOURCE: YC#3447147
Copper Ridge has more modest homes. Inventory is still high here, with 13 houses for sale. Building has slowed considerably since the initial burst, but the second filing with 260 total lots has been approved.
SOURCE: Billings City/County planning department
And finally, Falcon Ridge was a little late to the party, but it’s starting to get some real building going.
Builders are beginning to have a hard time in these far-out subdivisions. Defaults on builder-owned homes are scattered throughout the west end. I found some in Ironwood, Falcon Ridge, Copper Ridge and Yellowstone Country Club.
SOURCES: YC#346XX21, YC#3453218, YC#3475XX7, YC#346XX84
A bit southeast, Vintage Estates is very small and very pricy. It initially consisted of two short streets with several half-million dollar homes. No new roads have been built these past two years. And even in this small space, there are plenty of empty lots available.
This house got lots of oohs and ahhhs in the 2007 Parade of Homes, but so far, doesn’t have buyers lining up to drop $559,500 to own it. Price reductions are underway
SOURCE: Realtor.com
Up in Rehberg Ranch, building continues on the north edge, but again, it’s very slow compared to the boom years.
And in the heights, there’s this subdivision off Bitterroot. Houses don’t seem to be popping up just yet, but the weeds sure are.
Views on the market
Supply and demand drive every market, so let’s take a look at them in the Billings housing market. Supply we can measure by inventory, or the number of properties for sale. 2006 saw housing inventory that was very high compared to historic levels. Inventory was much flatter in 2007. But in 2008 for-sale signs keep popping up, and we are nearly matching those 2006 levels. This is our supply.
And here is demand, measured in quarterly home sales. Large inventory levels were OK in 2006, because sales were still high. But so far 2008 has seen dramatic drops in home sales, including an actual drop from 1st quarter to 2nd quarter. Coupled with the high supply, these poor sales are causing prices to drop.
Supply and demand, these are the figures to watch. If sales pick up, or slower construction makes inventory levels drop, prices will stabilize. Otherwise they will continue to fall.
It’s a tough market out there, and sellers are getting creative.
You can try to buy this house in a lottery, or buy this property and get extra access to great hunting grounds.
SOURCES: Craigslist.org archived pages
Strange tactics rarely work as well as simply lowering the price, but they can be fun to watch.
Kenmark Construction was apparently in a significant cash crunch recently, and was the the top delinquent taxpayer in Yellowstone County. So they held a mass real estate auction to try to sell some of their new properties that weren’t moving. 11 houses and 2 lots were up on the block.
SOURCE:
http://billingsgazette.net/articles/2008/08/09/news/local/18-taxpayments.txt
About 350 people showed up to the College of Technology to check it out. When it was all said and done, every property had sold. Average sale price was about 70% of original asking price.. or 30% off.
Original asking prices may have been a little high, but this was still a significant sale setting significant comps. A townhome in Briarwood went for $67 / square foot.
This Foxtail Village home sold for the highest percent of original asking price, but it was still 20% off.
Some of these Rehberg Ranch townhomes sold for 34% off.
And finally, proving that the land boom is not over, two creekside lots in Red Lodge, near these condos, sold for the equivalent of half a million dollars an acre.
SOURCES: Personal record of list/sale prices. Table available at www.topoimagery.com/billings
Here in Montana, we’re behind the times, and we have the benefit of being able to observe all the downturns in progress across the country. Some big, some small. I think we can learn a lot from them.
In my study of other markets, I notice five signs which tend to indicate a peaking market:
Prices rising beyond inflation and wage levels for several years
High inventory
Falling sales volumes
And finally, after things have peaked, you see year over year price declines
And increases in foreclosures
SOURCES: I have observed these trends consistently in many markets, including various California markets, Phoenix, Seattle, etc. Details available upon request.
Certainly Billings did not see the magnitude of these signs that some places did. But the signs are here, and it would be foolish to ignore them and pretend that Montana is immune from the housing and economic trouble sweeping the nation.
The last housing bust in Billings was precipitated by the oil bust and subsequent population drop. Those don’t appear likely this time. A housing downturn would have to occur because housing simply got unaffordable, and the boom eventually ran out of steam.
These are uncertain economic times, and things are getting very interesting in the world of Billings real estate. We’ll be finding out soon if Billings can keep the real estate magic even in the face of a national financial crisis.