‘Frozen’ Montana housing market has lots of challenges, few solutions

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Montana’s housing market is frozen.

That’s according to the Montana Bureau of Business and Economic Research, housed at the University of Montana.

And it’s not the good kind of “Frozen,” from Disney with princesses and castles.

A different way of framing the issue may be that the market is close to impossible, according to data collected by the BBER and presented during the summer state economic tour, which began in Billings on Tuesday morning.

A combination of factors has created a situation in which a growing number of people want housing, but can’t afford it, as housing prices continue to stretch well beyond the means of the average Montanan.

For years, maybe even decades, Montana’s lower wage growth was offset by relatively affordable housing prices in many places. However, even a rise in wages hasn’t been able to keep up with the rising housing prices, and BBER Director Patrick Barkey, said higher interest rates and stubbornly high consumer goods that are “here to stay,” will continue to have an effect on the state’s labor pool.

Barkey described the reality that many Montana companies and residents are faced with: They cannot afford to take a better job that pays better because those are located in communities with housing costs that are too high, or interest rates that eat up any gains. Workers become locked-in geographically and those who have a home at a much more advantageous interest rate don’t want to sell because of the difference.

“When housing matters is when a worker cannot take a job for better pay and better opportunities then that is a loss for the economy because the economy cannot get the best workers,” Barkey explained.

Even as some median home prices have eased recently, they remain out of reach of many workers who want to buy a home but cannot afford it. Data suggests that the housing crunch may be generational: The Baby Boomers remain in their houses, which are their largest assets, while current workers in the labor force have 40% less equity than the “Boomers” did at the same point in their career.

“It’s a generational war and the Boomers are winning,” Barkey said. “Yes, we’re seeing an increase in wealth for them, but that’s stopping people in their 20s and 30s from getting on the same wealth ladder.”

Acceleration in home prices after 2020, the COVID pandemic, increased dramatically. In the seven Montana urban areas since 2014, home prices have risen on average 150% in Gallatin County to 75% in Yellowstone County at the lowest end.

In other words, Barkey said, there is a whole generation of residents approaching mid-life that hasn’t begun home-ownership even if they want. The challenge, he said, was not in generating more demand for housing, but more housing itself.

“We’re probably not building enough,” Barkey said. “We don’t need more demand. Supply, supply, supply.”

But, residents and consumers are getting squeezed in more than just housing, Barkey said. For example, inflation of groceries has translated to a rise in costs by 20% to 25% since 2020, and energy prices — things that are compete for dollars in a household budget — have been higher.

Barkey also painted a sobering picture, demonstrating how revenue collection, when adjusted for inflation, is declining in Montana.

“In terms of purchasing power, our taxes are going down and we have less money to spend on things we need to,” Barkey said. “The days of revenue growth are over.”

Meanwhile, in some counties, like Gallatin, one of the fastest growing in the nation, the median house price is nearing 10 times the median household income, putting huge pressure on household budgets and creating a labor shortage, where employees cannot afford to live near their workplace.

That has driven many people to the rental market, pushing the demand high and rental prices higher. Residential mortgage rates also remain higher than the previous several decades, Barkey said.

“Everything suggests this is not the time to be buying a house — sorry, Realtors,” Barkey said to an audience full of real estate professionals in Billings. “Turnover has been choked because those mortgage rates are frozen.”

But the problem isn’t isolated to just Gallatin or Missoula counties, which get the focus of much attention. Barkey explained the problem isn’t even confined to the urban areas. Instead, it spans the state. For example, the median sale price of a single-family home in Gallatin County is $857,280; in Missoula County it’s $610,750. The lowest median single-family home is in Liberty County at $145,350, according to BBER statistics.

For example, even if a homebuyer in Gallatin County were to come up with nearly $100,000 for a downpayment on a median-priced house, if that same buyer had Gallatin County’s median income, it would consumer more than 70% of that person’s pay — more than double what most real estate professionals say is economically sound.

“A person with a median income in a lot of these of counties does not qualify for a mortgage,” Barkey said.

Historically, the average cost of a house in the U.S. has been around 5 times the yearly household income, according to the Federal Reserve Bank of St. Louis.

However, the ratio of home price to median household income in 2024, according to the BBER, is high across the state, with Gallatin County at 10.3 times. And 14 Montana counties are above a ratio of 5.7, well above what would be needed to qualify for a mortgage. Also, half of Montana’s counties (28) show that it takes more than 31% of the median household income to afford a monthly housing payment, according to BBER statistics.

And while the problem is most acute in Gallatin County, a similar pattern has emerged in nearly all counties across the state, with it generally getting more pronounced the farther west you go in the Treasure State.

However, the BBER also tracked the homeless estimates throughout Montana at the same, and since the housing crunch started and accelerated after 2020, the state’s homeless population rose dramatically. For example, Cascade and Missoula County have a greater percentage of people experiencing homelessness than Salt Lake City or Boise. Five counties show that it takes a higher percentage of income to make rent than average in Ravalli, Yellowstone, Silver Bow, Gallatin and Flathead counties, leading to more homelessness than expected, as well as high rent rates.