The Montana real estate market was far from immune to the impact of COVID-19. Not unlike everywhere else, real estate in Montana experienced a bottleneck once "shelter-in-place" orders were issued in the first quarter of 2020. Seemingly overnight, activity dried up and threatened to put an end to nearly a decade's worth of positive growth. Uncertainty forced many listings to be withdrawn from the market and prospective buyers were inclined to hold on to their cash reserves.
Looking back, however, the regression was only temporary and may have actually created a catalyst for one of the fastest moving markets in history. Over the course of the pandemic, real estate prices in Montana have continued to test new highs almost every month. Home prices are now prohibitively expensive across the entire state and pricing many people out of the market. Still, demand remains pent up and buyers are still on the market.
For better or for worse, the hot housing market has become the Federal Reserve's main priority. With inflation on the rise, a looming recession, and housing prices as high as they are, markets across the country are in the Fed's crosshairs. In the Montana real estate market, and everywhere else, interest rates will rise at least a few more times. Mortgage applications have already fallen in response to interest rates in excess of five percent. As demand falls, prices may soon follow, which begs the questions: Is now a good time to invest in the Montana real estate market? Let's take a look at what the latest moves by the Fed means for residents and investors alike.
The Top Montana Real Estate Markets
While the best real estate market in Montana is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Unemployment Rate: 2.3% (latest estimate by the Bureau Of Labor Statistics)
Population: 1,104,271 (latest estimate by the U.S. Census Bureau)
Median Household Income: $56,539 (latest estimate by the U.S. Census Bureau)
Total Foreclosures Q1: 77
Foreclosures Rate: 1 in every 6,686
Montana Median Home Prices
The median home value in Montana is $445,017. Over the last ten years (June 2012 to June 2020), real estate in Montana has appreciated (on average) somewhere in the neighborhood of 117.0%. Ten years ago, in fact, the median home value in Montana was about $205,000. At that time, it was clear the state was looking to put The Great Recession in the rearview mirror. In the last ten years, several fundamental indicators combined to create the perfect storm. Prices increased in the wake of an improving economy, optimism grew exponentially, and (for better or for worse) a distinct lack of available inventory increased home values in the face of growing demand.
It needs to be noted, however, that while home prices in Montana have increased for the better part of a decade, the fastest rate of appreciation has occurred during the pandemic. Due to the Fed lowering interest rates at the beginning of the pandemic, government stimuli, and pent-up demand, competition greatly outweighed supply. Too many people were in a position to buy when too few listings were on the market. As a result, prices have done nothing but rise for more than two years. Since the pandemic started, Montana home prices have increased 50.9%. In the last year alone, prices have increased 26.8%.
Moving forward, prices in the Montana real estate market are expected to continue rising—albeit at a tempered pace. If for nothing else, the same indicators that have driven up prices in the past are still present. Supply and demand are leaning heavily in favor of sellers, giving them the power to increase prices accordingly. That said, the Fed just increased interest rates 0.75 basis points. The cost of buying a home is increasing in the wake of higher interest rates. Therefore, it's reasonable to assume demand will increase for a brief period as buyers try to beat further rate increases. Once rates reach a tipping point, however, there's a good chance demand will wane and prices could start to drop.
Montana Foreclosure Trends & Statistics
According to ATTOM Data Solutions’ Q1 2022 U.S. Foreclosure Market Report, 78,271 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) in the first three months of 2022. The report goes on to say that the latest numbers were up 39% from the previous quarter and up 132% from the previous year.
“Foreclosure activity has continued to gradually return to normal levels since the expiration of the government’s moratorium, and the CFPB’s enhanced mortgage servicing guidelines,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “But even with the large year-over-year increase in foreclosure starts and bank repossessions, foreclosure activity is still only running at about 57% of where it was in Q1 2020, the last quarter before the government enacted consumer protection programs due to the pandemic.”
Despite increases on a national level, the Montana real estate market continues to boast a relatively low rate. Only 77 properties filed for foreclosures in the first quarter; that was up 71.1% from the previous quarter and 97.4% from the same time last year. The latest numbers suggest one in every 28,600 homes was foreclosed on as recently as April. Investors interested in taking advantage of the foreclosure market should pay special considerations to the counties with the most foreclosures per housing unit:
Lewis And clark
The Montana housing market has demonstrated a propensity for fewer foreclosure filings, but the state may see an increase sooner rather than later. The impact of the Coronavirus, in particular, is expected to increase distressed homeowners in the latter part of 2022. While the state's unemployment level has recovered well, a looming recession could increase filings. As a result, it's fair to assume the state will see an influx of foreclosures as more and more people find they can't keep up with their mortgage obligations.
Tax Lien Investing
Tax Lien or Deed: Tax Lien State
Redemption Period: 2-3 Years (depending on property type)
Montana Real Estate Investing
Not unlike every other market across the country, real estate investors in Montana have made a living off of investing in distressed assets. If for nothing else, distressed homes have become synonymous with attractive profit margins, low acquisition costs, and seller motivation—three of the most coveted indicators of a real estate deal. While low relative to its peers, Montana's foreclosure rate is expected to rise for the foreseeable future. Investors who can plan ahead and line up financing today may find it easier to get a deal below market value when the influx occurs.
To be clear, however, foreclosures may represent one of the last opportunities to secure deals with attractive profit margins. Remember, home prices have increased 117% over the last decade. As a result, the Montana real estate investing community may want to consider an alternative approach: long-term rental properties. While rehabbing is still a viable exit strategy, today's most prominent market indicators look as if they are leaning in favor of rental property portfolios.
While up year-to-date, interest rates are still considered relatively low. As of June, the monthly average commitment rate on a 30-year- fixed-rate mortgage is 5.78%, according to Freddie Mac. At that level, it's still affordable to borrow institutional money; just not as cheap as it was last year. More importantly, today's rates can easily help justify buying real estate that has done nothing but appreciate for eight years. Lower rates mean lower monthly mortgage payments, which suggests it'll be easier for landlords to generate more cash flow from rental properties.
In addition to lower borrowing costs, the onset of COVID-9 has also made vacancies less of a threat to the landlord community. Inventory levels, or lack thereof, are actually working in favor of landlords. While many people may actually want to buy, the fact of the matter remains: more people will be relegated to renters because there simply aren't enough homes to meet demand. As a result, those who can't buy will be forced to rent, ultimately allowing landlords to increase asking prices.
The Montana real estate investing community has the privilege of exercising any number of exit strategies. Market indicators suggest rehabbing and short selling are still very much on the table. However, the new landscape left in the wake of the Coronavirus looks to cater to landlords and passive income investors. Interest rates are too low and demand is too high not to consider buying rental property in Montana.
Montana Housing Market Predictions
The Montana real estate market has followed the same trajectory as the rest of the country. For the better part of a decade, in fact, real estate in Montana has exhibited many of the same characteristics as its national counterpart. Price increases, confidence in the market, and several other indicators are in line with national trends, but what does that mean moving forward? What can Montana real estate investors, homeowners, and prospective buyers expect in the wake of the pandemic? How will the impact of the Coronavirus impact the Montana real estate market moving forward:
Appreciation rates will increase: In one year, real estate in Montana has appreciated by as much as 26.8%. That said, experts within the industry are calling for more appreciation moving forward. Over the next 12 months, Montana home values will increase, but at a slower pace than in recent years. Plenty of people appear ready and willing to buy, but the number of available listings is nowhere near enough to satiate demand. As a result, current homeowners will increase prices to match demand.
Great Falls will see an influx of buyers: More buyers will look to escape the high prices of cities like Billings and Bozeman by shifting their attention towards secondary cities. With a median home value well below the national average, Great Falls should see more people move within its city limits. Expect the population of Great Falls to increase, along with home values and competition over available housing.
More people will leave the city The pandemic has enabled more people to work from home indefinitely, which means there's no longer a need for a large portion of the population to live within proximity to their offices. As a result, it's fair to assume more people will trade their small, expensive apartments in the city for more spacious living arrangements in the suburbs. The exodus from city living could increase prices in suburban neighborhoods, as demand is expected to inch upwards.
The Montana real estate market has found itself positioned comfortably at the forefront of a steady national recovery. Due to economic growth, real estate in Montana has prospered and thrived. Home prices have increased for ten years, more people are in a better position to participate in the market, and—perhaps even more importantly—confidence has grown. All of these factors, and many more just like them, have catalyzed the Montana real estate market. Buyers, sellers, and investors should all take solace in the fact that real estate in Montana is on solid ground.
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