Market Update at a Glance November 2013

“Looking Back”

I am going to do two things month, which will make this a long report overall. First I will look at the changes form November 2012 to November 2013, then second I will go back and look at 2006 (the peak year in residential sales) and compare to 2013 to see how we have done.  In single family permits we see the fourth  year over year monthly decrease (permits down 13% from November 2012,  total single family permits still have a gain of 17% for the year, as a comparison in march 2013 permits were up 66% year over year. The increase in residential unit sales are up 7% year over year, as a comparison in march 2013 unit sales were up 16% year over year. Both the single family new construction and single family resale are showing the decreasing of the increase of velocity in the market place. Market time has decrease of 17% year over year, as a comparison in March 2013 market time was 21% lower year over year.  The absorption rate shows an increase of 5% in time year over year, as a comparison in March 2013 absorption time was down 35% year over year.  Pending sales are positive 11% year over year, as a comparison in March 2013 pending sales were up 7% year over year. All This showing the market velocity is a decreasing year over year; which is somewhat as I expected due to a surge last fall with an accelerating decrease in interest rates. Overall, I believe, in the long term, these trends are positive within the market. The reason for its positive effect is the increase in unit sales becomes a sustainable momentum and not a setup for a bad stumble. The other positive from the market behaving in this manner is that the movement of prices up becomes a more solid base to build appreciation on. The market has experienced a 7.73% approximate pricing movement since the end of 2012 and about 8% year over year, confidence in the economy of Yellowstone County means the price gains are becoming solid. The major factors in the market place are interest rates and employment; interest rates have started to move upward. According to Freddie Mac, November 2012 average interest rate of 3.35% and through November 2013 the rate is 4.26% for a 30 year fixed rate, to show the impact of that increase, the payment on the average priced house in November of 2012 was $1,217 PITI at the end of November 2013 is now $1,465 PITI.  When talking about interest rates loan qualifications are also a player in the market, the additional scrutiny caused by the problems of liar loans has most probably reduced the buyer pool by about 15% to 20%, how else do you explain lower unit sales than 2006 with higher employment and lower costs to own in Yellowstone County.  As interest rates move upward and prices move upward these twin trends will moderate sales and pricing trends. The caveat would be employment, strong employment can drive sales.  The latest figures available of October 2013, there 1823 more people working in Yellowstone County than in October of 2012 and 3740 more working than in October of 2011. The number of persons employed is at historical highs. Yellowstone County unemployment is now 3.5% compared to 4.8% State Wide.     Pricing trends continue a positive trend, albeit at a slower pace, with interest rates higher than last year, total monthly payment has risen above the previous year again, ending the trend of rising prices with lower monthly payments. Yet the monthly payment has a way to go to match 2007, with the average sales price home monthly PITI was $1,602 in 2007, compared to today’s average sales price home PITI of $1,465. Another fact of the market place, to purchase the Average priced home in November 2012 your payment was $137 a month more than renting the Average home for rent, in November 2013 it now costs $341 more in monthly payment to own, as compared to renting the Average  rental home  in Yellowstone County. This bodes well for the cash flows from rental properties as the cost of ownership goes up rents will follow the upward trend by a few months. As a side note an update on oil drilling comparing this year to date and last year, year to date in Montana the rig count has dropped from 20 to 12 rigs and in our neighboring state North Dakota, rig count has dropped from 189 to 173. Hope you find the information both useful and enlightening, if you have any questions about either buying, selling or the market in general do not hesitate to call or email

Now for the second part this month to look and compare 2013 Yellowstone County to 2006 the peak year in residential sales

#1 population - an increase of 15,670 people living here

#2 Employment - we have 4,795 more jobs  since 2006

#3 wages and income - the average family has seen a $12,892 (census data) increase income the average job now pays $8,873 (bureau of labour)

#4 interest rates-   a 30 year conventional loan has dropped 33.54%

#5 home prices - average sales price up 23.05% the median sales price up 26.54%

#6 monthly payment - the average has dropped 3.1% and the median has gone up $4 per month

#7 Permits issued – living unit permits declined 15.97% from 2006

#8 residential home sales – homes sales have dropped 11.4% by number of units sold

So in looking at the information and the positives, Population growth, employment growth, income growth, interest rate drop, home values growing, cost to own dropped or basically flat, The question you must ask yourself is how could home sales be below 2006 in 2013 with all the positives? Home sales have dropped 11.4% by number of units sold and Building permits for living units dropped 15.97%.

My belief the answer lies east of here in Washington D.C., with all the turmoil in the rest of the country caused by liar loans and such, instead of just eliminating those type of products our friends in government want to protect you and have made the process of qualifying for a loan more difficult thereby causing fewer sales with all the positives that we have here in Yellowstone county.

Sincerely,
Howard Sumner