Lack of inventory, prices, high interest rates vex Missoula’s housing market

Martin Kidston

(Missoula Current) Home values in Missoula leveled off in 2022 and the number of sales fell as interest rates climbed, the Missoula Organization of Realtors said Wednesday.

But Missoula still faces a supply gap of more than 200 homes and prices are still dancing near an all-time high with a median home value at roughly $520,000.

Added up and the demand for housing in Missoula hasn't faded, though prices, interest rates and the lack of supply continue to vex some buyers.

“Housing supply is insufficient to meet current community demand. There's no single factor driving this imbalance between supply and demand,” said Kelley McDonald, president of MOR. “Regardless of any single factor, the combined results are a continued strain on members of our community wanting homes they can afford.”

The median sales price of a Missoula home had crept up to $525,000 in 2022 before slipping back to $520,000 by year's end. But it still represents a nearly 16% increase over the prior year.

Brint Wahlberg, a member of the MOR data committee, broke it down by housing type, saying the median price of a single-family home stands at $558,000 while the median price of a townhome has climbed to $521,000.

The median sales price of a condominium sits at $330,000.

“The increase in median prices have slowed from what we saw in terms of price increases in previous years, but it's still a pretty significant jump,” Wahlberg said.

While prices may be leveling off, at least for now, interest rates have taken a bite from the industry. Interest rates last year climbed from 3.25% to nearly 6.6% – a rate not seen since the early 2000s.

Current home costs, a lack of supply and high interest rates led to a 12.5% decline in total home sales in 2022. That amounts to more than 300 fewer homes sold throughout the year, Wahlberg said.

“Our sales volume this past year was the lowest we've had since 2012. And that was our last year of coming off the floor from the housing bubble,” Wahlberg said. “It's a supply challenge.”

Rental Market

On the rental side, 2022 saw a surge in multi-family building permits. Still, the rental market remained tight most of the year with an average vacancy rate of just 1.2%, though it climbed slightly to 2.4% during the last quarter of 2022.

A healthy vacancy rate is 5% to 8%, the organization said during the presentation of its annual housing report.

“The last time we saw any segment of the market near 5% was 2018, when we saw a lot of new multi-family builds delivered,” said Josh Plum with Plum Property Management. “Those vacancy rates quickly dropped as they absorbed into the market. Hopefully we'll see some new projects launching this year that were delayed due to construction costs, labor costs and pandemic related issues.”

Given the tight rental market, average rents increased more than 11% in 2022, including a nearly 10% increase in renting a 2-bedroom house and a 16% increase in renting a 2-bedroom apartment.

The cost of renting a four-bedroom unit crossed the $2,000 median monthly price point for the first time, Plumb said. However, rent increases were showing signs of slowing toward the end of 2022.

“A double-digit price increase is huge, even for post pandemic,” said Plum.

Housing attainability

While local wages are climbing, so too are housing prices. As a result, the city's housing affordability index remains challenged, according to area lenders.

The index measures what a typical family earning a median wage can spend on a typical home without placing more than 30% of their earnings into a monthly mortgage.

“The combination of our median home price increasing over 15% and the interest rates doubling over the last year have made a median-priced home far less attainable,” said Lynn Stenerson, a lender with Stockman Bank.

With the median price of home now $520,000, Stenerson said that based on current interest rates, a family with 5% down would need to earn $161,000 a year in annual gross income. A family with 20% down would need to earn $134,000.

In comparison, the median family income for Missoula in 2022 was $82,000, according to Census data. Buyers in both scenarios would be tens of thousands of dollars short of buying the property.

“Housing attainability for buyers with a median income continues to be a challenge, unfortunately,” Stenerson concluded.