Home affordability in Montana: an issue once again?

• Author: Morrill, Kyle
• Position: Statistical table

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There wasn't much good about the housing bust and the Great Recession of 2007-09 for the Montana economy. Employment, income, and state tax revenues all took a significant hit, with construction and real estate markets feeling special pain as the downturn stressed economies and businesses around the state.

There was one silver lining, however. That came from the steep declines in home prices across most of Montana. After nearly a full decade that saw housing prices rise faster than income, the issue of housing affordability was looming large in many Montana markets. The recession put an end to that trend, and affordability went up across the state.

Not that it mattered much. The downturn affected economic well-being in so many ways that the fact that housing was more affordable was of little importance to most Montanans.

But the old trend is beginning to re-emerge. Since 2010, real estate markets are returning to health, and housing prices have been moving up again in most Montana markets. And those prices are pushing beyond, in some cases, what median income Montana households can comfortably afford. The biggest disparities are arising in the rental markets, which have seen higher demand as homeownership rates continue to slide downwards. But single family home prices have been rising fast as well, especially in the western half of the state.

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Trends in Housing Affordability

Just as the choice of a dwelling is something that individuals and families ultimately decide, the question of what constitutes affordable housing is determined by individual circumstances. But those choices will be constrained by the prices and rents presented by the marketplace, as well as the financial capacity of consumers to handle those costs. This is why discussions of housing affordability usually boil down to comparisons of the growth in monthly payments for housing and household income.

Like many markets nationwide, Montana housing prices rose very rapidly for much of the previous decade, as shown in Figure 1. Measured by the Federal Home Finance Agency's Housing Price Index, single family homes experienced cumulative price appreciation of just under 70 percent statewide between 2001 and 2007. This housing boom period was a marked departure from the 1990s, when price growth was just six percent per year.

The growth in income in Montana during the boom period in housing was more restrained, as the graph shows. Median...