Bozeman housing prices starting to recover from 2007, but big inventory of homes makes it more of a buyers' market




On the rebound

By GAIL SCHONTZLER Chronicle Staff Writer

aren't willing to give their homes away.

    "Prices have stabilized and are going up," Bailey said. "People wanting to hit the bottom-of-the-barrel market missed it if they're still waiting. ... Basically, 2007 was the low period.

    "This is a good time to buy a nice home, at a good price and there's a lot to pick from."

    Robyn Erlenbush, broker-owner of ERA Landmark Real Estate, predicted recently that 2008 will see relatively flat prices and a good summer selling season. It will take a while to sell off Bozeman's inventory of new homes, which will keep prices from rebounding quickly.

    Still, Bozeman's market is supported by a "very, very healthy, stable economy," Erlenbush said.

    David Smith, Bozeman Area Chamber of Commerce president and chief executive officer, agreed.

    "Yellowstone Park's not going away, Montana State University's not going away," Smith said. "I think it's a very strong economy. The strongest economy in the state."

    One sign of how much Bozeman's housing boom has cooled is a classified ad in last week's newspaper that offered home buyers the incentive of a "paid vacation" in Mexico's Cabo San Lucas or Walt Disney World.

    Other sellers have been advertising cash to help buyers pay closing costs.

    "Supply is high. Demand isn't," mechanical engineer Andrew Miller said.

    He has been trying since October to sell a three-bedroom home in the 4 Dot subdivision between Belgrade and Manhattan at an asking price of $279,900.

    Five years ago, he bought a house there for $130,000 and was able to sell it three years later for $220,000. But today's market is a lot tougher. "I thought I'd offer an incentive," Miller said. So he advertised $5,000 toward buyers' closing costs. "The market is flooded with options," Miller said. "It's a buyers' market." Tricia Bailey, immediate past president of the Gallatin Association of Realtors and broker-owner of 45^th Parallel Realty, said she doesn't care for that label. Calling this a buyers' market could give the wrong impression that sellers are desperate and buyers can get homes for a steal, and that's not happening, Bailey said. Sellers

MARKET CHANGES

Southwest Montana Multiple Listing Service statistics show the dramatic changes in the housing market over the past five years. The median sales price for homes in the city of Bozeman zoomed up from 2003 to 2006, from $190,000 to $309,500.

    House sale prices in that period increased by 21 percent, 16.5 percent and 15.5 percent per year - rising far faster than the 5 to 7 percent that's more typical for Bozeman, Bailey said. Home sellers didn't need to offer vacation incentives then.

    "They could get five offers within two weeks," Bailey said, "and they were above-price offers."

    But then in 2007, the big national subprime-mortgage crisis hit, scaring lenders and buyers.

    At the same time in Bozeman, a lot of new lots and spec homes that had been in the pipeline came on the market.

    "In a nutshell, I believe we overbuilt," Bailey said, "and people stopped buying because of the mortgage scare."

    In 2007, Bozeman's median home price fell by $10,500 or 3.3 percent. Houses that had sold in an average of 44 days in 2004 sat on the market for 80 days last year.

    Bozeman never saw home prices plummet as they did in places like Las Vegas, Phoenix, Miami and Los Angeles, where prices fell 22 to 24.5 percent from their peak.

    "Price reduced" did pop up on house-for-sale yard signs and ads in Bozeman. Realtors blame a lot of that on sellers' expectations that home values would keep rising at steep rate.

    "Sellers are still kind of in La-La Land," as one agent put it.

    Bozeman had also seen some speculation, as investors bought homes expecting to "flip" them for a quick profit.

    BOZEMAN PRICES

    EDGING UP

    So, as the 2008 home selling season gets in full swing, has the Bozeman housing market really turned the corner?

    MLS statistics show the median price of homes sold this year through May 15 has stayed pretty flat, inching up by just $1,000 to $300,000.

    However, the homes sold in the first four and a half months of 2008 sat on the market much longer, an average of 104 days.

    Renee Gaugler, a certified mortgage planning specialist with First Horizon Home Loans, pointed to new numbers from Sidders Appraisals, which reported that house sale prices in the first three months of 2008 have started edging up from the last quarter of 2007 at a 2.6 percent annual rate.

    Appraiser Mike Sidders said the first-quarter 2008 prices were still 1 percent below firstquarter of 2007, but definitely improving. He pointed to similar news in an Office of Federal Housing Enterprise Oversight report that came out this week. It found that overall U.S. home sale prices fell by 3.1 percent from the first quarter of 2007 to the first quarter of 2008, the biggest decline in 17 years.

    However, the report cited Montana as one of seven states that didn't decline. Montana had the third biggest rise in home prices from the first quarter of 2007 to the first quarter of 2008, a 4.9 percent increase.

    "The national market scared people," Gaugler said. "We saw a lot of buyers sitting on the fence" last year in Bozeman. But now, she said, the number of buyers is increasing as they've seen Bozeman doesn't have "a doom and gloom" market.

    "People have started to realize this is a good time to buy," she said. "Prices have come down a little but ... we've kind of hit bottom and it's started back up now. Now is the perfect time to get in and start buying. Who knows how long mortgage rates are going to be this low?"

    START MODEST

    Interest rates are close to a 40-year low, she said. People with good credit scores can get 30-year fixed-rate conventional loans at 6 percent or less.

    Lenders have tightened up their requirements. For five to 10 years, buyers could easily get 100 percent financing with zero down payment, Gaugler said. Now lenders are requiring 3 percent down.

    On a typical Bozeman home sold for $300,000 that 3 percent comes to $9,000 for the down payment. Closing costs are another 2 or 3 percent, which means another $6,000 to $9,000. It's hard for many buyers to come up with that much cash, and that's why sellers are offering cash incentives to help with closing.

    Gaugler's advice to prospective buyers is to clean up their credit rating. The better their credit score, the lower the mortgage rate they'll qualify for.

    First-time buyers shouldn't expect their first house will be their dream home, she said. They should plan to start with something more modest and later try to move up to the home of their dreams.

    Buyers need to be realistic about how much they can afford. The mortgage plus taxes plus insurance should total less than 40 percent of the buyer's gross income.

    "The No. 1 reason I can't qualify someone is because they have too big a car payment," Gaugler said. "If you want a big fancy house, don't have a big fancy car."

    Gail Schontzler is at gails@dailychronicle.com or 582-2633.