As careful observers have long expected, the Billings housing market has really turned. Year-over-year prices are down, sales are down, inventory is up, construction is down, unemployment is up. All signs seem bleak for the housing market.

But for the most part, industry professionals seem oblivious to all these things. Yesterday's headline in the Billings Gazette was It's Time to Buy, Says Billings Area Realtor. A few quotes:

Twyla Best, president of the Billings Association of Realtors and a Realtor with Montana Real Estate Brokers, said January was cold and snowy, keeping buyers at bay.

"People were waiting to see what would happen with the stimulus package, interest rates and the tax credit," she said.

..this market probably won't see the sharp price corrections many other cities are suffering.

"We're such slow, steady Eddys, we saw the prices go up, but we never took the ridiculous appreciation other cities had," she said.

These quotes are next to a sidebar showing -47% sales and -11% prices already in Billings.

Believe it or not, I'm an optimist. I like to look on the bright side of things. But I'm also a realist. Choosing to be blindly oblivious to clear economic data indicating a downturn is not optimism-- it's denial.

And there's plenty of denial going around these days. This article is oozing with it. Unfortunately, it is not oozing with hard data or thoughtful analysis.

Veteran realtor Laura Odegaard said most of those troubles are in Bozeman and Kalispell where families were purchasing second homes. "I see that we're in a normal market," she said. "Billings seems to be cushioned for the rest of the state."

She added that it may actually be safer to invest your money in a home rather than the stock market. "If you're wanting to buy a house, now's the time," she said.

"If your home does sell, you're not going to see it sell for less in the coming year than you did in the previous year," [MSU-B Economist] Rickard said.

Here's my list of the Seven Steps of Billings Housing Denial:

1. The U.S. housing market is fine
2. The coasts are in trouble, but the Mountain West is fine
3. Many states are in trouble, but Montana is fine
4. Bozeman and Kalispell are in trouble, but Billings is fine
5. Some parts of Billings are in bad shape, but Ironwood is fine
6. Less desirable parts of Ironwood are in trouble, but my block is fine.
7. Uh-oh.

And, what do you know? Speaking of the "troubled" city of Bozeman, they seem to think things are just fine there as well.

And David Smith from the Bozeman Area Chamber of Commerce said the city is faring well compared to many of its neighbors.

New businesses are setting up shop and existing ones are expanding, Smith said.

...

“I get to be optimistic and forward looking,” Smith said. “Nowhere else in the state are they talking about building schools.”

Hope springs eternal, it seems, or at least until housing hits rock bottom. Keep watching for it.

The January monthly housing stats are out for the Billings area. Here are the highlights:



Year-over-year median sale price is down for the first time in recent memory. The bigger news is that closed sales have dropped off big time, nearly 50% from last year. This indicates more pain on the way. New home construction continues its collapse, yet inventory keeps rising. Further proof that Billings is overbuilt.

Note that median sale price is at best a fuzzy indication of price direction. A lower median can merely be indicating that only lower-end houses are selling. What you really want to know is, if you bought a house a year ago, would it sell for more or less today? The answer: Nobody really knows except realtors since sale prices are not public and the MLS is realtor-controlled.

Here's another table you might find interesting. I took current inventory numbers by price range and divided them by 2008 sales to find approximate months' supply by price range. Take a look:



Lower price tiers are moving the inventory out relatively swiftly. But if you're trying to sell anything over $250k, better drop that price or you'll be sitting on it for awhile!

Note that months' supply is probably understated using this method, since inventory levels will keep rising this spring.

This is a vision test. See if you can spot the difference in these two listings:



Hmmmm. Same size. Same number of lots. Same "Premier Location." Same everything, except.. oh, yeah. The newer listing is 60% off the old price!

Raw land always runs up fastest and falls hardest during a boom/bust cycle. We're seeing this in action right now.

Billings home prices are coming down this year.

But you don't have to take my word for it; I'm going to show you why. Economics can be tricky, but this time it's easy. Any basic economics class will teach you about supply and demand. We can use supply and demand to predict short-term price movement.

Supply is more commonly referred to as inventory when speaking of real estate. Demand can be measured by home sales.

Billings is exhibiting some classic symptoms that preceded every U.S. city's recent price drop. Supply is high, and increasing. Demand has been low, and is still dropping.

Here is the chart, which you can click to enlarge. It has a lot of information, so study it carefully. This shows supply (inventory, represented by the lines) and demand (sales, represented by the bars) over the last three years.



Even though housing construction plunged last year, inventory so far this year (yellow line) is off the charts compared to the previous three years. That's the supply.

Now look at the bars coming from the bottom of the screen. Sales were brisk in 2006 (blue bars), decent in 2007 (red bars), and really tanked in late 2007 (green bars). That's demand.

We overbuilt, so now our supply is high. Prices became unaffordable, so now demand is dropping. Your Intro to Econ textbook can tell you the rest; prices are on their way down. It really is that simple.

Editor's Note: Montana Real Estate stories are coming pretty quickly now. Watch this page for the latest updates, news, and analysis.

Thanks to Carbon County Realtor Gerry Khatchikian, we have some stats on the Red Lodge market. And they're getting ugly.



As you can see from the table, sales had been crashing in the last 6 months. Red Lodge went from a 2-year supply of homes to a 5-year supply.

And then in the month of January, there were No Residential Sales. Zero. If things continue at that rate, the inventory of 95 houses on the market will be absorbed.. never! Red Lodge has an infinite supply of homes based on January figures.

OK, things will probably pick up some this year (they can't get any worse). But a month without a single sale is significant, and not a good way to start the year.



To anyone thinking that the "nice" places will escape the bust, or that Red Lodge could never lose value because everyone loves it, or that rich people will prop up the market.... look at the table above, and think again.

If you've read housing stories in local media at all these last few years, you've no doubt heard from Howard Sumner. He is a Realtor who has been around the market since the 80's and keeps an extensive archive of local housing stats, so he is often called to provide an expert opinion.

Unfortunately, Sumner's track record shows that having a mountain of stats doesn't automatically give you an insight into the current market and its direction. Let's track Sumner's statements through the years.

In September 2006 Sumner said:

When you buy in Billings it is like getting a corporate bond. You will get a steady decent rate of return of six to ten percent. It's real value and it will hold.

6-10% was only achieved for a few years at the peak of the boom. It is incredible that a stats-loaded Realtor would claim that home price appreciation in Billings would continue indefinitely at historically unrealistic rates.

The worst part is that Sumner's sunny outlook has (for the most part) been unquestionably repeated in local media with no further analysis or alternate viewpoints. It's likely that many people who've purchased in Billings did so because puff pieces like No Bubble in Billings made them think the market was great and would be just fine in the future.

Here's what Sumner had to say about the market in March 2007:

With a one percent year increase in the population growth in Billings, Sumner said, "I don't see how the prices are going to come down any time soon."

The only way for housing prices or rents to come down is if there is a loss in population or you overbuild, said Sumner.

Last year there were 559 new homes built in Billings -- about the right amount if the population grew by 1,370, or one percent, said Sumner.

As I have long stated on this page and in my videos, we have had overbuilding here. Rampant overbuilding. And population growth doesn't matter nearly as much as afforability. Since house prices have become unaffordable, they must come down.

Sumner is fond of using the word "steady" to describe the Billings market.. language used to pretend that we didn't have an enormous housing boom here in Billings with unsustainable levels of appreciation. The implication was that we never got out of control like those "other" places.. California, Florida, and even Missoula and Bozeman. We didn't go up a lot, so we can't come down. Right?

Well, finally in January 2009 Sumner has changed his tune:

The residential real estate market will likely remain flat through 2009, with even the possibility of some declines in the first quarter, predicts Billings real estate broker Howard Sumner.

Oops. So much for our steady 6 to 10 percent. I hope nobody bought in the last few years hoping for appreciation. Because as Sumner himself says, this year will see no appreciation, and possibly even price drops. And since he has shown himself to be overly optimistic, I would expect prices to come down even more than he predicts.

If I were a reputable local media organization, I would look closely at the track records of the experts I interview. Maybe I would even challenge them based on their previous statements, and get alternate viewpoints from people who actually predicted correctly. But that's just me.