In Business 090416

FALL 2016

WESTERN MONTANA BUSINESS

SELLER’S MARKET As housing prices in Missoula inch higher and higher, many first-time buyers and even renters are left in the dust.

TOMMY MARTINO, Missoulian

ALSO INSIDE: MISSOULA ORGANIZATION OF REALTORS 2016 REPORT

A2 — Missoulian, Sunday, September 4, 2016

BUSINESS

Home, Work by the Numbers Residential market activity in the Missoula area for July 2016

Industry employment comparisons Super sector

Net Net change change 1 month 1 year

June 2016

July 2015

462,300 7,000 25,400 19,700 94,400 6,200 24,300 40,800 74,200 67,200 62,700 89,900

460,800 8,100 26,400 19,200 94,600 6,400 23,800 40,200 71,400 64,400 62,500 90,1000

-800 0 -400 -200 -1,000 0 -100 600 500 100 500 -400

700 -1,100 -1,400 300 -1,200 -200 400 1,200 3,300 2,900 700 -600

*Not seasonally adjusted NOTE: Total non-agricultural uses the summation of all sectors.

4.2%

4.1%

3.9%

3.4%

7.3%

June 2016

7.4%

4.6%

5.2%

June 2015

4.4%

3.8%

3.9%

Unemployment rate by county

5.0%

Source: Montana Department of Labor and Industry

6.9%

129 132 162 174 189 212

7.3%

$249,900 $239,000 $225,000 $216,000 $205,500 $197,500

8.4%

688 686 613 720 524 416

9.3%

2016 2015 2014 2013 2012 2011

4.8%

Missoula urban area for Jan. 1 through July 31 2016

4.9%

112 135 148 165 185 203

6.2%

$268,000 $247,888 $238,650 $227,000 $211,400 $198,000

Average days on the market

5.4%

128 148 154 168 113 84

Median price

5.1%

2016 2015 2014 2013 2012 2011

Number of sales

5.2%

Year

Total nonfarm 461,500 Mining and logging 7,000 Construction 25,000 Manufacturing 19,500 Trade, transportation, utilities 93,400 Information 6,200 Financial activities 24,200 Professional, business services 41,400 Educational, health services 74,700 Health care and social assistance 67,300 Leisure, hospitality 63,200 Government 89,500

4.1%

Residential market activity in Missoula urban area

3.9%

Residential and residential with acreage

July 2016

Residential market activity in Missoula County Year

Number of sales

2016 2015 2014 2013 2012 2011

172 186 193 202 142 97

Median price

$265,000 $246,888 $237,500 $231,500 $211,000 $194,000

Average days on the market

132 146 147 165 197 198

Missoula County for Jan. 1 through July 31, 2016 2016 2015 2014 2013 2012 2011

889 867 791 894 665 529

$248,000 $236,000 $225,000 $219,500 $205,000 $198,500

144 142 179 180 203 217

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Unemployment in Missoula County, June 2015-June 2016 3.9%

3.6%

3.3%

3.1%

3.3%

3.6%

4.0%

4.7%

4.6%

4.6%

3.4%

3.1%

3.8%

June

July

Aug. Sept.

2015

Oct.

Nov.

Dec.

Jan.

Feb.

March 2016

April

May

June

Unemployment in Montana, June 2015-June 2016 4.1%

3.7%

3.6%

3.4%

3.7%

4.1%

4.3%

5.1%

5.1%

5.0%

3.9%

3.6%

4.2%

June

July

Aug. Sept.

2015

Oct.

Nov.

Dec.

Jan.

Feb.

March 2016

April

May

June

NOTE: Not seasonally adjusted.

Source: U.S. Bureau of Labor Statistics

Source: Missoula Organization of Realtors

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KEN BARNEDT, MISSOULIAN

Fall 2016, Vol. 4, No. 3 Western Montana InBusiness is a publication of the Missoulian

Publisher Mark Heintzelman Editor Kathy Best

Reporter: David Erickson Photographer Tommy Martino

Advertising Jeff Avgeris, (406) 523-5216

Mailing address P.O. Box 8029, Missoula, MT 59807-8029 Phone (406) 523-5240

BUSINESS

Missoulian, Sunday, September 4, 2016 — A3

What happens at the Compete Smart Manufacturing Conference Doesn’t Stay in Montana It just starts here.

HOME HEALTH

Economist: Housing prices affect Missoula’s economy DAVID ERICKSON david.erickson@missoulian.com

He said it’s hard to untangle whether high housing prices create a strong economy or if they are often just a side effect of strong economy.

A lack of housing options in Mis“I’m not saying the economy of soula is driving up prices here like never before, and that trend has wide Missoula is all that strong but it’s in implications for the economy because pretty good shape,” he said.

There are both good and bad ramiit creates challenges for businesses trying to retain workers and may cause fications for the economic health of Missoula if the trend continues. less consumer spending.

“Housing prices clearly make “Something tells me we’ll be talking it more difficult to keep workers, about this 10 years from now,” said modestly paid workers in particular,” Patrick Barkey, the chief economist at the University of Montana’s Bureau Barkey said. “Workers have to be able to live close enough to where jobs are of Business and Economic Research. being created and clearly that’s proved He said that because the economies to be a big issue in the big urban areas. in some of the least affordable You look at Silicon Valley. Everything places in the nation – San Francisco from schoolteachers to service workand New York, for example – are ers of all kinds, they have to travel doing extremely well, people are great distances to be there.” often tempted to conclude that higher housing prices equal a better economy.

See HOUSING, Page A4 Thinkstock illustration

CO-HOSTS

A4 — Missoulian, Sunday, September 4, 2016

Housing

BUSINESS

relatively low cost.

To do that, they need cheap land and agreeable zoning codes. Not everyone appreciates high density From A3 housing being built near their neighborhood, but it’s going to have to happen if Missoulians want affordbe there.” able housing.

Municipalities with unaffordable housing have to According to the Urban Institute, a Denver thinktake extraordinary measures to recruit and retain those tank that recently published a report on the barriers types of workers. to affordable housing, new construction is always too “Missoula is nowhere near that,” Barkey said.

Over the past eight months, the median sale price of expensive to make affordable housing pencil out. That homes in the Missoula urban area has surged up 4 per- means new, affordable housing is almost an oxymoron.

“Development costs a lot of money,” the report cent from $239,500 to the current price of $249,900.

In July alone, the median sales price was $268,000, so reads. “Developers rely on loans and other sources to fund construction before people move in and start the price increases are accelerating.

The housing affordability gap has also been growing paying rent. But developers can only get those loans and equity sources if the development will produce in Missoula. enough revenue to pay back the loans and pay returns From 2012 to 2016, the median price of a home in to investors.

Missoula rose from $209,700 to $249,900. However, The gap between the amount a building is expected the median household income for a single person to produce from rents and the amount developers will has languished right around $44,000 and actually need to pay lenders and investors can stop affordable decreased last year. housing development before it even begins, leaving It would take an income of $80,000 to afford a few options for the millions of low-income families median-priced home with the FHA’s standard 4 looking for safe, affordable homes.” percent down payment, according to the Missoula The problem is even more difficult when you conOrganization of Realtors’ annual housing report.

Barkey said there are two main reasons that “lurk in sider the poorest residents, the report continued.

“In many places, the rent the poorest families can the background” and aren’t brought up very often.

“The first is that we have a whole alphabet soup of primarily federal programs to help people buy houses,” he said.

“Everything from the Federal Housing Authority loans to Frannie Mae and Freddie Mac. You have to travel to other countries to appreciate how different it is here.”

Because lots of people are able to qualify for loans, they are able to buy houses and thus the inventory decreases.

“When you have a restricted supply like we do in Missoula, it pushes up prices,” he said.

“People can get 30-year loans and it tends to show up in price growth.”

The second reason supply is low is because there are restrictions on development, Barkey said.

“I’m not picking on Missoula or Montana because there are a lot of towns like this,” he explained.

“There are clearly communities with a combination of zoning policy and geography that are not real friendly to housing supply.

We’ve had very restrained homebuilding here.”

Barkey said he’s not the only person who has pointed out that housing policy in many cities has failed.

“Basically, what affordable housing policies in communities across the country do is try to subsidize house purchases for people who can’t afford market prices,” he said.

“At least in my opinion, those policies are doomed to failure.

Market prices are the problem.”

Barkey said that for prices to go down so that people can afford housing, developers need to be able to build large subdivisions for a

“Prices are rising faster than incomes and that has consequences.”

Patrick Barkey, the chief economist at the University of Montana’s Bureau of Business and Economic Research pay is too little to cover the costs of operating an apartment building, even if developers could build that building for free,” it said.

“It goes back to buildable lots,” Barkey said. “It might get worse before it gets better.”

Barkey said there haven’t been any new large subdivisions built in Missoula over the past year, likely because there just isn’t an ideal place to put them.

“Those kinds of developments are hard,” he said.

“The one and two houses aren’t going to affect supply anyway.

What you see in community after community is it’s very difficult to get the kind of developments that would make a meaningful impact on the supply of housing and would therefore impact prices.”

The reason, Barkey said, is it’s hard to get huge subdivisions approved by various planning and zoning boards. There are regulations

Thinkstock

A4 — Missoulian, Sunday, September 4, 2016

Housing

BUSINESS

To do that, they need cheap land and agreeable zoning codes. Not everyone appreciates high density housing being built near their neighborhood, but it’s From A3 going to have to happen if Missoulians want affordMunicipalities with unaffordable housing have to take able housing.

According to the Urban Institute, a Denver thinkextraordinary measures to recruit and retain those tank that recently published a report on the barriers types of workers. to affordable housing, new construction is always too “Missoula is nowhere near that,” Barkey said.

Over the past eight months, the median sale price of expensive to make affordable housing pencil out. That homes in the Missoula urban area has surged up 4 per- means new, affordable housing is almost an oxymoron.

“Development costs a lot of money,” the report cent from $239,500 to the current price of $249,900.

In July alone, the median sales price was $268,000, so reads. “Developers rely on loans and other sources to fund construction before people move in and start the price increases are accelerating.

The housing affordability gap has also been growing paying rent. But developers can only get those loans and equity sources if the development will produce in Missoula. enough revenue to pay back the loans and pay returns From 2012 to 2016, the median price of a home in to investors.

Missoula rose from $209,700 to $249,900. However, The gap between the amount a building is expected the median household income for a single person to produce from rents and the amount developers will has languished right around $44,000 and actually need to pay lenders and investors can stop affordable decreased last year. housing development before it even begins, leaving It would take an income of $80,000 to afford a few options for the millions of low-income families median-priced home with the FHA’s standard 4 looking for safe, affordable homes.” percent down payment, according to the Missoula The problem is even more difficult when you conOrganization of Realtors’ annual housing report.

Barkey said there are two main reasons that “lurk in sider the poorest residents, the report continued.

“In many places, the rent the poorest families can the background” and aren’t brought up very often. pay is too little to cover the costs of operating an “The first is that we have a whole alphabet soup of primarily federal programs to help people buy houses,” he said.

“Everything from the Federal Housing Authority loans to Frannie Mae and Freddie Mac. You have to travel to other countries to appreciate how different it is here.”

Because lots of people are able to qualify for loans, they are able to buy houses and thus the inventory decreases.

“When you have a restricted supply like we do in Missoula, it pushes up prices,” he said.

“People can get 30-year loans and it tends to show up in price growth.”

The second reason supply is low is because there are restrictions on development, Barkey said.

“I’m not picking on Missoula or Montana because there are a lot of towns like this,” he explained.

“There are clearly communities with a combination of zoning policy and geography that are not real friendly to housing supply.

We’ve had very restrained homebuilding here.”

Barkey said he’s not the only person who has pointed out that housing policy in many cities has failed.

“Basically, what affordable housing policies in communities across the country do is try to subsidize house purchases for people who can’t afford market prices,” he said.

“At least in my opinion, those policies are doomed to failure.

Market prices are the problem.”

Barkey said that for prices to go down so that people can afford housing, developers need to be able to build large subdivisions for a relatively low cost.

“Prices are rising faster than incomes and that has consequences.”

Patrick Barkey, the chief economist at the University of Montana’s Bureau of Business and Economic Research apartment building, even if developers could build that building for free,” it said.

“It goes back to buildable lots,” Barkey said. “It might get worse before it gets better.”

Barkey said there haven’t been any new large subdivisions built in Missoula over the past year, likely because there just isn’t an ideal place to put them.

“Those kinds of developments are hard,” he said. “The one and two houses aren’t going to affect supply anyway.

What you see in community after community is it’s very difficult to get the kind of developments that would make a meaningful impact on the supply of housing and would therefore impact prices.”

The reason, Barkey said, is it’s hard to get huge subdivisions approved by various planning and zoning boards.

There are regulations See HOUSING, Page A6

Thinkstock

BUSINESS

Missoulian, Sunday, September 4, 2016 — A5

LIMITED OPTIONS

“Something like 30 (percent) to 40 percent of the population is overburdened, meaning they are paying more than 30 percent of their monthly income to housing. I saw someone post a picture of a discarded mattress.

The caption said ‘home for rent in Missoula for $1,400 a month, bring your firstborn for a security deposit.’ That’s one of my favorite anecdotes because it’s a joke but it rings true for so many people.”

DAVID ERICKSON david.erickson@missoulian.com

Beth Hayes, an attorney in Missoula, decided she was tired of renting this past March and started looking to buy a place of her own. Little did she realize how frustrating the process would be.

“Oh boy,” she recalled. “It seemed like literally within minutes of getting listed, the places I looked at would have multiple offers. It was discouraging.”

Hayes said she looked at between 12 and 15 different houses, and all her offers throughout the spring got rejected because someone else offered to pay more.

“You would see a house listed at $179,000 and you knew you could never get it for that,” she said. “You would have to offer $10,000 more than the listing price. It became a joke. I was basically trying to buy a house a week.”

It’s a story that is not unique to Hayes. A lack of housing inventory in Missoula combined with a rising population and rising wages means that more and more people are clamoring for fewer places to live. It’s an easy recipe for rising prices.

Hayes said in one of the places she rented in Missoula, the landlords would jack up the price between $50 and $100 every year.

A total of 54.3 percent of renters here spend more than a third of their income on housing, and in Missoula, renters make up 52 percent of all occupants.

According to the Missoula Organization of Realtors, rents for all types of housing increased across the board in Missoula by 2.7 percent in 2015.

However, the average rent for a one-bedroom apartment in a multiplex rose from $615 to $664 per month, or about 8 percent. A two-bedroom in a larger

Missoula renters face tough times

Thinkstock

complex increased from $752 to $767, or about 2 percent.

Rental vacancy rates are low in Missoula. In 2015, the overall vacancy rate increased slightly from 3.9 percent to 4.1 percent.

But Lori Davidson of the Missoula Housing Authority says the rate is now hovering around 3 percent.

That means landlords have all the leverage when they want to raise rents and people have an extremely tough time finding a suitable place to live within their budget, especially if they want a certain location or have pets.

“It’s a jungle out there,” Davidson said. “It’s really tough.”

The national average vacancy rate last year was 7.1 percent and the state average was 3.9 percent. The Missoula Organization of Realtors puts it succinctly: “The vacancy rate would likely

have to increase significantly to slow or reverse the rise in rental prices.”

Davidson said the vacancy rate for affordable housing in Missoula, which is subsidized by the government, is virtually zero. Low-income people are given vouchers by the MHA to help them offset market-rate rentals, but even they can’t find places to live.

“For the first time I can remember, voucher holders are having trouble finding places to rent because there are so few available,” Davidson said.

“I couldn’t give you statistics, but anecdotally rent prices have gone up 10 (percent) to 14 percent this year.”

Davidson said not enough housing is getting built to keep pace with demand.

“That’s partly because land prices are so high,” she said.

“And not enough land is zoned for multi-family. We’ve been singing this song for 15 years, maybe longer, but it’s never been more true. When developers are actively seeking land to build a project on they are not having luck finding anything. It’s not on the market.”

Mayor John Engen recently announced the hiring of a new city-wide housing director and the City Council is in the process of rewriting some zoning laws. Davidson said she’s hopeful those moves help address the issue, but the bottom line is there needs to be more housing built here.

“We need to add to the stock, there’s no doubt about it,” she said. “The funding sources for building affordable housing are really limited. And many funding sources are competitive at the state level. It’s really hard to

Lori Davidson of the Missoula Housing Authority compete for those.”

The Housing Authority is in the process of remodeling more than 200 of its units to make them more modern and bring them up to code, but it’s not going to help as much as a new development would. Davidson said her office would be able to start construction on new housing if she could find land cheap enough to make the project pencil out. So far though, that hasn’t happened.

“We are always looking for land that is big enough that we could build,” she said. “But one of the things that can tank a project is not having land.

That can kill a project right off the bat. Because you also have the architectural fees and the cost of financing and things like that.”

See OPTIONS, Page A6

A6 — Missoulian, Sunday, September 4, 2016

BUSINESS

Housing

Many commercial buyers decide that they have to simply build something From A4 to suit their needs rather than try to take over a and protests by neighbors property, he said, and who don’t want higher that means there are density in their backyard. fewer and fewer buildable “It’s been that way lots available. for a long time,” he said.

Then, the property “It’s also compounded they moved out of is now by geography. We are so empty and somebody has close to the mountains to find a use for it. here. It also affects places The Missoula Food like Bozeman, which is Bank is a good example. relatively flat and has The nonprofit decided to higher housing prices. It construct a new building, comes back to buildable but its old building on 2nd lots. If you think of all the Street will be empty in buildable lots here, there the near future. It lacks aren’t that many.” parking, and the interior Barkey said that people might not be suitable to are being forced to have potential tenants. roommates, settle for “When people are lookless adequate housing or ing for commercial real live farther away as home estate, their needs are way affordability falls. more specific,” he said.

“People buy the amount “There is a shortage of of housing they can buildable lots. afford,” he said. “It’s the People assume that if same way with gas. When you have a lot that’s zoned it gets more expensive, commercial that makes you buy less gas. People TOMMY MARTINO, Missoulian it more valuable. But economize on housing in The median sale price of homes in the Missoula urban area has surged up 4 percent in the past eight months from because the residential whatever way they can.” $239,500 to the current price of $249,900. market is so tight it’s If an individual or a really worth more as a family is collectively paypast, and he’s been in the place you could build with residential homes a real estate agent with ing more than 30 percent That means for the rest, apartment buildings to say the average price is business for 15 years. they are spending less on Berkshire Hathaway of their income toward or homes.”

“There has been a sigup,” he said. consumer goods, savings, HomeServices. He said housing every month, Bryan said that a large nificant uptick in volume “There is a change in cars and other things that there aren’t any official they are what the U.S. commercially-zoned over the last 18 months,” the product mix on an stats for commercial real boost the economy.

Department of Housing property on North Scott annual basis and Missoula he said. “My belief is “Prices are rising faster estate here like there are and Urban Developprices haven’t appreciated Street was recently with residential property. isn’t big enough to add than incomes and that ment considers “housgreatly but stabilized, and bought by a developer credibility to that.”

“Because of the size of has consequences,” Baring stressed.” the market is trending up. who decided it was more However, Bryan said our market and the fact key concluded.

Only 27.2 percent of valuable to build houses.

There isn’t a graph I can there’s been a lot more that each commercial The commercial real Missoula homeowners pay “So the commercial activity in the commercial point to, but there is less property is radically estate market is also less than 30 percent of lease space available than zoning was absolutely market here since 2015 different, we don’t have fairly tight in Missoula, their income on monthly meaningless,” he said. there was.” than he’s seen in years according to Mike Bryan, enough data like we do mortgage payments.

Options From A5

Davidson said more than 40 percent of Missoula residents could qualify for low and moderateincome housing.

“Something like 30 (percent) to 40 percent of the population is overburdened, meaning they

are paying more than 30 percent of their monthly income to housing,” she said. “I saw someone post a picture of a discarded mattress. The caption said ‘home for rent in Missoula for $1,400 a month, bring your firstborn for a security deposit.’ That’s one of my favorite anecdotes because it’s a joke but it rings true for so many people.”

For those who want the stability of owning their own place so they can’t be subjected to evictions or price hikes, the options are limited. Hayes said that her real estate agent, Shannon Hilliard, warned her that it was a seller’s market.

“I knew in the price range I was looking in, stuff would move pretty quickly,” Hayes recalled.

“My realtor prepared me for that. But every time I made an offer, it seemed like five or more other offers came in. I tried to buy three houses before the one I actually bought.”

Hayes said the process was draining.

“Everybody said don’t be emotional,” she said. “But you start to envision your life in a house and then,

nope, you can’t have it. It was very discouraging. It was kind of depressing.”

More and more people might be tempted to go above and beyond what they can actually afford in a market like this.

“I can see how people would very easily get caught up in ‘what’s another $5,000 or $10,000?’ and go over their

budget,” she said.

For a lawyer to have so much trouble finding housing doesn’t bode well for Missoula’s economy if workers decide not to move here due to the tight market.

“If a young professional person has a hard time buying a house, what does that mean for everyone else?” Hayes asked.

Missoulian, Sunday, September 4, 2016 — A7

BUSINESS HIGHLIGHTS FROM THE 2016 MISSOULA HOUSING REPORT

Development at standstill, rental prices up, housing supply tight MISSOULA ORGANIZATION OF REALTORS

Housing Supply: Development & Occupancy As the supply of affordable real estate tightens, more buyers are opting to build. In 2015, residential lot sales increased by 32 percent and their median price rose by 7.6 percent to $85,000.

The city of Missoula issued more single-family building permits in 2015 than the previous year, but the overall number of building permits issued by both the city of Missoula and the county dropped slightly. Multi-family units continue to make up the bulk of new development.

Subdivision development projects hit a near standstill in 2014, and 2015 proved even slower with only one project approved. However, many developers are now using an exemption to build townhouses classified as “units” rather than lots, thus affecting these numbers.

In Missoula County, owners occupy about 60 percent of the units while in the city of Missoula, renters make up a narrow majority – about 52 percent – of occupants.

Housing Demand: Population & Income Missoula’s population continues to increase by about 1 percent each year, as it has for the last 15 years. Missoula County’s most recent population figure, from 2014, was 112,684.

city of missoula building permits multi family

600

duplex 500

single family

400 300 200 100 0

2010

2011

2012

FIGURE 3

2013

2014

2015

Source: City of Missoula Building Department

Missoula County Building Permits 250 single family 200

Thinkstock

duplex multi family

150

Bull’s Eye!

100 50 2010 FIGURE 4

2011

2012

2013

2014

2015

Source: Missoula County Building Department

FIGURE 3: The total number of building permits issued by the city decreased 3.4 percent in 2015. FIGURE 4:The total number of building permits issued by Missoula County decreased 22.8 percent in 2015, but multi-family unit permits increased significantly.

development projects FY13 FY14

FY15

County Subdivisions

6

1

1

County Residential Lots Approved

95

3

1

City Subdivisions

2

0

0

City Residential Lots Approved

4

0

0

Total Residential Lots

99

3

1

TABLE 2

Source: Missoula County & City of Missoula

TABLE 2: Only one subdivision was approved in See REPORT, Page A8 Missoula in 2015.

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A8 — Missoulian, Sunday, September 4, 2016

rental Vacancy Rates Quarterly

5%

6%

2014

5%

2015

2013 2014 2015

7%

2013

7%

6%

4%

5%

3%

4%

4%

2%

3%

3% 2%

1%

2%

2012

1% 0%

Rental Vacancy Rate by Type

annual Vacancy Rates

8%

2012

8%

BUSINESS

2013

2014

2015

0% Quarter 1

Quarter 2

Quarter 3

FIGURE 11

FIGURE 11: The vacancy rate grew in each successive quarter of 2015, from 1.8 percent at the start the year to 5.6 percent at the end.

Report From A7

The median household income in Missoula was $47,029 – nearly equal to that of Montana households but below the U.S. median income. Missoula renters face a more difficult situation, with a median household income of only $27,606, below both the state and national medians.

The poverty level – or percentage of Missoulians living in federally defined poverty – dropped to 16 percent, from 18 percent the prior year.

Homelessness, while down slightly in 2015, remains a problem for about 500 Missoulians, and a central part of that condition is lack of affordable housing.

Rental Housing Rental vacancy rates in Missoula remained well below the national average, although Missoula’s rates did rise from 3.9 percent in 2014 to 4.1 percent in 2015.

The issue of rental affordability occurs repeatedly in this year’s report. The average cost of rent increased in nearly every type of unit, and nearly half of all Missoula

0%

Quarter 4 Annual Average

Source: Western Montana Chapter of NARPM

FIGURE 12

Source: Western Montana Chapter of NARPM

FIGURE 12: Annual rental vacancy rates remain low in Missoula, increasing only slightly from 3.9 percent in 2014 to 4.1 percent in 2015.

Studios

1 Bedroom 2 Bedroom 3 Bedroom 4+ Bedroom

FIGURE 14

Source: Western Montana Chapter of NARPM

FIGURE 14: Two bedroom units saw an increase in vacancy rates in 2015.

Number of Sales Price Range Breakout Missoula

renters spent an inadvisable 30-plus percent of their income on housing costs in 2015.

The Missoula Housing Authority is now successfully supporting all 774 of its Section 8 vouchers to subsidize rent, yet its waiting list for this assistance grew by 8 percent in 2015, with 1,725 households waiting for help.

600 500 $200-$275,000

400

$150-$200,000 300

$275-$350,000 $0-$150,000 $350-$425,000 $425,001 +

200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 FIGURE 20

Source: MOR Multiple Listing Service

FIGURE 20: Home sales in the $200,000 to $275,000 category now solidly outnumber all other price ranges.

Housing Sales & Prices The real estate market in Missoula picked up in 2015, with increased sales activity and a median sales price that climbed to a record high for the Missoula area – $238,700.

The largest number of sales occurred in the $200,000 to $275,000 price range, but demand for these more affordable homes outstrips the actual supply, and that has created a sellers’ market for most price points under $275,000.

More expensive homes had a challenged market until the third and fourth quarter of 2015, when the absorption rate finally fell into a more normal range.

Meanwhile, singlefamily homes in Missoula are steadily appreciating, with repeat home prices higher than other Montana markets and the

1%

the national average for renters. Only 27.2 percent of Missoula homeowners are in this position.

national average.

Housing Finance While many consumers anticipated a significant rise in interest rates in 2015 and thus felt the urgency to make a home purchase, mortgage rates actually remained affordable throughout the year. The year-end interest rate for a 30-year conventional loan was 4.19 percent.

Foreclosures in Missoula declined by 16 percent in 2015, marking the lowest level in 10 years. This kind of stability is due in part to more stringent lending guidelines and overall economic recovery.

permits have made up the majority of new development in the City of Missoula. In 2015, 292 new Housing Affordability multi-family units were Pace of Development permitted. In addition, The Missoula Housing county building permits Affordability Index pointed This is the second year for multi-family units to a decrease in the afford- this report has tracked increased from just one in ability of Missoula homes building permits and 2014 to 45 in 2015. in 2015, as it measured the development projects to Single-family building ability of a family earning a understand the pace of permits in the City of median income to purchase development in Missoula. a median-priced home.

The total number of build- Missoula continued their steady increase from 2012, While it is generally ing permits issued by the accepted that no more than City of Missoula decreased with 176 permits issued in 2015. The county’s permits 30 percent of a household’s 3.4 percent, from 490 for single-family homes gross monthly income permits in 2014 to 473 in did decline by 49 percent should go toward housing 2015. The total number of costs, a worrisome propor- building permits issued by in 2015, but that was after tion of Missoula residents Missoula County decreased significant increase in 2014.

For the second year rundo just that. Missoula 22.8 percent, to 145 in 2015; ning, subdivision projects renters are the worst off, however, that was followremained unpopular in with 54.3 percent putting ing a 90 percent increase both the county and city, more than a third of their in 2014. income toward housing.

For the last three years, However, that is close to multi-family building See REPORT, Page A9

Missoulian, Sunday, September 4, 2016 — A9

BUSINESS

Number of Sales According to Price Point, 2006-2015

average cost of rent

price range

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

$0-$150,000

289

170

121

126

131

174

188

196

156

145

1 Bedroom

$150,001-$200,000

472

405

301

358

323

251

295

387

317

276

2 Bedroom

$200,001-$275,000

439

429

297

327

247

258

304

406

414

513

$275,001-$350,000

197

199

166

125

120

112

160

186

196

244

$350,001-$425,000

96

87

47

48

42

49

57

79

89

104

$425,001 +

93

102

64

49

40

33

64

68

93

108

total

1586

1392

996

1033

903

877

1068

1322

1265

1390

HOUSES

Studios

3 Bedroom 4+ Bedroom Studios

2013

DUPLEXES

2014 1 Bedroom

TABLE 5

2015

2 Bedroom

TABLE 5: Home sales were strongest in the $200,000 to $275,000 price range in 2015.

3 Bedroom

Report

4+ Bedroom

Studios MULTIPLEXES

Source: First Security Bank, Stewart Title

1 Bedroom 2 Bedroom 3 Bedroom 4+ Bedroom $0

FIGURE 15

$300

$600

$900

$1200

$1500

Source: Western Montana Chapter of NARPM

FIGURE 15: The average cost of rent increased in all but two categories in 2015, both of which are statistical outliers.

institutions being more familiar with the process.

percent at the start the year to 5.6 percent at the end.

From A8 The slight increase in vacancy rates may be with only one county sub- Rental Occupancy the result of a number division being recorded.

Rental vacancy rates of factors, including the However, it is important remain low in Missoula. to note that Montana law The overall annual vacancy decline in enrollment at the University of Montana allows the use of an exemp- rate did increase slightly tion to classify townhomes from 3.9 percent in 2014 to or the addition of more units into the market. A as units, rather than lots, 4.1 percent in 2015. How4.1 percent overall vacancy within incorporated cities ever, the fourth quarter rate is still considered very and towns on zoned lands. saw a significantly higher low (the national average This continued to be a vacancy rate (5.6 percent) in 2015 was 7.1 percent popular process and has than in previous years. allowed city development In 2015, the rates did not and in Montana, it was 3.9 percent), and the slight on infill within the city. A follow the typical vacancy increase in vacancy has had total of 165 new units were spike in the summer as no effect on lowering the approved through this people move, which is process in 2015, a signifinormally followed by lower price of rent at this point.

The vacancy rate would cant jump from 33 units in rates as school starts and 2014. The popularity of this people settle in for the win- likely have to increase significantly to slow or reverse development tool may be ter. Instead, the vacancy due, in part, to developers, rate grew in each successive the rise in rental prices. reviewers, and lending quarter of 2015, from 1.8

View all our special publications at missoulian.com/special-section

Rental Prices As has been the trend for the last several years, the average rent increased in nearly every category in 2015. With the exception of a few statistical outliers (rare single-family “studio” homes and fourbedroom apartments), rents increased across the board by an average of 2.7 percent.

The average rent for a one-bedroom apartment in a multiplex rose from $615 to $664, or about 8 percent. A two-bedroom in a larger complex increased from $752 to $767, or about 2 percent.

It should be noted that See REPORT, Page A10

A10 — Missoulian, Sunday, September 4, 2016

Report

Home Sales by Neighborhood

From A9

reporting practices do not account for incentives, like move-in bonuses or other marketing methods, that may be used to attract renters.

BUSINESS

Rattlesnake 2011

Downtown/Northside

2012 2013

U-Area/Slant

2014

Condominiums & Townhouses

2015

Fairviews/S.Hills

Sales of condominiums Lewis & Clark and townhomes in 2015 were identical to those of the prior year, with 180 sold Central Missoula in the Missoula urban area.

Likewise, price distribution was nearly identical to last Miller Creek year: Townhomes and condos priced from $100,000 Target Range to $200,000 accounted for nearly 68 percent of the total sales.

Mullan Rd./Expressway Condos and townhomes are becoming the new starter home. With lower Grant Creek median sales prices than a single- family house, both Lolo condos and townhomes offer more affordable paths to ownership.

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E.Missoula/Clinton

Sales Trends in Neighborhoods

0

50

100

150

200

250

300

Given the increase in Source: MOR Multiple Listing Service FIGURE 24 total sales across Missoula in 2015, it follows that FIGURE 24: All but three neighborhoods in Missoula most neighborhoods also had increased sales in 2015. saw an increase in sales.

The Fairviews/South Hills neighborhood registered Condominium & Townhouse the biggest jump, with 2015 Sales in Missoula Urban Area sales increasing 20 percent, to 180 homes sold. $0-100,000 250 Grant Creek, Miller $100-150,000 Creek, and the Rattlesnake $150-200,000 200 continue to have the high$200,000+ est median prices.

150 Supply and demand greatly affect these neigh100 borhoods, as well, with several having extremely tight supplies.

50

Pace of Home Sales The absorption rate is one of the best ways to measure the pace of home sales, as it takes into account both the days a See REPORT, Page A11

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FIGURE 23

Source: MOR Multiple Listing Service

FIGURE 23: For the third year in a row, condominium and townhouse sales remained strong.

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Missoulian, Sunday, September 4, 2016 — A11

BUSINESS

6 month absorption rates 8/10/15 to 2/10/16 Normal Supply South Hills U-Area / Slant Central Missoula Lolo Miller Creek L&C / Farviews Mullan / Expressway East Missoula Target Range / Big Flat Rattlesnake Grant Creek Downtown / N. side

1.28 3.82 2.33 2.54 7.20 2.29 2.98 3.23 10.26 1.94 3.27 4.33 0

1

2

FIGURE 29

Thinkstock

Report From A10

house is on the market and the number of available homes for sale. It is calculated by dividing the total number of available homes on the market by the number of homes sold in the prior month. The resulting absorption rate shows how many months’ worth of inventory are listed for sale.

For example, if an area had 20 listings and five sales in the last 30 days, the absorption rate would be four, meaning that, based on the market’s prior activity, it would take four months to exhaust the supply of current inventory.

As a general rule, the absorption rate defines various market conditions: ■ Under three months is an under-supply.

■ Three to nine months is a normal market.

■ Nine to 12 months is an over-supply.

■ More than 12 months is an overloaded market.

Missoula once again remained in a “normal” range for the overall

supply in 2015 but when you break it down by price point or neighborhood, many of those categories dipped well into the under-supply category. All but two Missoula neighborhoods had an absorption rate below five when calculated for the six months ending in early February 2016. As expected, throughout 2015, homes priced below $275,000 were in high demand and short supply, and the absorption rates by price point bear that out Likewise, the neighborhoods with homes in that desirable under-$275,000 showed an extremely tight supply – the South Hills, Mullan Road/ Expressway, Lolo, and Central Missoula. It’s worth noting that in 2014, the Lolo neighborhood had the highest absorption rates at 7.53; in 2015 it was 2.54.

Two other neighborhoods continue to have very low absorption rates. The Rattlesnake and Lewis and Clark neighborhoods both have broad appeal due to their location and have remained strong through most of the downturn and recovery.

At the other end of the price

range, higher-priced homes were in over-supply most of 2015. Until recently, the supply of houses priced over $425,000 was still more than double the normal level, but in the fourth quarter of 2015, the absorption rate dropped to a healthy, normal level.

3

4

5

6

7

8

9

10

Source: MOR Multiple Listing Service

FIGURE 29: All but two Missoula neighborhoods had an absorption rate below five when calculated for the six months ending in early February 2016.

still faces a number of other challenges, mostly having to do with affordability and available supply.

While several organizations are working hard to alleviate issues of affordability and homelessness, the demand for their services remains significant. The waitlist for Section 8 vouchers increased Conclusions and Outlook by 8 percent in 2015, and the homeless population was estiMissoula’s housing situation mated to be around 500 people. has improved greatly in many As the county’s population ways in the last few years, rebounding from the burst of the increases by about 1 percent each year, housing demand also grows. housing bubble. In 2015, sales were up, foreclosures were down, Missoula’s vacancy rate for rentals remains relatively low, and the interest rates stayed low, and the market value of homes continued cost of rent continues to increase. to increase. However, that strong However, most of Missoula’s building permits in 2015 went real estate market, coupled with a growing population, also brings towards multi-family units, which may help address the growing with it affordability and houspopulation. ing supply challenges. Both the Meanwhile, the data show that number of sales and the median price of a home increased in 2015, 54.3 percent of renters and 27.2 percent of homeowners spend with the median price hitting more than 30 percent of their an all-time high of $238,700. income on housing costs. (IdeProspective homebuyers found a tight supply of affordable houses ally, they should spend no more than 25 percent of their income in Missoula, and many buyers on housing.) This shows that opted to build instead, with lots sales and the median price of resi- Missoula still has a significant dential lots also increasing in 2015. population that struggles to find affordable housing.

The Missoula housing market

Overall, 2015 statistics showed many positive trends for the Missoula housing market and the economy, but they also highlighted a number of challenges for buyers and renters. With strong programs working on affordability and homelessness issues, it is clear that Missoula is striving to create a vibrant community that we can all call home.

A copy of the full 2016 Missoula Housing Report may be found at: http://www.missoularealestate. com/market-trends/missoulahousing-report/.

This report was produced by the Missoula Organization of Realtors with assistance from the University of Montana Bureau of Business and Economic Research. It includes data from the U.S. Census Bureau, the U.S. Department of Housing and Urban Development, the U.S. Office of Federal Housing Financing Agency, the Montana Department of Labor and Industry, the Western Montana Chapter of the National Association of Residential Property Managers, the Missoula Housing Authority and the Missoula Multiple Listing Service.

A12 — Missoulian, Sunday, September 4, 2016

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