Missoula housing prices hit $533,500 in May; market sees some slowdown due to interest rates

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Although rising mortgage interest rates have slowed down the market a little bit, home prices in Missoula are still setting high-point records so far this year.

The median home sales price in the Missoula Urban Area hit a dizzying $533,500 in May, a record that’s 18.5% higher than the median sales price of $450,000 for all homes sold in 2021. In 2020, the number stood at $350,000, which at the time had locals shaking their heads in disbelief.

In Missoula County overall, the median home sales price was $550,000 in May.

Brint Wahlberg, a local Realtor who serves as the first vice president of the Missoula Organization of Realtors, said data shows that the amount of time homes sit on the market has been rising after hitting an all-time low earlier this year.

The median time on market, the time it takes a property to go from getting listed on the Multiple Listing Service to the time it goes under contract, has risen from just seven days in January to 19 days in May.

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“It’s interesting,” he said. “It shows that, basically, it’s taking longer for sellers to get under contract. People are changing their expectations and changing their price points. With increased mortgage payments, buyers are forced to become a little more picky.”

He noted that the time a home would sit on the market was at 156 days back in 2011, at the bottom of the Great Recession for the Missoula area market.

The red-hot real estate market here during the pandemic was supercharged by ultra-low interest rates the past few years, which meant people could afford to be impatient.

“The past couple years people would see a house and say ‘I have to have it, I don’t care, I’m buying it’ and now they’re taking a little more time with it,” Wahlberg explained.

For the first time in a long time, there are more sellers who are having to reduce their asking price from the original list price.

“The other thing we’re seeing more regularly are we’re seeing more price reductions,” Wahlberg explained. “Last year, to have an active listing reduced, that just didn’t happen. Now you’re seeing that activity pretty regularly.”

According to federal home mortgage loan company Freddie Mac’s data, 30-year fixed mortgage interest rates hit an all-time low of 2.65% in January of 2021 and have risen to 5.78% as of June 16, although interest rates vary depending on the loan originator.

Wahlberg said the rising rates make a tremendous difference in the cost of borrowing money to buy a home.

For example, a $500,000 loan with a 3.5% interest rate will mean a principal and interest monthly payment of $2,245. That same loan with a 5.5% interest rate would be a monthly payment of $2,838.

“So that’s almost $600 more a month,” Wahlberg said. “That’s not a $50 a month increase. That’s not ‘let’s not eat out as much and cut back a little bit.’ That’s a substantial increase.”

That changes the behavior of buyers, he noted. They’ll look at taking out smaller loans, and they’ll look at homes in a lower price range.

“One thing we’ve noticed is certain price segments changing,” he said. “If you look at certain spots in town, those homes in the $700,000 to $1 million range are taking a little longer (to sell). That has some ripple effects.”

Homeowners could reasonably expect to see a 20% increase in the potential market value of their home every year for the past few years, he said.

“What’s projected nationally, regionally and locally is that as rates start to climb, and everyone saw that coming, homes will stop gaining value in the 20% range,” he said. “Buyers will have more options and we’ll start to see median prices flatten out and be in that 3-5% range of annual gains instead of 20%.”

Another effect that Wahlberg has seen anecdotally is short-term rental properties, such as a house being used as an AirBnB, are starting to get listed for sale.

“I’ve noticed a handful of vacation rentals start to come back on the market for sale,” Wahlberg said. “Those are AirBnBs that have taken away properties that long-term Missoulians can live in. And maybe the market got a little over-saturated with vacation rentals, so people are starting to dump them because people aren’t getting the returns they thought they would.”

The short-term rental data company AirDNA shows roughly 593 of the vacation rentals in Missoula County, with most clustered in the Missoula urban area.

Because wages aren’t keeping up with skyrocketing housing prices, some locals have started the Missoula Tenants Union. The group connects people to resources and conducts outreach at the state and local level about the crisis. The next meeting is July 6 at 6 p.m. at the Missoula Public Library’s Cooper Room.

Other nonprofit organizations in town are working on solutions as well. 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 Trust Montana executive director Hermina Harold, the goal is to increase the number of homes Montanans can afford.

“The effort will create new avenues from Montana’s six Community Land Trust organizations to accelerate affordable housing efforts,” she said.

Community Land Trusts hold the land underneath a home or group of homes in a nonprofit trust. So, because the homeowners aren’t paying for the cost of the land, the houses can be sold at much more affordable rates and kept affordable in perpetuity.

Nationally, Community Land Trust homeowners are 10 times less likely to experience foreclosure than market-rate homeowners.

Harold said that building industry professionals who are interested in leveraging resources to develop permanently affordable homes should contact the organization’s stewardship and projects coordinator Bill Henry at 406-201-9178 or email bill@trustmontana.org.

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