Tuesday, 07 April 2009 08:59
Dear Editor,
I read with interest your recent article, “Billings Housing Market Update”. I always enjoy getting more hard facts and educated viewpoints on the Billings housing market, especially since I am looking to buy there in the next year or two.
However I couldn’t help but notice a few problems with Mr. Sumner’s argument that Billings housing has returned almost 6% over the last 41 years, and that this return is better then what the stock market has provided over the same time period.
Mr Sumner compared the price of the average house in 1968 with the price of the average house in 2009. The problem with this is houses are a lot bigger these days then they were in the past. If you’re going to compare the price of a house in 1968 with one now you need to take into account how much larger houses are today.
According to Mr Sumner’s own statistics the average house sold in Billings today is about 2,300 square feet in size. I don’t have any statistics about Billings back in 1968 but the national average house size was around 1,500 square feet, give or take. Plug all those numbers in and you’ll find out that Billings housing has returned only 4.9% since 1968, just a hair above the rate of inflation.
As for his stock market numbers Mr Sumner forgot to take dividends into account, those regular cash payments that many companies make to their stock holders. When these are included the return on the S&P 500 from January 1968 through February 2009 was 8.67%. Someone who invested $17,993 in the market back in 1968 and let it grow would have about $550,000 today, even with the recent stock market crash!
In short, unless you’re a knowledgeable landlord housing should be viewed as a place to live, not an investment. The high 6-10% returns on Billings housing over the last few years were an anomaly, not a long-term trend, and most likely prices will gradually come back to earth here in Billings over the next few years.
Todd Cohn
Chinook, Montana
