After some careful research, I can now confirm that falling prices having come to Billings. And the uncomfortable truth is that many houses are selling for less than they did a few years ago. This tells me that many people who purchased since 2006, with small down-payments, may now be underwater.

This is the first time I've been able to put down hard numbers on real money lost in the Billings housing market. Let's take a look around town:



This house on Jackson is in foreclosure proceedings and is scheduled for a June 8 courthouse sale. The price was just slashed 17% in an attempted desperation sale. Since the buyer can't bring money to the table, this is a short sale. The bank is willing to take a bath on the sale instead of foreclosing on the house.

Here's another South Side house whose price was just dropped below the amount owed. Price-cutting works; This home sale is pending now.

Lest you think that this phenomenon is confined to the less savory parts of town, here's one on Lewis (thanks Anon#1 for the tip). The California owner was featured in a September Gazette article. She probably could have done better by chopping the price early, but now she's out at least $21,000.

This 2004 home is in the High Sierra subdivision near Skyview in the Heights, a location I've featured several times in my housing videos.

Condos may turn out to be the hardest hit housing units in this bust. This West End condo's price has been rolled back past 2006 levels already.

Even nice newer houses are getting hit already. This owner is underwater on a 2006 Rehberg Ranch house. The house has also been offered for rent at $1,500/month.

And that's the roundup. This really does appear to be an amazing, widespread price decline. If anyone fretted about "missing out" on the housing gold rush back in 2006, good news! You didn't miss out, and you can buy today at 2006 levels. But frankly, I wouldn't recommend it. We're probably just getting started.

Statistics are hard to ignore. Here's the latest update to the supply/demand graph, with 2009 figures in yellow. The line graphs show inventory (supply) while the bar graphs show quarterly sales figures (demand). As you can see, oversupply and falling sales continue to be the big stories:



Since most stats in the Billings market are looking grim, those looking for something positive often mention the Last Best Statistic: Foreclosures.



For most people, this is a very comforting statistic. How can the housing market be so bad when we're 44th in the country for foreclosures, and only 0.29% of homes are in foreclosure?

I believe the answer lies in the fact that foreclosures will be a trailing indicator during this bust, as I discussed in November. That said, let's take a look at the quarterly Notices of Trustee's Sales and see what seems to be happening.



NOTS are definitely creeping up some. I think 2009 will easily be the largest year for foreclosures this decade, and 2010 will be even worse.

What makes me so sure? Because increasing numbers of people who bought since 2006 are underwater on their loans, owing more than their house is worth. Combine this with the unemployment and other economic difficulties beginning to hit Billings, and I don't see any way foreclosures are staying flat.

Of course, a Notice of Trustee's Sale is just that, a notice. It is the first step in the foreclosure process. After the NOTS, one of three things can happen:

• Borrower becomes current, and the Trustee's Sale is canceled
• Borrower sells the house and the loan is paid off
• Borrower fails to pay, and house is foreclosed on

Here's a look at the results of Trustee's Sale Notices this decade:



There's not a whole lot to glean from this yet, other than the steady upward march of NOTS. If the housing market continues to be difficult, I expect the percent of properties foreclosed to be higher.

Remember, during the 1980's bust, foreclosures led to lower prices. During this current bust, lower prices will lead to underwater borrowers, which will lead to foreclosures.

I wish I could ignore HousingPredictor.com, but they're back again. Housing Predictor is run by a Florida Realtor, has a bad prediction record, and has no professional credibility among serious economists (as I wrote about previously).

Unfortunately, their unsupported claims keep getting quoted in the news. Ever more interesting, the director of the Montana Department of Revenue, Dan Bucks, used HousingPredictor to bolster his case for continued appreciation in Montana. Audio file here (Jan. 23 Reappraisal Committe):

I'm going to present one projection of what happens, one prediction of what is-- may happen next. And I'm just gonna say, I can't endorse it; But it is the only prediction out there that is applicable to Montana and it is specific to specific, uh, cities in Montana ...

There is an organization called HousingPredictor.com that came-- went into business a few years ago, that operates on the internet. They claim that they have an 85% accuracy record in terms of predicting local housing markets ...

I wanted to provide this information to you because I think it provides an interesting perspective. Their prediction is that 5 of the top 25 housing markets in 2009 all across the country will be in Montana, with Billings ranking as the 3rd strongest market they're predicting in 2009.

If you'd like some predictions specific to Montana, Director Bucks, you might try looking for people who live in, oh, say, Montana instead of Florida. They might know the market a little bit better. And despite that claimed 85% accuracy, HousingPredictor got 2008 all wrong.

After some relatively cheery unemployment and foreclosure stats, Bucks went on:

So those are reasons for optimism. And I wanted to present that to you because I think that it's important not to assume that everything is falling apart. I think, in fact there's more reasons to be optimistic than pessimistic, that we are better positioned for Montanans to take advantage of lowering mortgage rates which are now heading down to the 4% ranges, and that will have a beneficial affect ...

Deferred sales volume being down can be viewed as either a precursor for future difficulties or it can be viewed instead as the building up of pent-up demand once mortgage rates fall and a potential for the revival of the market.

Pent-up demand! It's right out of the Realtor playbook. We've got thousands of buyers just waiting on the sidelines. They're waiting because, well, we're not really sure why. And they'll start buying when rates come down, because the 4.8% you get now is just too darn high.

So some people are listening to Housing Predictor. But let's look at their 1st quarter revisions. The headlines say the Billings has jumped to #1 nationwide for predicted 2009 appreciation. That is true, but the bigger truth is that all Montana cities have been downgraded in the last few months. Here's a table illustrating that:

Way to go, HousingPredictor. A few more quarters like this and you'll have all those figures revised to the negative side, where they should be.

And for your entertainment, here's a little bit of explanation from their site (emphasis mine):

Consumer confidence in Montana may be hurting a little because of the national recession, but the state has never been through a major real estate correction. It's missing the national housing depression.

Billings has seen home sales slow, but prices have been rocketing upward in Montana terms, appreciating 6% in 2008 as demand for housing grows. The inventory of homes on the market is healthy, but not excessive. Billings is forecast to appreciate 2.1% in average home prices in 2009.

Got that? Montana has never seen a housing downturn. And demand for housing is growing at the same time that sales are slowing. With their great grasp of history and economics, how can you not trust HousingPredictor.com?

The Gazette has a very interesting article today: Real estate bust like 1980s is unlikely to be repeated.

While the headline is poor and there's the usual denial by local "experts", this really is a fascinating and eye-opening piece by Ed Kemmick. The sub-title says it best: Less than one-third of lots platted between 2005 and 2008 have houses on them.


Bitterroot Heights has only 5 of its 50 lots built out.

Look at the link and you'll see a map with dozens of subdivisions that have popped up since 2005. This article also has a table with some very useful-- and stunning-- data about how vacant many recent subdivisions are. There are lots of vacant lots, 2164 to be exact.

But I think it's even more interesting to go one step further and see how the construction decline works in with all these empty lots. Here are my calculations:



That's right. If no more subdivisions are platted and construction continues as it's going so far this year, it will take 13 years to build on all the empty lots. Not only do we have massive housing oversupply, we have massive lot oversupply as well.

Of the people quoted, Howard Sumner has two of the more interesting points in this article: 1) Developers take a substantial risk, and can lose big if less than 2/3 of their lots sell. 2) Large portions of empty subdivisions may have already been sold to other people who may hang on to them as an "investment."

That last point is particularly interesting. There are probably many people holding on to lots as "investment" -- I would call them speculators. Empty land values are subject to wilder fluctuations than houses are, and with such a huge supply I think lot prices have to come tumbling down. The only question is: Who will the bagholders be? Will we see local bank trouble out of this?

Finally, I must address this amazing quote:

..real estate agent Twyla Best said the No. 1 factor influencing the local market is national media coverage of housing foreclosures.

Excuse me? National media are crashing our market? Not the fact that we built too many houses? Not the fact that houses are overpriced? Not the fact that we had a decade-long housing boom and all booms go bust?

If your county has a 13-year supply of lots and you're blaming the media for a bad market-- I just don't know what to say! This bust has been in the works for years. Careful observers caught on. The rest appear to be caught off guard, and most are still in denial. Reality can be hard to face.