While rising mortgage interest rates have slowed the market down a bit, home prices in Missoula are still hitting record highs this year.
The median sales price of homes in the Missoula metropolitan area reached a staggering $533,500 in May, a record 18.5% higher than the median sales price of $450,000 for all homes sold in 2021. In 2020, the number reached $350,000, which at the time made the locals shake their heads in disbelief.
In Missoula County, the median home sale price in May was $550,000.
Brint Wahlberg, a local real estate agent who serves as the first vice president of the Missoula Organization of Realtors, said data shows the amount of time homes are on the market has risen after hitting an all-time low earlier this year.
The median time on the market, the time it takes for a property to be listed on the Multiple Listing Service until it goes under contract, has increased from just seven days in January to 19 days in May.
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“It’s interesting,” he said. “It shows that, in principle, it takes longer for sellers to enter into a contract. People change their expectations and change their price points. Higher mortgage payments are forcing buyers to be more picky.”
He noted that the time a home would be on the market was 156 days in 2011, the bottom of the Great Recession for the Missoula-area market.
The red-hot real estate market here during the pandemic has been fueled in recent years by ultra-low interest rates, allowing people to afford to be impatient.
“For the past few years, people would see a house and say, ‘I have to have it, I don’t care, I’ll buy it,’ and now they’re taking a little more time with it,” explains Wahlberg.
For the first time in a long time, more sellers are forced to lower their asking price from the original list price.
“The other thing we’re seeing more often is we’re seeing more price cuts,” explains Wahlberg. “Last year, to wind down an active listing, that just didn’t happen. Now you see that activity quite regularly.”
According to data from Freddie Mac, a federal residential mortgage company, the 30-year fixed mortgage rate hit an all-time low of 2.65% in January 2021 and has risen to 5.78% as of June 16, although interest rates vary according to the loan. initiator.
Wahlberg said rising rates are making a huge difference in the cost of borrowing money to buy a home.
For example, a $500,000 loan with an interest rate of 3.5% means a monthly principal and interest payment of $2,245. That same loan with an interest rate of 5.5% would be a monthly payment of $2,838.
“So that’s almost $600 more a month,” Wahlberg said. “That’s not an increase of $50 a month. That’s not ‘let’s not eat out so much and cut back a bit’. That is a significant increase.”
That changes buyer behavior, he noted. They will look at taking out smaller loans, and they will look at houses in a lower price range.
“One thing we’ve noticed is that certain price segments are changing,” he said. “If you look at certain spots in the city, it takes a little longer to sell those homes in the $700,000 to $1 million range. That has some ripple effects.”
Homeowners could reasonably expect the potential market value of their home to increase by 20% each year in recent years, he said.
“What is being projected nationally, regionally and locally is that if rates start to rise, and everyone saw it coming, homes will stop rising in value in the 20% range,” he said. “Buyers will have more options and we will see median prices level off and will be in that range of 3-5% of annual gains instead of 20%.”
Another effect Wahlberg has anecdotally seen is that short-term rental properties, such as a house used as an Airbnb, are listed for sale.
“I’ve noticed a handful of vacation rentals are back on the market,” Wahlberg said. “Those are Airbnbs that have taken away properties where Missoulians can live long-term. And maybe the market got a little oversaturated with vacation rentals, so people are starting to dump them because people aren’t getting the returns they thought they would.”
Short-term rental data company AirDNA lists approximately 593 of the vacation rentals in Missoula County, with most clustered in the Missoula metropolitan area.
Because wages can’t keep up with skyrocketing house prices, some locals have founded the Missoula Tenants Union. The group connects people with resources and conducts outreach at the state and local levels about the crisis. The next meeting will be July 6 at 6:00 PM in the Cooper Room of the Missoula Public Library.
Other non-profit organizations in the city are also working on solutions. Trust Montana Inc. of Missoula has won a two-year grant from the Montana Healthcare Foundation to facilitate partnerships between builders and community land trusts. According to Hermina Harold, executive director of Trust Montana, the goal is to increase the number of homes Montanans can afford.
“The effort will create new avenues for Montana’s six Community Land Trust organizations to accelerate efforts for affordable housing,” she said.
Community Land Trusts hold the land under a house or group of houses in a non-profit trust. So, because the homeowners don’t pay for the cost of the land, the houses can be sold at much more affordable prices and kept affordable forever.
Nationally, Community Land Trust homeowners are 10 times less likely to experience foreclosure than homeowners at competitive rates.
Harold said construction professionals interested in leveraging resources to permanently develop affordable housing should contact Bill Henry, the organization and projects coordinator, at 406-201-9178 or email to [email protected]