Economist details rapid rise in Missoula’s affordable housing costs

A senior economist behind a new housing study said Wednesday that while housing price gains at the lower end of the spectrum are increasing across the country, they’re growing faster in Missoula than nearly every other city in the nation.

Faster than 392 other metropolitan areas, to be exact.

Nationwide this week released its “Health of Housing Markets” report, which analyzed the condition of 400 metropolitan statistical areas across the U.S.

The report, detailed on Wednesday by senior Nationwide economist Ben Ayers, found that affordable homes in Missoula were increasing in value at a rate faster than nearly all other U.S. cities, including Phoenix, Orlando and Sacramento.

“The spread between the price gains, particularly over what we’ve seen looking back over the past five years, is much higher on the lower end than the higher end,” Ayers said. “The higher end has gone up a little bit, but the gains are much more modest – a couple percent a year. At the lower end, it’s not quite double digits, but it’s close. They’re pretty big jumps.”

Changes in home prices at each end of the spectrum landed Missoula 8th nationally in the study, with affordable homes surging in value at a much faster rate than homes in the upper tier.

Missoula received a score of 50.5 percent.

“We looked at the percent that the highest tier went up in the Housing Price Index and compared it to the percent that the lowest tier went up in the index,” Ayers said. “The spread of those two was more than 50 percentage points in Missoula. That’s pretty big. Nationwide, we’re talking 33 percent, so it’s well above what the national average is.”

While the price gains are good for existing homeowners building equity, it’s not so good for those looking to make their first home purchase. Housing prices in Missoula have been identified in several recent studies as a potential threat to the city’s economic health.

The gains, Ayers said, are driven by housing demand.

“There’s a lot of demand for housing and a portion of that demand is at the lower end,” he said. “Because there’s a lot of demand and it’s mainly at the lower end of the housing sector, that’s pushing up those prices for entry-level homes and all those homes below the median.”

The median price of a home in Missoula currently sits at $270,000. Five years ago, it was $210,000, according to the Missoula Organization of Realtors.

Given the city’s rapidly rising housing costs, Missoula scored a neutral index in the health of its housing market. That index, put out by Nationwide each year, considers a range of metrics, from supply to housing price gains and other factors.

Ideally, Ayers said, the figures would fall into the normal range, though that wasn’t the case in Missoula.

“We want to see it in that golden zone, but in Missoula, the rankings are zero,” Ayers said. “Unfortunately, that means that Missoula isn’t among one of the stronger ratings we have. It’s in the lower quarter. The affordability indicator versus price growth and income growth, that index doesn’t look as good in Missoula.”