Keila Szpaller

(Daily Montanan) Soaring and volatile interest rates are hurting many homebuyers in Montana who already face a low supply of homes — a problem that’s expected to be a priority in the 2023 Legislature.

“We are seeing a lot of folks being frustrated by the lack of availability and the higher interest rates,” said Karissa Trujillo, deputy director of Homeword in Missoula; Homeword works on sustainable housing in Montana.

Lynn Stenerson, with Stockman Bank, said interest rates have doubled in less than a year to slightly more than 7 percent compared to 3.25 percent in early 2022, and the difference can mean another $600 or $700 on a monthly payment. Plus, she said rates are volatile.

“It’s definitely presented a huge amount of challenges,” Stenerson said.

Thursday, Trujillo and Stenerson were among the experts in real estate, development, affordable housing and banking who offered a third quarter housing update for the Missoula Organization of Realtors.

In some communities in Montana, households earning median incomes don’t make nearly enough to afford a median priced home. The median price of a home in Bozeman is $932,317, but in 2021, household income was just $59,695, according to the Bozeman Real Estate Group and U.S. Census, respectively.

A rough estimate based on yearly income of $60,000, given current interest rates, would mean that an average Montanan family would be able to afford a house around $275,000.

Even before the pandemic, sales prices have been skyrocketing in Missoula and Bozeman and rising in other communities in Montana. In April, the Washington Post reported Lewis and Clark County had the fifth highest increase in rent in the country from March 2020.

Last month, Gov. Greg Gianforte’s task force on housing released recommendations in advance of the 2023 session including the need to create more starter homes, such as condos and townhomes. The Republican governor has said the group’s ideas will be a focus next year.

Thursday, Missoula Organization of Realtors CEO Jim Bachand said it was too early to state whether the MOR would support any of the task force’s recommendations. However, he said one of its members sits on the task force and the organization is reviewing the results.

In Missoula, the median price of a home is at $525,000, as it has been for roughly seven months, said Brint Wahlberg, vice president of the Missoula Organization of Realtors. By comparison, it was $350,000 in 2020.

Wahlberg said price gains have been slowing compared to when Missoula was seeing exponential growth, but they’re still climbing quickly. He said lot prices also have increased 18.5 percent since last year.

The steep prices and interest rates mean it’s harder for a homebuyer in Missoula to afford a home, Stenerson said. For example, to buy a median priced home in Missoula with just 5 percent down and an interest rate of 6.5 percent, a family would need to earn $160,800, according to data from the MOR — but median income is $80,200.

(Stenerson also said it’s a misconception that homebuyers need to put down 20 percent. In fact, she said first time buyers can put down as little as 3 percent, and a return buyer can put down 5 percent.)

In a phone call, Billings Association of Realtors President Dennis Cook said a banker recently told him that every single bump in interest rates is affecting buyers. He said the cost per month can go up as much as $400 in his area.

“It affects people’s payment, and it’s getting to the point where it’s very restrictive for anybody to have the proper down payment if you want to move ahead and sustain a monthly payment,” Cook said.

The median residential price in Billings is $412,832, he said, but the market appears to be softening. Some sellers are dropping their asking prices, but he said the downward trend doesn’t mean it’s easy for buyers given the interest rates.

“It makes for a pretty hefty price still even at that,” Cook said.

NeighborWorks Montana helps homebuyers statewide at the 80 percent to 125 percent area median income, said Katie Biggs, director of operations. Biggs said those people are teachers, firefighters and police officers, and as rates climb, they have less buying power.

“It’s really painful on the interest rate side of things,” she said in a call after the presentation in Missoula.

However, Biggs also said the last two years have been “bonkers,” with cash buyers quickly sealing deals, and the typical NeighborWorks homebuyer unable to compete. Now, she said, prepared and educated buyers have a small window of opportunity at times.

“The rising interest rates have actually helped slow the market a little bit,” Biggs said.