Missoula Housing Market Steady, Housing Prices Continue to Soar

By Courtney Lowery, 3-08-07

The good news is that Missoula is part of the 31 percent of the country’s housing markets that is actually expanding. The bad news is it is becoming increasingly difficult to afford a home here.

The 2007 Missoula Housing Report(PDF) released by the Missoula Organization of Realtors Thursday shows the median home price in Missoula continuing to soar—largely driven by the rising cost of land in the metro area.

The median home price within Missoula’s city limits jumped to $205,000 in 2006 compared to $185,000 in 2005. When you add Lolo into that mix, the median home price in 2006 jumps to $206,850 from 2005’s $192,000.

Looking at the records of bare land sales over the past three years, it’s not hard to see from where the majority of that growth stems. In 2003, the median price for a lot in Missoula was $75,900. In 2006, the median price for a lot in Missoula was $95,000—a 25.2 percent increase.

Meanwhile, the median home price in that same time period tracked almost parallel—from $165,000 to $205,000—a 24.2 percent increase.

Mary Marry, the president of the Missoula Organization of Realtors said those bare land prices showcase one of Missoula’s biggest hurdles to affordability.

Once you pay up to $95,000 for a lot, when you start actually building a house, “it becomes a challenge,” Marry said.

The number of lots sold has stayed fairly steady over the past three years, hovering around 60 lots sold per year. In 2006, 63 lots were sold, according to the report.

The cost of land is tied to simple supply and demand: There are fewer and fewer open lots in Missoula—a city that is confined by adjacent public lands or steep slopes where building is near impossible—and so the prices continue to go up as need for housing increases.

“Our challenge in Missoula is that there is steady demand for housing, but the supply is limited,” Marry said. “There are only so many directions you can go.”

The report echoes that sentiment in the summary. It reads, “Providing new housing stock for continued strong housing demand is a growing challenge. Land availability and prices contribute to that challenge.”

On the other hand, the lack of land availability is one things that has kept the Missoula market strong as other markets in the country begin to slump.

“Yes, land availability is the primary reason the prices have gone up as much as they have. The other part of that also is the lack of land availablility is what kept us from overbuilding when a lot of places in the country did overbuild,” said Collin Bangs, a real estate agent and developer in Missoula. “It artificially kept us from getting into the problems a lot of the rest of the country did.”

But, as Bangs pointed out, “In one way it kind of saved our bacon in the short term but long term, it’s going to be a large problem.”

The report breaks down “affordability” under the terms of the National Association of Realtors’ Housing Affordability Index, which takes into account local interest rates, median price, median family income and loan terms.

With these calculations, a family would need to make $58,128 per year to afford the median priced home in Missoula. Meanwhile, median income in Missoula, according to data from the federal Department Housing and Urban Development is $37,800 for one person and $43,200 for two people.

The Housing Affordability Index for Missoula then is 65 percent, meaning the average family in Missoula has 65 percent of the income required to buy the average home in Missoula.

In 2005, the HAI in Missoula was 68 percent. In 2004 it was 82 percent and in 2004, it was 84 percent.

To look at it another way, the report breaks down availability of homes the average Missoulian can afford.

According to HUD’s data on median income, a one-person household could afford a $125,000 home. On March 1, there were nine units on the market in that price range. A two-person household, earning the median $42,200, could afford a home of up to $143,203. On March 1, there were 8 homes on the market in that price range.

The issue of affordability has been brought to the forefront of development and housing discussions in Missoula and it’s not something leaders—in the private or public sectors—take lightly.

Next Friday, City Club Missoula is hosting a discussion with the new City/County Planning Director, Roger Millar, about these topics, and just last week, the Mayor’s Office sponsored a town forum on the issue, focusing on a report commissioned by the city, county and the Missoula Housing Authority. According to that report, by 2025, Missoula’s population is expected to grow beyond 100,000 people and to accommodate that growth, Missoula would have to add at least 11,666 households.

This year, the Missoula Housing Report also tracked migration to Missoula County, which gives a perspective on what the demands will look like on the Missoula market in the future.

Total, Missoula County has been growing about 1.7 percent each year since 1990, which compares to the 1.9 percent each year since 1950. The County saw a big boom of net migration in the mid-90s, but since a peak in 1993, has continued to add about 500 persons per year.

According to data in the report from the University of Montana’s Bureau of Business and Economic Research, about 50 percent of that growth comes from people moving into Missoula County from another Montana county. Twenty-five percent comes from out-of-state residents with previous ties to Montana and the other 25 percent is from new Montana residents moving in.

On the regulatory level, the report pointed out several issues that the authors see playing a role in meeting the market’s demands, including over-worked staffs charged with regulatory review and approval, traffic improvements required of developers, the legal issues around groundwater and surface water and the city’s new guidelines for subdivision review—which “require more detailed application packages for subdivisions in the city with the potential increase in planning and engineering costs.”

The report’s authors also say although the controversy on infill seems to have quieted, related issues, like boundary line adjustments and auxiliary dwelling units in existing neighborhoods will continue to affect development opportunities.

Current developments cited in the report as potentials for future development in Missoula include the Intermountain Lumber site, the Old Sawmill district, Mullan Road, Miller Creek and Maloney Ranch and the Wye.

The report’s authors emphasize that Missoula is in an enviable position of being an expanding market and “… It thrives on a collaborative spirit that prompts citizens to come together to make things happen.”

Marry said the big reason for the report—now in it’s second year—is to help inform and foster dialogue about the housing market, affordability and how Missoula is growing.

“We have a lot of bright and imaginative people in Missoula, so I have no doubt we can work together to keep this a great place to live,” Marry said.