Real Estate and Construction: The Sellers Market Continues.

• Author: Bridge, Brandon
• Position: ASSESSING MONTANA'S KEY INDUSTRIES

The extreme amount of economic uncertainty experienced in 2020 has had varying impacts on real estate and construction markets in Montana. A full understanding of the market anxiety and dynamics that we are experiencing in 2020 will require several more years of study, data collection and revision, as well as hindsight. In the meantime, we will need to rely on currently available data for insight into these markets. The housing price indices (HPI) produced by the Federal Housing Finance Agency can give us a glimpse into how the housing market in Montana has responded to the initial waves of economic uncertainty brought on in 2020.

We can see in Figure 1 that the Montana HPI deviated slightly from its upward trajectory and remained flat during the first quarter of 2020. This deviation coincides with the lockdowns and relative lack of economic activity taking place in February and March of2020. The most recent quarter of HPI data shows that the upward trajectory came back strong in Q2 2020. And according to the most recent data, prices have continued to show strength in the major housing markets across the state. The strongest price appreciation continues to be in Flathead, Missoula and Gallatin counties, with the median sale price in Gallatin County (2019) being a record $389,000.

While roaring home prices are beneficial for home owners and those working in the real estate and construction industries, they also increase the stark difficulty of housing affordability. Low interest rates are capitalized into higher asset prices, and when this happens those without assets suffer. This is most evidently the case when property values and rents are outpacing real wages, creating a strain on median wage earning households. This has been the case in Montana for several years. One illustration of this phenomenon can be found in Figure 2, which shows the number of applications by Montanans for housing choice vouchers (housing subsidies issued by the U.S. Department of Housing and Urban Development) since 2016, along with the number of vouchers issued.

Revised sales data show steadily rising volumes in Montana since 2012. This is seen in Figure 3. Sales volumes in Flathead, Gallatin, Lewis and Clark, and Missoula counties dipped in 2018 relative to their 2017 volumes. But 2019 has brought volumes back above 2017 levels in all of the primary population centers in the state except Gallatin County, which has seen...