Missoula home prices jump 8.1 percent to record high in 2018; market remains tight
Missoula's tight housing market helped push the median price of a home to a record high of $290,000 last year, marking the eighth year in a row where the cost of buying a home has climbed, the Missoula Organization of Realtors said Thursday.
At the same time, slightly fewer homes sold in 2018 when compared to the year before, and the number of housing permits fell by a whopping 31 percent. The vacancy rate in rental housing also ticked up by nearly 1 percentage point.
The data was included in Thursday's release of the 2019 Missoula Housing Report.
“The median sales price is at a new high – we've set a new record,” Brint Wahlberg said Thursday. “That represented an 8.1 percent increase in the median sales price in one year.”
Wahlberg, an agent with Windermere Real Estate and a member of the Missoula Organization of Realtors steering committee, said a number of factors are contributing to Missoula's rising housing costs.
Land prices are climbing, developers have struggled to get new building permits approved, and Missoula's strong economy encourages higher home prices.
But the single largest factor remains Missoula's limited housing stock.
“A lot of this is related to supply,” Wahlberg said. “The lack of available options, especially in more affordable price ranges, makes it a more competitive market. People are continuing to pay as close to full price across the whole market as we saw even before the real estate bubble burst.”
Wahlberg said a number of data points back the assertion that Missoula's housing shortage continues to influence prices. The number of homes sold in 2018 dropped 4 percent over the prior year, even as the median income among homebuyers increased.
Homes valued between $200,000 and $250,000 saw the largest portion of area sales. It's at those prices where families earning close to the area median income of $54,000 can most afford to buy a home. But it's also at such prices where housing has become difficult to find and obtain.
“What does it mean when you're short on supply?” Wahlberg said. “Buyers have less options, and when buyers have less options and the right listing comes up, they have to be more competitive. They have to pay closer to full (price) or go over full. There's less options, there's less sales and there's less activity.”
Housing affordability also has impacted the rental market. The vacancy rate increased to 3.9 percent last year and rent prices dropped around 1.5 percent. Still, nearly half of all renters currently spend more than 30 percent of their income on rent.
Across the listing area, renters represent 49 percent of the housing market, and half of those renters are considered cost burdened based upon their household income. That equates to around 7,520 households.
“They're in a tight situation because they won't have enough money to pay for transportation, education, food, medical, savings, all kinds of stuff,” said Jim McGrath of the Missoula Housing Authority. “Half the people rent, and half of those people are paying too much money relative to their household income.”
Housing experts and those in the real estate business agree that boosting the city's supply of housing across all price points could have a positive effect on the market, favoring both buyers and renters.
But those on Thursday's panel said builders have had a difficult time getting projects approved by the city and finding buildable lots. Like homes, land values also continue to climb. The median price of a residential lot now stands at $90,000.
In the last five years, according to the data, the city has approved just four subdivisions. Last year, 46 residential lots won final plat approval, the lowest number in five years and well below the 200 lots approved in 2015.
“Builders would build more houses if they had more opportunities to do so,” said Paul Forsting. “If there were more lots available, we'd have more opportunity to create more houses and put them on the market. And that opportunity is diminishing.”
Forsting, a member of the coordinating committee with Territorial Landworks, said developers are using the city's inventory of approved building lots, though it's not easy to get new lots cleared for future projects.
“The balance between development – the push-pull of regulations – all that adds cost and uncertainty and it's one of the many factors that make housing expensive,” Forsting said. “If we can come up with a way of reducing the friction from when someone says they want to develop a lot to when they can actually do that development, we'd create more opportunities for housing in our community.”
For homes already built, the Mullan Road and Expressway corridor saw the greatest sales volume in 2018, outpacing several other neighborhoods combined. It's also there where the median sales price remains below that of the larger metro area, meaning homes in that corridor are generally more affordable.
Central Missoula, the South Hills and the Northside neighborhoods also have median sales prices below the market as a whole at around $250,000. Grant Creek, Miller Creek and the Rattlesnake remained the city's most expensive neighborhoods, with median prices at $375,000 and up.
“The area where we see most of our sales volume is the Mullan and Expressway corridor,” Wahlberg said. “It's where the land is, it's where the services are and where our development has gone. It's the direction Missoula is growing.”
The city's more affordable neighborhoods also remain a seller's market, effectively driving up the median price.
“Based upon listings and recent sales, your prime market of $150,000 to $250,000 has at or less than one month of current supply, which is incredibly low,” Wahlberg said. “It's a seller’s market. You have a lack of options, a lot of buyers and you can ask a higher price. If you have something at $500,000 or more, it's a different story.”