It hit Billings real estate broker Mark Dawson in a furniture store, of all places.
The owner of one of the largest brokerages in Montana’s largest city, Century 21 Hometown, Dawson was discussing Billings with a furniture salesperson as he was shopping. Turns out, business was booming for both of them. That’s when the salesperson said that furniture could hardly be kept in stock, and 9-out-of-10 buyers were from out-of-state furnishing new Montana homes. That was exactly what Dawson and his staff were reporting anecdotally.
Although the data behind the supposed influx of out-of-staters is hard to pin down, it’s an empirical fact that residential home sales in Montana have continued to push upward, and real estate professionals, housing advocates and economists say 2020 saw fundamental changes to the state’s housing market — in part, some suspect, because workers are also discovering that with a computer and internet connection, they can live anywhere.
Local realtors and the multiple listing services paint a picture of huge growth in residential markets, driven largely by a record-high demand and a lagging inventory of homes. That growth also appears to be pushing housing prices higher, often outpacing Montana’s average household income.
For example, in Missoula County, the Missoula Organization of Realtors reported a median home sales of $335,000 through June, more than a 6% increase year over year. In a mid-year report by the organization, it attributed the jump to a low supply of housing coupled with a higher demand.
The report said average inventory would normally carry about three to nine months’ supply. In Missoula in June, there was just 1.53 months’ supply of houses, which sent prices soaring. The same appears to be true in Yellowstone County, and even more so in Gallatin County.
“It’s hell for the people who are normal Missoula wage earners,” said Bob Oaks, the executive Director of the North-Missoula Community Development Corporation, a longtime advocate for housing affordability. He attributes the price explosion to a combination of in-migration from other states and people buying vacation homes or investment properties.
Demand for rural housing
Brint Wahlberg with Windermere Real Estate in Missoula called 2020 “pretty wild.” Not only did 2020 set a new record for city sales volume, so did property sales in the county, demonstrating growth well beyond the city limits. He cites several different statistics that show a meteoric rise in home values — median home values increasing 11 percent over 2019, and home values in general rising a third in the past eight years.
The Bozeman Daily Chronicle reported that the median sales price of a single-family home between November 2019 and November 2020 rose by nearly 50%. That translated to an increase of $195,000 in Gallatin County, with the median home price going from $420,000 to $615,000.
What is also surprising is that it isn’t just urban areas — the seven largest cities in Montana — that are seeing growth. It’s hitting smaller communities, too.
The intense demand seems to have created a spillover effect, with realtors identifying is an increase in demand for rural property closer to urban areas like Billings or Bozeman.
“If you have a property with a little bit of acreage, it’s almost impossible to see it on the market for long,” Dawson said, noting that places like Red Lodge or Big Timber are also booming, not something that was necessarily seen previously.
“The whole concept of Californians moving to Montana was overblown. Usually, the case was that the market here was being driven by more buyers from places like Glendive or Miles City,” Dawson said. “But this time, it appears that more of the buyers are coming from outside of Montana, and not just California.”
Wahlberg said that while city properties have generally seen demand spikes, he’s also noticed new residents buying properties in surrounding areas. Now, areas like the Bitterroot Valley, Mission Valley and south of the Flathead have seen equally aggressive markets.
“They’re relocation spots,” Wahlberg said. “We’re calling it a ‘Zoom’ market. Platforms like Zoom and others allow people to work from anywhere so they’re coming from places like Washington, Oregon, California and even Colorado.”
When demand clobbers supply
High demand and low supply — especially when widespread — means that home prices outpace the average Montana income. That changes the definition of “affordable housing” and it places increased demand on state and local leaders to do something to ensure Montanans can still afford a house.
Dawson said that almost all housing segments are seeing “drastic appreciation” in values in Yellowstone County, the state’s most populous. He said looking no farther than inventory numbers show why. In November 2018, there were 753 properties available in Yellowstone County; a year later, there were 629. This year, there were 282 – barely one month’s supply.
“It’s really, really rare to see as many properties closing in one month as there are on the market,” Dawson told the Daily Montanan.
He said new construction on even more affordable townhomes has seen at least a 10 percent increase across the board.
“There is a lack of inventory, especially in the lower price range,” Dawson said.
That trend is happening across the state.
“There is literally nothing to buy under $400,000,” Wahlberg said. “Everything is competitive. A couple of years ago, there was plenty to buy.”
In Missoula, the number of homes valued between $100,000 and $200,000 on real estate site Zillow sank from 230 to 98 between 2018 and 2020, the company said. The story was similar in Bozeman, which saw its supply of available in that range go from 106 to 43.
Wahlberg said he’ll often see 10 to 15 offers on a property, and bidding wars can drive up prices as much as $50,000.
“We used to use recent sales in the past six months or even a year,” Wahlberg said. “Now, four to six weeks is the new comparable.”
Three heartbreaks per month
That means as the prices continue an upward swing – a mostly positive sign for current property owners – that will continue to make affordable, first-time homebuying more challenging.
“I am a lifelong Missoulian, and people say realtors must love this market, but I don’t,” Wahlberg said. “Buyers are getting their hearts broken two or three times a month, sometimes not finding anything — and these are buyers who are really well qualified with very good jobs.”
Many of those buyers, he said, are having to make compromises — fewer bedrooms or no garage.
“For every one happy, you have five who are disappointed,” Wahlberg said.
But the ability to make such compromises doesn’t exist for many. In general, upwards price pressure at higher price levels have serious ramifications for affordability down the line, said Chris Glynn, a senior economist with Zillow.
“When many buyers are priced out of the typical home in a community, they take a step down the price ladder and search for less expensive homes that fit their budget,” Glynn said.
This crowds working people out of the market, which seems to be moving on without them. The price of real estate is rooted in the price of land, and the price of land — a surprisingly finite resource in the urban areas of an expansive state — has gotten more expensive, said Bryce Ward, an economist at the University of Montana.
In Missoula, for example, not a single single-family residence has hit the area’s multiple-listing service for less than $300,000 since October.
The number of active listings in the state’s peak season during the summer months has also dropped from year to year, according to data from the St. Louis Federal Reserve. In August of 2019, there were more than 7,500 homes on the market. One year later, that number had plummeted to 4,210. New listings are similarly meager compared to a year before, all while the median home price, as is well-documented, has shot up.
Ward added that although low interest rates have generally kept mortgage payments in check, down payments have increased precipitously, pricing out first-time buyers who are as such often unable to build equity.
Renters, meanwhile, have seen a similar squeeze, with property owners seeing the hot market and deciding to sell lots they once rented out. When a property flips back from rental to owner-occupied, it continues to put a squeeze on affordable rental housing as renters are displaced, and demand for rental housing increases.
The constant redefinition of what constitutes a “reasonable” price to pay for a house has caught the attention of policymakers charged with trying to keep the dream of owning property alive in Montana.
Keeping the ‘American Dream’ alive
Cheryl Cohen, the Housing Division administrator for the Montana Department of Commerce, said that hard-working Montanans need access to affordable housing, and that demand has far outpaced the supply, even though the state has funding and new programs to help boost availability.
The state doesn’t define “affordable housing” but says that it refers to the definition used by the Department of Housing and Urban Development, that says it means 30 percent or less of the household income. In Montana, the median household income, according to United States Census Bureau, is at $54,970. Depending on interest rates, that means for most Montanans, affordable housing would mean a house price of no more than $275,000.
The Census bureau also reports that roughly 68 percent of the households in Montana own their home, with a median price of $230,600. Meanwhile, the average renter in Montana pays $810 monthly.
Wage growth on average, has hovered around 3 to 4 percent, with more wage growth in the upper tiers of wage-earners, according to the State of Montana. In other words, wages are not matching the pace of housing prices as they rise.
Cohen said there are only 39 properties available for every 100 Montanans qualified and in need of affordable housing.
“The gap in housing inventory is at the lower end of the spectrum,” Cohen said.
Since 2015 and the advent of state programs meant to boost affordable housing, the state has developed or rehabilitated more than 3,300 properties statewide, resulting in an estimated 8,200 jobs, Cohen has said. In 2020, the state had seven projects and 252 small, affordable housing projects go into Joliet, Cascade, Laurel, Havre, Livingston, Belt and Helena, mostly aimed at low-income, seniors and those with disabilities.
While Montana has a Housing Trust Fund, it’s most commonly used as a vehicle to apply for and distribute federal grants and lacks a consistent funding source from within the state. In 2019, legislation signed by then-Gov. Steve Bullock sets aside a portion of the tax revenues the state gets from coal extraction to finance affordable housing with low-interest loans, a program that is likely to be extended this year, though this too is relatively small relief in proportion to the size of the problem.
The State of Montana, however, was among the pioneers in COVID relief funding to help take part of the $25 billion set aside for relief and channel it toward renters and homeowners who were struggling to pay for housing. That programming became a model for other states and even larger cities like Chicago which reached out to help implement similar programs, Cohen said.
An unknown solution
While housing markets with low supply always tend to be temporary as builders ramp up with more construction, Dawson thinks the upward trend is here to stay for awhile. He said it is impossible to blame this all on COVID-19.
“You don’t know what it would have been like without COVID,” Dawson said.
He said that great interest rates may be just as much a part of the housing boom as the pandemic – rates have never been more advantageous, which could be fueling part of the glut, too.
Even new construction is feeling the effects of a sizzling market, though. For example, in Missoula, hemmed in by mountains, growth can only happen in two directions.
“Lot prices for new builds are at $100,000 plus,” Wahlberg said. “You’re into it one-hundred grand before even digging a hole.”
Affordable housing has slowly been chipped away. In November in Missoula, not a single property was hit the multiple listing service less than $400,000.
“They go under contract immediately. It’s not that there aren’t any. They just aren’t any to buy,” Wahlberg said.
That’s a problem for inventory and that takes months, if not years to solve, he said.
“This could be a years-long trend. Companies save money by letting people work from home and people like living in rural areas like Montana and Wyoming,” Dawson said. “When COVID hit, people shut down because of the uncertainty. But it was surprising. It shut down for like five days and then it was go. And it hasn’t stopped.”