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 on a national level. 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 Uncertainty forced many listings to be withdrawn from the market and prospective buyers were more inclined to hold on to their cash reserves.
There's no doubt about it: The Montana real estate market suffered a setback in the first part of 2020. Fortunately, the regression was only temporary and may have actually created a window of opportunity for those looking to participate in the market. If for nothing else, the Montana housing market appears to have been slightly more insulated from the impact of the Coronavirus, and its resilience could prove beneficial to local buyers, sellers, and investors.
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: 5.3% (latest estimate by the Bureau Of Labor Statistics)
Population: 1,062,305 (latest estimate by the U.S. Census Bureau)
Median Household Income: $52,559 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 14.92%
Foreclosure Rate: 1 in every 83,516 (0.1%)
Montana Median Home Prices
The median home value in Montana is a healthy $311,024. Over the last eight years (October 2012 to October 2020), real estate in Montana has appreciated (on average) somewhere in the neighborhood of 47.4%. Eight years ago, in fact, the median home value in Montana was about $211,000. At that time, it was clear the state was looking to put The Great Recession in the rearview mirror. In the last eight 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.
The median home price in the United States, on the other hand, followed a similar ascension—albeit at a slightly faster pace. Not unlike Montana, the national market was at one of its lowest points of the recession in the first part of 2012. In January of that year, the median home value in the United States was about $160,000. However, for many of the same reasons Montana saw increases, home values across the United States jumped 62.4% in just over eight years. Today, the median home value across the country is $259,906.
While the median home value in the United States has outpaced Montana for the better part of a decade, the last 12 months tell a different story. In one year (August 2019 to September 2020), the median home value in Montana increased by 6.0%. The median home value across the country, on the other hand, managed a slightly more modest 5.8% jump over the same period of time.
Moving forward, indicators suggest appreciation rates in Montana will continue to keep relative pace with the national average. Whereas Zillow has forecasted a 76.8% increase for the entire state of Montana, the median home value in the United States should see a 7.0% jump. The increase in Montana, and across the country (for that matter), will be primarily due to competition. For starters, historically low interest rates will convince many buyers to "get off the fence" and start looking to buy. However, those buyers will find there's too much competition for available inventory in Montana. There simply isn't enough inventory to keep up with demand, which will enable owners to increase asking prices for the foreseeable future.
Montana Median Rent Prices
More often than not, rental rates tend to mimic their home price counterparts. Due, in large part, to several unique correlations, increasing home prices tend to rise rental rates. Consequently, rental rates will usually fall when home prices depreciate. While there are certainly exceptions to the rule, changes in home prices will typically serve as the primary reason rental rates climb and sink. Think about it: Rising home prices may prevent many buyers from participating in the market, relegating them to tenants instead of homeowners. The more people that are priced out of buying, the more competition there will be for rental housing.
Real estate in Montana does not appear to be an exception to this rule. As home prices have increased for the better part of a decade, so too have rental rates—albeit at a tempered pace. Whereas real estate in Montana appreciated by an average of 47.4% over the course of eight years, rental prices jumped about 19.9% at the same time. Following eight years of increases, the average rental listing price in Montana is now somewhere in the neighborhood of $1,295. To put things into perspective, the median rent price in the United States is $1,650.
Significant increases to both rental listing prices and median home values have brought Montana’s price-to-rent ratio to 20.01. At that point, it is usually better to rent than to buy a house in Montana, which is great news for local real estate investors who specialize in building rental property portfolios.
Montana Foreclosure Trends & Statistics
Compared to the rest of the country, Montana has a low foreclosure rate. With a mere one in every 83,516 homes in some stage of distress (pre-foreclosure, auction, or bank-owned), Montana’s foreclosure rate sits around a healthy 0.1%, according to RealtyTrac. The current foreclosure rate across the entire country, on the other hand, has reached 0.7%.
While well below the national average, Montana’s foreclosure rate improvement shows no signs of slowing down. As recently as September, “the number of properties that received a foreclosure filing in MT was 60% lower than the previous month and 92% lower than the same time last year,” according to RealtyTrac.
Despite low rates of foreclosure, Montana still has areas with higher distributions of distressed homes, not the least of which include:
Cascade (1 in every 12,771)
Silver Bow (1 in every 17,088)
Ravalli (1 in every 19,788)
Flathead (1 in every 48,154)
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 2020 (and even into 2021). While the state's unemployment level has recovered from its spike in April, there are still more people without jobs today than in the first quarter of this year. 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. That said, there’s one type of distressed property that investors in Montana should pay special considerations to: auction homes.
Making up 66.7% of the state’s distressed inventory, auction homes are the most abundant source of foreclosed properties. As their names suggest, auction homes are currently in the possession of the loan originator. However, instead of holding onto the non-performing assets, the originators will attempt to recoup profits by selling the home at auction. In doing so, the banks will typically accept less than the home is worth; that way, they can be sure to recoup at least some of the potential losses. Investors who know how to navigate the auction process in Montana will therefore be privy to bargains in a market where they are hard to come by.
To be clear, however, auction homes may represent one of the last opportunities to secure deals with attractive profit margins. Remember, homes have increased in value for eight consecutive years, and are now more expensive than ever. 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.
For starters, interest rates are lower than they have ever been. In response to the Coronavirus, the benchmark index has been lowered in an attempt to stimulate the housing sector. As of September, the monthly average commitment rate on a 30-year- fixed-rate mortgage is 2.89%, according to Freddie Mac. At that level, it has never been cheaper to borrow institutional money. 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 6.0%. That said, experts within the industry are calling for more appreciation moving forward. Over the next 12 months, Montana home values may increase by 6.8% on the heels of increasing demand and low inventory levels. 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, in large part, to persistent economic growth, real estate in Montana has prospered and thrived. Home prices have increased for the better part of a decade, 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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