Real Estate 2007: Perspective

By Beacon Staff

Then what’s all this talk of doom and gloom in the real estate markets? Let’s take a look at what is really going on. California, Florida and Sun Belt markets became incredibly overbuilt in the last few years. Prices, driven by rampant speculation, rose so sharply that it appeared that real estate was a “can’t miss” proposition. Speculators confused themselves with sophisticated investors and committed to purchase contracts that they planned to sell before they ever had to close. Builders committed to enormous inventory lot purchases in order to hedge against rapidly inflating land prices and homeowners treated their homes as ATM machines, funding consumer purchases and further speculation. This was an invitation for disaster and guess what; disaster showed up, right on schedule.

Did we see the same abuses in the Northwest – no not really. Markets in the Northwest did not present the opportunity for this type of speculation. Seattle is considered the best real estate market in the United States and has seen no real evidence of dramatic oversupply of any particular product. Many other markets in the United States continue to show healthy growth with little evidence of buyer frenzy past or present.

Currently all the talk appears to be of the liquidity crisis. Now that’s a surprise! You lend a bunch of money to people that can’t afford to pay it back. And you lend it at rates that are unsustainable and you don’t even check some people’s credit history. I can’t for the life of me figure out why this thing blew up in the lenders’ faces. Can you? So where are we really? Let’s take a look.

California, Florida and the Sun Belt are chock full of foreclosed properties and there are plenty more where they came from. Don’t expect that to change any time soon. These regions are also stuffed full of inventory homes and condominiums as developers choke on projects that they began based upon an investor pool of unsophisticated buyers playing “let’s pretend.” That is simply an unfortunate reality. This reality has created an abundance of inventory properties, “opportunities” the national media cannot get their fill of talking about it. Solid investors that would normally participate in our Montana markets are taking a hard look at grabbing a “steal” in California or Arizona. I don’t blame them but I still wouldn’t recommend playing in that market unless they really know what they are doing. California real estate investing is great if you have the chops to do it, otherwise it is not for the feint of heart.

What does all this mean to us in Montana? Let me get to my long winded point. We have some oversupply issues in the areas of finished building lots in the Flathead Valley. This inventory will eventually clear. It will take some time but I would not worry too much about it. We have some homes that may be foreclosed upon due to problems associated with the sub prime abuses. However these abuses were not rampant in these parts. These properties will come to market and will be absorbed without much fanfare. Investors and second home buyers will continue to come to Montana in search of what only Montana has to offer. These people are plentiful and more than capable. Montana’s economy is showing strength with great things coming in the future. People continue to live and work here, to have families and move here. These people are the backbone of our real estate market as they always have been.

No one can say that we are an economic island here in Montana. Of course we are affected by the goings on in all parts of the country. However our real estate market has shown great resiliency and will continue to do so. We must always be careful to not gauge our expectations based upon the relatively frenetic times of 2005 and 2006. 2007 has been a great year, we just need to appreciate it and put it in its proper perspective.

Questions about the 2007 Real Estate Market?
Contact Tom at
tom.burk@coldwellbanker.com
or 406.250.7208

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