Missoula’s housing situation has reached a critical stage

Missoula Montana is growing. Which, on one hand, is exciting. However, as the population increases, so does the demand for housing. And that’s where Missoula is facing a crisis.

According to a new report released by the Missoula Organization of REALTORS® (MOR), the amount of available homes is at an all-time low, prices are skyrocketing, and most middle-income earners are being priced out.

“If you’re looking at a situation of selling, you’re looking at a situation where you hold the advantage,” Brint Wahlberg, the MOR Housing Report Committee Chair told the Missoula Current. “It’s a sellers’ market with not enough supply to meet the demand.”

Using a metric known as an “absorption rate” – which measures the pace of home sales, taking into account both the days a house is on the market and the number of available homes for sale – Missoula fell below what is considered a normal market range in 2019 and hasn’t recovered.

A normal absorption rate is between three and nine months. At the start of 2019, Missoula was at a 3.36 month supply. However, by May 2019, that rate plunged below three months and remained that way for the remainder of 2019. As of this report there is a 2.62 month supply.

Missoula population has grown more than nine percent since 2009 and the impact on the housing demand has been significant.

One of the results of this high demand was the median sales price for a home in Missoula jumped to $315,000 in 2019, a record and marked the ninth consecutive year Missoula saw a median price increase. At the same time median incomes have not kept pace. Missoula’s median family income range for 2019 was between $51,375 and $73,313, making it challenging buying a home today at $315,000.

MOR’s housing report also provides an affordability index calculation that combines reported incomes by household size, median sales prices, year-end interest rates, and typical expectations for property taxes and insurance. This index considers market affordability for a buyer with a 5% down payment and a buyer with a 20% down payment. Both cases showed continued challenges with affordability. The needed income for a median priced home to be considered affordable for a buyer with a 5% down payment would be $98,123 and for a buyer with a 20% down payment it would be $76,973.

Beside a strong growth in population there are a few other factors that contribute to the Missoula housing challenge. For the last two years there was a significant drop off in new housing construction. Only 459 permits were issued in the city in 2019, relatively flat (463) to 2018; both years are 22 percent lower than the five-year average for Missoula. Driving the decline in new housing was the reduction of Multi-family construction, a mere 197 permits for 2019, and 42 percent below the five-year average. Also contributing was the decline in sale of residential lots, dropping 16 percent, while the median price of a lot jumped more than 28 percent to $115,000.

2019 ended with close to all-time record of home sales (1,504 were sold in 2019, 39 shy of the record set in 2017), and yet the supply was unable to keep up with the demand as evidenced by the continual decline of the absorption rate.

“Anyone reading this report, including myself, might see ongoing challenges in finding affordable housing for many. And yet we live and work in big sky country, meaning as Montanans we have capacity to look beyond the low supply of houses for a median household or the possibility of a virus wanting to relocate here, and instead focus on the significant projects underway.” stated Jim Bachand, CEO of Missoula Organization of REALTORS®.  2019 saw the launch of several projects throughout the community providing potential increases in the available supply in both the rental market and new homes in the coming years.

The great unknown for Missoula moving forward is how great an impact the COVID-19 pandemic will have when it comes to home ownership, family incomes and the overall supply and demand of housing, both to buy and sell as well as to rent.

Early data is mixed as demand remains strong with an absorption rate of 2.62 and homes sold through April up 9.5% year-over-year. What remains to be determined is the sentiment of buyers and sellers going forward as they come out of the stay-at-home directive, with new listing declining 21.3% in the month of April.