Driven By Low Supply, Missoula Housing Prices Continue To Grow
A new report shows Missoula’s growing population, combined with a tight housing supply continues to drive high demand and ever higher home prices.
Housing prices may dip in the short term due to the ongoing novel coronavirus pandemic. The long-term effects on real estate are still unclear.
Brint Wahlberg with The Missoula Organization of Realtors (MOR) can summarize last year’s local housing market using only four words: tight supply, higher prices.
"A competitive market, bids at full price, over asking, competitive sale situations; a lot of the same trends that we’ve been reporting over the last few years.
The MOR released its annual housing report Thursday detailing trends in the local market. This year’s report was postponed by a month due to the COVID-19 pandemic.
Missoula County’s population grew by almost 10 percent from 2009 to 2018. That, combined with a year-over-year flat construction pace, increases housing demand.
Wahlberg says a tight supply helped push the median sale price – where half the sales are above that price and half are below – to a another record high last year.
"We had a peak median sales price, once again, of $315,000 for homes in Missoula. That represented an 8.6 percent median price increase in just one year."
Through most of this year’s first quarter there were no indications those trends would change anytime soon. Then COVID-19 hit.
"We don’t really know fully how this is going to completely impact the market," Wahlberg says. "What we are noticing, especially in the month of April, sales volume is going down."
Listing activity started dropping just as Montana’s COVID-19 cases started mounting earlier this month. Wahlberg says sales activity will most likely follow suit.
"We are probably going to see it 10 to 15 percent under where it was at April last year. But the months that's gonna be more telling for the impact on aactual sales are going to be when you look at how May does and how June does."
The Missoula Organization of Realtors' report finds that, once again, affordable housing remains beyond the reach of many Missoulians
Wahlberg says the supply of homes priced at roughly $250,000 is still tight. Meanwhile there’s a growing supply of homes priced from $450,000 and up.
He’s noticed no significant changes to lending practices at small local banks. He is, however, seeing some changes at larger banks as many people are left unemployed due to the recent stay-at-home order and continued social distancing guidance.
"Lenders usually do an employment check a week or two before closing, to confirm the borrower is still employed. I had an instance just this week where the lender confirmed the morning of the closing before releasing funds. Lenders are probably going to be collecting a little bit more information, provide a little bit more scrutiny to things, and you could start to see some programs come and go."
Just over half of Missoulians who live in city limits are renters. A tight supply of available rentals last year kept vacancy rates between 2 percent and nearly 4 percent.
Wahlberg says it’s tough to predict how the pandemic could affect the local rental market if it continues to affect people’s ability to pay rent.
"Could that mean rental prices go down? Possibly. On the flip side of things, you could potentially see more homes at or below median sales price come up for sale."
But Brint Wahlberg says Missoula’s longtime sellers housing market is well-positioned to rebound once the worst of the pandemic is behind us. He says lots of parcels of land along the airport corridor are sold and poised for future subdivision development. He says a strong recovery in the housing sector will almost certainly lead to an impressive ripple effect across the rest of the local economy.
That long-game optimism, however, is tempered by the short term outlook for Montana from Patrick Barkey, the director of the Bureau of Business and Economic Research (BBER) at the University of Montana.
"At the moment, we’re estimating that we’re going to see a personal income drop of about just shy of $4 billion, which is somewhere north of a 7 percent decline in economic activity. That’s averaging over the whole year of 2020."
Barkey says that economic contraction will likely be especially pronounced this spring through the summer. Less certain is outlook for the recovery, but the BBER’s best guess right now suggests that could happen during the last three months of this year.
What does all this mean for Montana’s housing sector? That’s tough to predict with certainty, but Barkey says the pandemic’s lockdown phase has put a dent in the real estate industry’s ability to show homes. Industry reps agree, but say they’re increasingly using technology to do that. They’re also rigorously cleaning and social distancing for clients still comfortable with live showings.
Still, Barkey says these new complications may prompt some sellers to sweeten the pot to entice buyers.
"Briefly, the power has moved a little bit over to the buyers who are willing to navigate the complexity of the real estate market. We are in a recession and it doesn’t sound like a good time, from my point of view, for buyers to be getting loans and so forth. So, you would expect that there’s gonna be a hit on real estate markets in terms of demand. What will that do to prices? Expect that will soften the price growth."
Barkey thinks the construction industry is better positioned to resume business once Montana’s lockdown rules start to ease, simply because it’s easier to socially distance workers on a construction site. But he predicts retail construction could face significant hurdles. The pandemic is altering demand for restaurant and entertainment venues, not to mention how other brick and mortar businesses may alter traditional face-to-face interaction with clients.
Barkey is guardedly optimistic that residential construction will ultimately fare better, but he’s hesitant to make firm predictions given the unpredictable nature of the COVID-19 pandemic.