Housing market at rock bottom?

by Derek Farr

If the county’s housing market were an animal, it wouldn’t be a bear – it would be a Kodiak bear.

If it were a sound, it would be a whistling hiss of a dropping bomb.

If it were a word, it would be paltry, bleak – or perhaps rotten.

No matter how it’s described, one thing is certain: This market is colder than a Sublette County winter.

To put it in perspective, data from the multiple listing service (MLS) shows that Sublette County has seen one home closing in the first three weeks of the year – and the number for residential lots: zero.

Virtually every number that should be up is down and every number that should be down is up. It is a palpable sign that the world’s economic implosion is creeping into the Upper Green River Valley.

It’s a long call from the go-go days of 2007 where residential inventories were so low, sellers were receiving their asking prices – sometimes without negotiation. By contrast, in December 2008 the county had 189 home listings and three sales.

Things are ugly, and it’s possible the fast and furious home activity of 2007 is elemental to the downturn.

According to Sublette County Planning Director Bart Meyers, the county issued 160 building permits for single-family dwellings in 2007 (76 more than 2008).

Those permits and astronomical home prices fueled by a seemingly insatiable demand for housing resulted in 192 home sales in 2007. But when the economy cratered, the breakneck pace slowed to 92 sales in 2007 – a 50-percent decrease.

While home sales sank, the number of houses for sale rose by more than 20 percent. That excess inventory combined with languid sales has made the Sublette County home market as desolate as a windswept hillside.

What an inventory

At 2008’s sluggish rate of nearly five home closings a month, the county’s current home inventory would last more than seven years – not including homes for sale by owner. Those numbers are an eerie reminder of a February 2008 report by Collins Planning Associates that attempted to illuminate a safe path through the county’s treacherous housing market.

The study concluded that the county should protect the long-term stability of the housing market by cautiously allowing well-planned subdivisions and preventing a construction free-for-all.

The study’s impetus suggested over-building while the demand is high in the short term “could destabilize the housing market and lead to housing price deflation” in the long term.

Unfortunately, the authors based their conclusions on the energy industry’s incounty development during relatively stable economic conditions; it was not based on a near-term economic slaughterhouse.

Instead of accurately forecasting a dip in the housing market after an energy industry slowdown by 2019, the study appears to have predicted the results of a sinking market caused by the outwash of a global economic crisis in 2009.

“Once the rig count starts to drop … a significant price correction can be expected,” the study postulates, unaware of the looming financial meltdown’s magnitude.

Meyers sees evidence to support a premature market correction. His data shows the subdivision process created 378 new residential lots in the past five years and of those lots, the county issued 110 building permits. That means only 29 percent of the newly established lots were tagged for home construction.

“The idea behind creating almost 400 new subdivision lots over the past five years is that they would have houses built on them and fulfill a need,” Meyers said. “And when not quite a third of the lots have had a house built on them, maybe the need wasn’t as great as was anticipated.”

Hitting bottom?

While many of the Collins study’s dire predictions have materialized, some of the county’s bleak numbers may describe a stagnant market that isn’t entirely due to a lack of potential homebuyers.

Of three contributing factors – the domino effect from the country’s devastated housing market and an energy industry slowdown caused by a two-thirds drop in the value of natural gas – perhaps the most significant is the unavailability of credit.

When residential foreclosures began to poison large-scale financial assets on Wall Street, banks changed their lending rules dramatically.

Zero-down loans went from ubiquitous to unheard of as creditors tightened their lending standards. And those tightened rules disqualify many potential homebuyers from getting a loan. Theoretically, homebuyers are out there, but until they save more money for larger down payments, gain better credit scores and reduce their debts, a home loan is off limits.

That tidbit of hope is little consolation for anyone trying to sell.

The Sublette County Assessor’s Office declined comment for this story but there is evidence the bleak market is driving down prices.

In one case, a home remains unsold even after a $100,000-price reduction.

While it is impossible to tell if the market has hit bottom, one thing’s for certain: We’re close.

The numbers are the proof.

In December 2007, 19 homes sold while in December 2008, that number was three – an 84-percent decrease.

All is not lost

With an apparent housing-market plane crash before us, not everybody has strapped on a parachute and is ready to jump. Barb Hodges, owner/broker of Wild Horse Reality, is one of those optimists.

“This is an excellent time to buy,” she said. “If you are ready to go for it, there are some really good prices out there right now.”

Hodges said she is seeing more activity now than in recent months, adding winter is historically the slowest time for the real estate market.

“It should start loosening up at the end of March or the first of April,” she said.

Not only does she see good prices now and a better future ahead, she thinks the downturn is teaching lessons that will ultimately lead to healthier financial decisions.

“We just don’t need to spend every penny we make,” she said. “We need to save some for these hard times.”

And Hodges says more people are following that advice by cleaning up their credit scores, reducing their debts and saving money for a down payment; it’s those people who will take advantage of the area’s more reasonable home prices.

But for now, the housing market is in a stasis.

“Things just aren’t moving,” Hodges said.

That fact doesn’t mean all is lost. Even homeowners who are leaving Sublette County have options.

Hodges reported that the area’s rental market is hot, which opens up the option of renting a home in the short term while waiting to sell in the long term.

With renters covering a home’s mortgage in the meantime, Hodges said a bank may allow for a second mortgage at a new location.

“If they can rent for the same amount as the mortgage and wait until the market changes, it would make more sense to me,” she said.

Hope, wait and see

There are a lot of people paying close attention to the market as winter ebbs into spring: Builders, contractors and realtors are just a few groups who depend on a healthy market.

Last month in Teton County, Real Estate of Jackson Hole closed its doors, sending 70 agents packing. Many of that county’s 800-plus agents are finding work elsewhere after a feckless fall. They are just a few of many who have seen the good times slip away. As winter’s icy grip loosens, perhaps the housing market will thaw with the coming spring.

Until then, the best anybody can do is hope, wait and see.