December 2022 Northwestern Montana Market Update

Happy New Year! It’s 2023, I’m pouring over market statistics for December 2022 for Northwestern Montana, and despite gloomy national headlines I feel optimistic.

One year ago today, there were about 40 homes on the market in the city of Missoula, and today that number is 155. One year ago, if buyers weren’t able to make an offer over asking price, or if they had a home to sell before they could close, they were unlikely to win the bidding war to buy a home. Today, homes are selling for under asking price- an average of 95-98% of asking price, and offers that are contingent on the sale of the buyer’s home are going under contract. Sellers are willing to negotiate on inspection issues and are even willing to cover closing costs.

Newer and remodeled homes in popular neighborhoods may still have multiple offers or go for asking price, but homes that need repairs or updates and are further away from jobs and services are less expensive than they were a year ago. This creates an opportunity to own a home for people with smaller budgets. I would argue that the state of our local housing market in North Western Montana is showing signs of health, and that the new normal is more balanced between buyers and sellers. In my opinion, the shifts in the last 6 months are actually good.

Where are home prices now and where are they headed?

In Missoula County, the December median sales price was $545,000, up 11.8% over December of 2021, while in Flathead County the median sales price was $569,000, down 10.4% from this time last year. Ravalli, Lake, and Mineral Counties all fall somewhere in between. All of these regions saw a median price spike at the beginning of summer 2022, and then have leveled out or declined a bit since then. Why the big difference between Missoula and Flathead?

Inventory

While there are many things driving this difference, I suspect that a major factor is inventory. While Missoula County has the larger population, Flathead county has more than twice as many homes for sale compared to Missoula County (534 on the market in Flathead County vs 248 in Missoula). Because Flathead County has been increasing in population faster than Missoula, I suspect that the inventory difference is not demand, but because it is easier and cheaper to build up north than it is in the Missoula Valley.

One year ago, I was writing to you about low interest rates and low inventory working together to increase prices. With those working together, home prices appreciated more than 20% per year in the pandemic buying spree.

Now imagine low inventory and higher interest rates in an arm wrestling match to determine where prices go. Regions with more inventory are going to experience more of a price correction unless that inventory is also matched by pent up demand. Our region still has plenty of potential buyers who want the opportunity to own their own home. Montana unemployment was at 2.9% in November 2022 according to the Bureau of Labor Statistics. As long as low unemployment holds, I predict very modest median home price growth this year in Missoula County, and prices to remain flat in the adjacent counties.

For perspective, here is a chart from the St. Louis Fed showing 40 years of the Average Sales Price for Houses Sold in the US. The two things I want you to notice are that over the long arc of time, home prices have increased, and how unprecedented the price spike was between March 2020 through summer 2022.

Interest Rates

The average mortgage interest rate one year ago was around 3.22% according to Forbes Magazine. We watched as it more than doubled this year as the Fed raised the Fed Funds Rate repeatedly in its effort to slow inflation.

A funny thing happened in November: the Fed raised their rate, but mortgage rates didn’t go up. The Fed then raised rates in December, but mortgage interest rates had already started to fall. I get an email every business day with the average interest rates from one particular bank, and in this email on November 1, 2022 the 30 year conventional mortgage a high of 7.5%. Today as I write this newsletter, that number is 6.0%. (Disclaimer: your rates may vary.) Historically, most of the 2000’s the 30 year mortgage was at about 6%, which was still way less than the rates for anyone who bought a home between 1970-2000.

If you want to know why mortgage rates are defying the Fed’s increases, in part it’s because new mortgage demand is so low that banks have to entice borrowers back. Another piece is that the stock market hasn’t been making investors money in the past 12 months, so there are more people willing to invest in mortgage backed securities. Mortgage backed securities are batches of loans bundled together that give investors a return proportional to the mortgage interest rate. (You may be having bad 2008 flashbacks when subprime mortgages were bundled up with good mortgages into mortgage backed securities, and crashed the entire US financial system. Please note: regulations have made it much harder for banks to give out risky loans, as anyone who tried to qualify for a loan in the past few years could tell you.) Banks are willing to make more loans where there is more demand from investors to buy them up. Usually the #1 investor in mortgage backed securities is the Fed, but they cut back their purchases in order to slow down home price inflation!

The View From Here

Within the first 12 days of 2023 I helped one seller in Florence get under contract within 12 days of being on the market. At the same time, I helped a buyer win a home over a competing offer in Alberton. Then, a buyer tour in Missoula I planned last week for someone else had 3 of the 4 homes on it go under contract before we were able to see them. My point is not to show off, but to tell you that the housing market may look different from 2022, but is still very much alive and kicking. Curious to know what is happening in your neighborhood? You can sign up for local listings and targeted market data here: https://sashavermel.com/neighborhood-news

Now for the numbers:

Missoula County