It's official: My new housing video will be released in August 2008, exactly two years after the first video. Two years, can you believe it? I will be taking a close look at all that has transpired in Montana housing since 2006, and where we might be headed from here.

Watch this blog in the coming weeks for various posts of local and general housing interest.

If you're new here, please take a look at this intro page and watch my first videos.

Real estate statistics are notoriously hard to come by in Montana. This is a non-disclosure state, meaning individual sale prices are not public. And few (if any) newspapers regularly publish Real Estate stats. So for local statistics, you have to find what you can on the web.

Here are some snippets from around the state (note that I am providing links for the sources, but they may go out of date).



Here are the Missoula stats from May 2008. Note that the median price (a trailing indicator) is down slightly, while sales are down a whopping 31% year over year. This means that there is more pain to come.

Here in Billings, sales are beginning to drop off. Closed sales are off slightly, and pending sales are off big. Source: Big Sky Business Journal Hot Sheet, June 16 2008

Bozeman is one of the most overheated major markets in Montana. Prices there are way out of line with the low incomes, and the entire town's industry lately seems to be based on real estate. And now they're feeling the first effects of the downturn: Prices down 10% in 6 months. Source.

This from Helena. Days on Market are shooting up to near 5 months, and prices are down 5%. Source.

Finally, here's a stunner from the Bitterroot Valley. Sorry for the size, but I wanted to show all the stats and statements to you. All the red underlines are my notes.



Did you catch that? Inventory is 886 and there were 15 sales in one month. The Bitterroot Valley (south of Missoula, including the town of Hamilton) has a 5 year supply of houses! Typically a healthy market has a month or two of supply, but the Bitterroot has 59 months worth. Prices have not come down much yet, but with supply and demand like that, they will soon. Unbelievably, this real estate broker reassures buyers that "It's a GREAT time to buy!"

Let's reframe this in terms of the current high gas prices. Suppose there are 886 people in your town attempting to sell their pickup trucks. Last month, only 15 people in town bought trucks. Would you think it was a good time to buy? Would you pay near full price for one, knowing the supply and demand balance? Would you imagine that truck prices would rise or fall in the near future?

I hear this one quite a bit. And it almost makes sense and gives some comfort.. after all, we never had $500k starter homes in Montana. We never had 40% annual appreciation like Arizona did. So any downturn here would be minor, right?

Well, now we're speaking relatively. The reality is that Montana housing can not and will not fall as far as California's will.. but that's a small comfort! Why? Consider this: In Southern California in the last year, prices have fallen 26.7 percent. In ONE year. CNN Money is reporting that many metro areas could see 50% or greater drops when this is all over

Will Montana's landing be softer than a 50% plunge? Undoubtedly. But that still could mean 20%, 30%, or even 40% drops.. very painful! Realtors love to say this: "All Real Estate is Local." They're right. So let's ignore Florida and Nevada, let's look around at our overbuilt and overvalued local housing market, and see the potential for a significant downturn.

As an aside, if you listened closely you will have heard a subtle shift in the talking points from Montana real estate professionals. Here's roughly how the progression has gone in the last few years:

1. "We're not in a housing boom, and there will be no bust"
2. "Housing was red-hot for a few years, but we're returning to a normal market now. Montana is escaping the housing bust."
3. "The market is just taking a breather now, and it will return shortly"
4. "Yes we have price declines, but they're not as bad as California's"

If we do see significant declines in the next year, expect to hear more spin. Things like: "It's a buyer's market now" and "You never know when prices will shoot back up, so you'd better jump in now!" and "We've worked the excesses out of the system, it's a perfect opportunity to buy."

Hint: California Realtors said the same thing when California housing was down 10%. Some suckers purchased houses, thinking they were getting bargains. Then housing dropped 20%. And again, it dropped 30% from the peak.



The above graph shows the dilemma. Once you're at the right side of the red line, after a small price dip, where do things go from there? Eternally optimistic Realtors seem to believe that prices will always follow the green line and head right up again. But they could stay flat, or fall further. If you bought after the small dip, with zero money down, you could be underwater for a decade or more.

It helps to realize that housing tends to have great momentum. Prices rise. Everyone jumps in. Real estate booms. Then prices drop. Speculators bail. Foreclosures rise. And prices then tend to fall further. America has a long history of manias propelled by human nature.

We actually have a great advantage here in Montana, being on the very trailing edge of the nationwide boom/bust. Looking across many other states, we can begin to see the devastation in the wake of the housing crash tsunami. Which is a better course of action for us: Shrugging and saying "the wave can't hit here", or moving to higher ground while warily watching the rising water on the horizon?