Go back and see how well the real estate professionals have forecasted the future of the housing market, was the request of one Big Sky Business Journal reader. But predicting the market hasn’t been what Realtor Howard Sumner, one of the local keepers of data, has been trying to do.
“I said that investing in the Billings area is like investing in a high grade corporate bond. It will give you a return on your money and protect your capital,” said Sumner, and he’s willing to stand by those words, a year or more later.
“I have mentioned that the long term appreciation rate is 6% since 1968. Well I went back and refigured for mister doubting Thomas. In 1968 the average price sold in MLS was $17,933. As of March 1st 2009 it is $174,412 reflecting a forty-one year average of a 5.72% compounded return from 1968 or appreciation. The last time I figured it, it came to 6% compounded. A couple of flat years changed it a little and I do want to be accurate,” said Sumner. “Compare that to the Dow at 855 in 1968 to about 6800 today and that’s a compounded return of 5.25% over the same time frame. So is real estate good or bad is purely a personal decision, yet I’ll let the figures speak for themselves,” he said.
Sumner’s recent figures regarding the local housing market reflect a “significant increase in buyers,” most first-time buyers, apparently responding to the first-time homeowner tax credit which they can take on their tax returns if they close before they file.
The most active segment of the market was between $160.000 to $180,000, a price range that saw its share of the market place jump from 13 percent, by unit volume, in 2008 to 17 percent in 2009.
“The question that will unfold over the next couple of months is – did buyers that would have been in the market later in the year purchase earlier, due to the tax credit?” said Sumner. “If that proves to be the case we will see a softening of the pending sales compared to 2008 as we come into spring.”
Inventory levels have moderated at just slightly more than 25 percent of what they were a year ago, according to Sumner. The decrease from a month ago is affected by the increase in pending sales, “so again the comment about stealing buyers from later also applies to the inventory numbers.”
Construction numbers improved in February, but single family permits still show a significant decline from a year ago. For the first two months of the year, 17 single family permits were issued by the City of Billings compared to 41 single family permits in 2008, while 2007 had 54 permits issued.
“The new construction market will struggle this year because of constrained funding and the difficulty of competing against existing homes that are priced significantly less than construction costs would be to build a similar home,” said Sumner. “As I have stated previously the slowing in home construction is a positive in the overall market place because it reduces overall inventory, yet that decrease in new construction sales also has an impact on sales price and size of homes that go into the mix of sales.”
The home sales prices show a slight price decline year to year. ($203,219 in 2009 to $199,500 in 2008 as of February)
Yellowstone County has seen about a two percent to three percent decline in closed price. The actual sales price number is affected by the slowdown in the $250,000 range and the significant increase in sales in the $160,000 to $180,000 range.
The two positive forces in the market are: the strength of the below $200,000 price range, and that there has been no significant increase in foreclosures of homes.
Sumner attributed the strength in the lower priced market to the fact that unemployment is remaining relatively low in Yellowstone County – less than 3.5 percent, compared to the state average of 5 percent (still not extraordinarily high). The situation is giving people who have a job and believe they will continue to have a job and want to own their home, a great opportunity, given that interest rates are historically low. “You have a good case for buying if you plan to stay put for three plus years,” said Sumner.
A second reason for the lower market strength is that there is no significant foreclosure activity. “The significance of that cannot be overstated,” said Sumner, “when you look at other market places and their declines. The driving force is foreclosed properties sold by lenders.”
Rentals rates have remained relatively the same over a year ago, although there about 26 percent more available on the market right now than there were a year ago, according to rental advertisements.
The Big Sky Business Journal
P.O. Box 3262
Billings, MT 59103