Stunned by the sub-prime mortgage crisis and staggering under a soaring increase in home foreclosures, the national real estate market was a veritable minefield in 2007. Montana took a hit, though it did not suffer nearly as much as some other states. And while Realtors and economists anticipate some slowdowns and “market corrections” in 2008, most remain bullish about real estate – particularly in Northwest Montana.
Those positive local attitudes come amid a continuing torrent of scary headlines about the fragility of the national real estate market. Last week the Office of Federal Housing Enterprise Oversight (OFHEO) reported that home prices across the United States experienced a quarterly decline for the first time in 13 years. Real estate data firm RealtyTrac reported that home foreclosure filings continued to edge upward in October, 94 percent higher than a year earlier. And while the Commerce Department reported a slight increase in October home sales, up 1.7 percent from September, new home sales are still down almost 24 percent from a year earlier.
According to Cal Scott, president of the Northwest Montana Association of Realtors, the grim national news has buyers spooked unnecessarily in Montana, where the situation is far from dire.
“I’m a little perturbed by the ‘chicken little sky-is-falling’ attitude,” he said, “because it does not apply to this area.”
Like politics, all real estate markets are local. Demand for real estate in Northwest Montana is among the highest in the nation, Scott said, and the only real problem facing the market here is a glut of inventory when it comes to homes ranging between $250,000 and $400,000.
“Builders built too many homes,” Scott said. “Now, they’re having to reduce their prices.” That’s bringing homes that might have formerly sold for $250,000 down into the $200,000 range, a higher demand market. Construction of homes in this price range is likely to slow until the surplus of inventory works itself out, which Scott believes should happen by the summer of 2008.
But he calls “ludicrous” any notion that the Flathead is becoming a buyer’s market: “It’s neither a buyer’s nor a seller’s market; different segments of the market are moving.”
Demand for workforce housing – homes ranging between $100,000 and $150,000 – remains high, while the supply is woefully short. Scott criticized builders for focusing on homes in that $250,000-$400,000 range, operating on the assumption that there’s more money to be made through fewer sales. Many of those homes now sit vacant while workforce housing rarely remains on the market longer than five weeks. In the Flathead, he estimated roughly 40 homes in that $100,000-$150,000 range are available at any given time, and most sell after 37 days. Homes above $400,000 don’t move as quickly, but continue to move.
Other figures back up Scott’s optimism. While home sales may have decreased nationally in the third quarter, Montana’s are rising at the third-highest rate in the nation, behind Utah and Wyoming – up 7.7 percent over last year. Statistics in Northwest Montana bear these numbers out, with the median home price for this year at $248,000 so far – up from $234,900 last year. Residential sales for the year look as if they will decline slightly at 1,707 so far – down from 2,393 in 2006.
Ken Fears, an economist with the National Association of Realtors, said that with few predatory home lenders, a foreclosure rate less than half the national average and strong job growth, it’s likely Montana will “buck the trend” facing other U.S. markets.
“The pace of growth will slow, but we’re not going to see an implosion,” Fears said. “It’s a case where the fundamentals are still very strong in Montana, and it’s good that they have missed the white hot sales of 2000 to 2005.”
Fears, Scott and other Realtors interviewed don’t see home prices or sales changing much one way or the other, predicting 1 to 2 percent increases in these areas. And, they say, the sub-prime mortgage crisis broke before it reached the northern Rockies.
“It’s forcing the market to clean itself up before (Montana) homebuyers can be put in a position where they would take risky loans,” Fears added.
Like home prices and sales, housing starts will likely slow in 2008, but continue to outpace most regional and national construction.
“We do have the highest housing starts in the state,” said Katie Chamberlain, executive officer of the Flathead Building Association. “Probably we’ll still have the highest but our numbers will be a little bit lower in the next year.”
But not everyone draws the same sunny conclusions from current figures as those working in the industry. Economist Paul Polzin, director of the Bureau of Business and Economic Research at the University of Montana, is not convinced that the state has dodged the sub-prime crisis. Though unrelated to the local market, news last week that municipal governments and school districts were pulling funds out of the state’s investment pool due to sub-prime loan worries, supports Polzin’s assertion that Montana is not out of the woods yet.
“If we listen to the national people, the worst is yet to come,” Polzin said. “The sub-prime mess is just beginning.”
Polzin’s predictions about the northwest Montana real estate market include “rapidly decelerating price increases,” and a “significant foreclosure rate in Flathead County and elsewhere.” He also questions how many holders of adjustable rate mortgages in Montana have yet to suffer.
“Many of the potentially disastrous loans haven’t even hit the adjustable rate,” he added.
But most national data on Montana derives from information about three cities, Missoula, Billings and Great Falls, so its relevance to the Flathead is questionable. Thus far, Northwest Montana has managed to evade the national housing bust. Only time will tell if it can continue that feat.
Stat Snapshot: Housing
NW Montana 2007
Residential sales: 1,707
Median sales price: $248,000
NW Montana 2006
Residential sales: 2,393
Median sales price: $234,900
Source: Northwest Montana Association of Realtors