This is a very interesting e-mail I received recently (printed with permission). Jared lives in Bend, Oregon and believes that the rapid rise and fall of that market might give us here in Montana a clue about the future of our housing markets. I think there's a lot to learn from this.

My name is Jared, I grew up in Idaho but have lived in Bend, Oregon for the last five years. I moved here amidst a boom that appeared as if it would carry on forever. At the time, I was 24 and looking to buy a home with my wife. All my 20-something friends were uttering the standard matra "You have to buy now, real estate only goes up", "Don't get priced out of the market", "Bend is the new Aspen, we've been discovered" and on and on. So my wife and I went to a mortgage broker and were approved for a $300k loan on an annual income of $60k. At this point we could have jumped in head first, but I took a deep breath and asked a simple question
"Why?".

Why is this happening?
What is driving home price gains?
Who can afford to actually live in these homes?

Well, six months of research and I was confident that we were in a housing bubble. A national housing bubble. And as I mentioned my thoughts to my friends, It was almost as if I were the fabled biblical character Noah. I knew the flood was coming, but no one was listening. Worse, I often was met with anger when I mentioned my contrarian views to my circle of friends. So I went in search of more proof and ended up writing a computer program that gathered property data from our county website. This program put the data into a database that I could then pull trends from. With it I created a tiny website.

Around the begininng of 2008 the wind had been let out of our sails, not only the sails of Bend's RE market but of all Central Oregon. Yet we were not seeing large decreases in property sales. And I started to doubt myself. You see, I had been waiting to purchase a home for 3 years but prices were not making the large moves I predicted. So I wondered if we just wouldn't see large price declines. If we would just be left with a giant run up in prices but no run down. Even though all the data was screaming "We still have a long way to go", the message wasn't making it to my brain. It was being lost against the media and NAR blitz of "Best time to buy in 20 years" or "We finally cought up with the rest of the nation, and are leveling out", and my all time favorite "It's a buyers market".

At about this time, and to my great luck, I had a conversation with a new friend. We both shared a passion for economics but even better, we both were tuned in to what was happening with the housing market. With his help we laid out all the data, facts, and yes even gut feelings. We debated for hours and hours over the span of many months and ultimatley this allowed me to have just a little more patience. The patience I needed to sit on the side line and wait it out.

So fast forward 18 months. It is now May 2009. Here are some statistics that I think will blow your mind.

2007 Median Home Price = $396,000
2009 April Median Home Price = $220,000+/- 5% (And falling off a cliff)
Our unemployment numbers are apocolyptic! @ 17.1% (and rising)

I write this, because I recently spoke to a buddy in the Bozeman area. And the story concerning the housing market there sounded exactly like Bend's, just a little behind the curve. California has been the forcast data set that I have used to see where we (Bend, Oregon) are headed. And in the same way, I think you could use Bend to see where many of Montan's communities home prices are moving towards. After looking at the data, I see Billings and Bozeman (and most of Montana) as being about 12-16 months behind us (Bend, Oregon). Make no mistake, it is a certainty, the data doesn't lie. Home value/price destruction is coming your way, Montana cannot avoid it.

So to anyone on the fence, my encouragement to you is wait at least 12 months and see where things are headed. I know that you will be extremely thankful (as am I) that you waited. Feel free to post this letter.

-still renting
jared f.

Thanks for the great story, Jared. In a future post, I'll examine some of the similarities and differences in these three markets.