Like other builders and real estate agents, his deals have been scotched or delayed by buyers who first must sell their homes in stagnant markets.
He's stuck when out-of-state buyers who want to relocate to his Lolo and Missoula residences can't sell their houses in Denver, Chicago and Los Angeles.
“I have multiple builder friends who've called me with the same concerns. I think the trickle-down will affect the economy.”
While Montana has avoided the brunt of the subprime meltdown that hit Los Angeles, Las Vegas, Detroit and elsewhere, there will be some spillover, said Paul Polzin, director of the Bureau of Business and Economic Research at the University of Montana.
“Montana is not going to escape the problem, but it appears to be less here than other hotspots,” Polzin said.
Lenders have reacted to the risk by toughening standards to qualify for loans.
“The whole trend in the credit market now is a flight to quality,” Polzin added. “It will affect everyone going for a mortgage, both business and personal.”
In Missoula, buyers are acting more cautiously as they read about trouble spots where prices soared and then dropped. Mortgage brokers say there are fewer mortgages available with low or no down payments. And borrowers with poor credit may face heftier mortgage insurance requirements.
Foreclosures are likely to rise as borrowers can't make their payments or find a lender who will convert them from adjustable-rate loans, with low initial rates, into fixed-rate loans.
In Montana, about 22 percent of the loans were considered subprime, or 7,342 out of the 34,152 loans that originated in 2006, according to data from the Home Mortgage Disclosure Act.
Foreclosures, at about 1 percent in Montana, are below the national foreclosure rate of roughly 1.8 percent, according to Michael Grover of the Federal Reserve Bank in Minneapolis.
Mortgage delinquencies in Montana are about 2.5 percent compared with 4.5 percent nationally in 2006, he added.
It's hard to say what 2008 holds or if foreclosures will increase in Montana because of the subprime markets. But borrowers' credit scores are good predictors of future foreclosures.
“It's a proxy for predicting foreclosure activity if you don't have good local data,” Glover said.
Nationwide, home prices rose initially when the country was in a recession, but the Federal Reserve Board cut interest rates in 2001, and kept them low until the middle of 2004.
In markets with steep housing prices across the nation, borrowers found mortgages with low adjustable rates and no down payments appealing.
Borrowers in expensive areas in California, Nevada, Florida and other states saw these loans as a way to help them attain homeownership that otherwise would have been beyond their reach.
The buyers gambled that housing prices would continue to rise, increasing the equity in their homes. But when housing values dropped instead, they found themselves with little or no equity in their homes.
Investors also jumped in. They saw the glitter of easy money in markets with rapid appreciation - and hoped to “flip,” or sell homes after they increased in value, and to cash out after a few years. When the high home prices weren't sustained, some investors stumbled.
Declining home values make consumers less likely to spend, which spills over to retail stores and other business and could put a damper on the economy. And the effects are felt even by long-term homeowners, in terms of lower property values or poorly maintained neighboring homes after foreclosures.
A relief package worked out by the Bush administration may help a portion of the estimated 1.2 million subprime borrowers. The effort aims to halt the ripples into the broader economy, especially as some borrowers' rates will climb drastically in coming months.
The National Association of Home Builders anticipates a construction slowdown for 2008. Housing starts for single-family homes, which were 1,072,000 this year are expected to decline to 911,000 next year before climbing to 1,025,000 in 2009.
In Missoula, the impact is likely to be muted.
Mary Marry, president of the Missoula Organization of Realtors, said the median price of a single-family home is $219,900, up from $208,000 last year.
But about 200 fewer homes were sold in the Missoula area this year. There were 1,303 homes sold so far in 2007, as compared with 1,505 in 2006.
“Missoula has had steady increases for 15 years,” she said. “Rates are low and inventory is good.”
Marry has several clients who are stuck, though. They must sell homes in Las Vegas and Arizona before they're able to purchase one here.
Sherril McCabe, a broker at Montana Real Estate Connection, said there have been some jittery buyers.
“Everybody was looking at the national news. They sit at home and say, ‘It'll be us next.' But we're never next,” McCabe said. “They don't realize we're Missoula, Montana. We're different and always have been. It isn't doom and destruction in Montana; it isn't like other states.”
She said there was a slowdown during the summer months, but the market recently has picked up its pace.
“The typical patterns in the summer and the winter have reversed,” McCabe said. “I've never seen such a stale summer market and a wild winter market.”
Julie Lynch, an agent at McCabe's agency, said sellers' homes are staying on the market longer, but the market is active.
“There was an overall price drop,” she said. “It was difficult to explain in our market because people were used to seeing the prices increase more than they could believe.”
Toby English, secretary of the Montana Association of Mortgage Brokers board of directors, said the subprime impacts are patchy. Some home prices in Salt Lake City are predicted to appreciate about 8 percent. Missoula, the Flathead Valley and Gallatin County are expected to see modest 2 percent to 3 percent increases in values.
“We had been seeing increases of 10 to 12 percent, but at least we're not seeing a CK negative,” said English, broker and owner at Capstone Home Mortgage in Missoula.
Stanford, the custom home builder, is building three homes hoping the outlook will improve by the spring.
Last year at this time, Stanford had six homes presold in a Lolo subdivision and built a dozen during the year. He has gross sales of $2.4 million in 2007 - about double his 2006 sales - for his three-year-old firm, Homes In General.
But with about 60 percent of his business derived from out-of-state clients who are in stale markets, he's uncertain how 2008 will unfold.
“I own 14 building lots in the subdivision and I'm concerned about what the winter holds for us,” Stanford said.
Rebecca Babin, board secretary for the Missoula Building Industry Association, said builders report there are plenty of homes for sale in Missoula, especially in the $250,000 price range. Coupled with low interest rates, she said this is a good time to buy.
“There is so much negative press that the public is losing sight that they can still buy a house,” said Babin, a real estate loan officer at Community Bank Missoula.
Cathy Swofford, broker and owner of Missoula Mortgage, sees fewer mortgages with no money down and little paperwork. She said verifiable income and assets are needed for today's tighter loan requirements.
She expects mortgage rates to rise as lenders seek ways to recoup their losses. Self-employed people, which state economists estimate comprise 20 percent to 25 percent of Montana workers, are finding it difficult to qualify for conventional loans, she said.
And private mortgage insurance, which helps lenders cover their losses from foreclosures on loans with less than 20 percent down, is likely to rise. With an emphasis on lending to borrowers with good credit scores, of 620 or higher, those who fall short of the mark face steeper mortgage insurance costs.
For example, a borrower with a credit score of 616 who is buying a $220,000 median-priced home in Missoula previously would have faced PMI of about $135. These days, that same borrower faces a PMI of $275 a month - or $140 more a month.
“There is a significant impact if you have a score of 620 or less,” Swofford said. “The availability of loans in general is less.”
In the past, the amount of PMI was calculated by the amount of the down payment. Today, it is determined more by a borrower's credit score. “The credit score wasn't as vital as it is now,” Swofford said.
She steers qualified borrowers into VHA and Federal Housing Administration loans. A borrower of an FHA loan is allowed to put 3 percent down, but currently is limited to a loan size of $220,875.
Montana has agencies that offer advice on how to avoid foreclosures or soften the impacts. Sheila Rice, executive director of the Montana Home Ownership Network, said they began offering foreclosure intervention and counseling about three years ago. She said about one-third of their callers are helped by calling the 24-hour national foreclosure hot line: 1-888-995-HOPE.
“It is difficult to make a call. Some people, if they let their lender know how serious their concerns are, then the lender will foreclose faster,” Rice said. “It is kind of scary to call a lender, so it is helpful to have a counselor on the line when you do.”
Betsy Hands, a state legislator and executive director HomeWORD in Missoula, which is part of the state network, said they haven't seen an increase in calls due to subprime mortgages.
“We're just ready to take care of what comes in and have counseling available,” she said. “We do offer the more intensive counseling if that is needed.”
Tighter credit is likely to alter the behavior of some homebuyers who have been living off the rising equity in their homes for years.
“Maybe people shouldn't use their homes as an ATM. People have taken the equity out to pay off other debt,” Marry said. “They got used to their homes appreciating enough and that is a dangerous thing to rely on.”
Reporter Pamela Podger can be reached at 523-5241 or at pamela.podger@missoulian.com
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