Those who work in Montana's high-end real estate industry sound like they’re being hyperbolic when they describe 2020 so far, but there’s no exaggeration.
“It’s insane,” said Dawn Maddux, the license partner and global real estate advisor at Engel & Völkers Western Frontier in Missoula. “Our business has grown exponentially every year, but this year is a record-breaking year.”
Bill McDavid, a real estate broker in Missoula and a partner with Hall and Hall, has brokered $40 million in ranch and property sales in western Montana this year.
“A few sales have spun my head around,” he said. “We’ve had some unbelievable years since 2010 but this year is its own thing. I mean, 2020 as you well know has been one of the strangest years of our lifetimes in more ways than one. But for me in the real estate business, I’ve never been as busy as this year. It’s worn me out. And it doesn’t seem to be slowing down.”
Specialized data from the Federal Housing Finance Authority indicates Montana has seen one of the largest increases in housing prices of any state in the country. That doesn’t surprise either Maddux or McDavid.
Maddux specializes in vacation homes and luxury properties, which her company classifies as over $500,000 in list price. In that segment of the market, through October, her office had done 107% more business this year compared to last year.
On Tuesday, Maddux was showing a 7,000-square-foot, four-bedroom, seven-bathroom luxury home in Missoula’s Grant Creek neighborhood to prospective buyers that have the home under contract. The property, which features a private stocked pond, was listed at $3.95 million and sat on the market for years before Maddux took over the listing. She got it under contract very quickly this year with out-of-state buyers.
“Our record-breaking year, I really do believe it has to do with COVID,” Maddux explained. “We started a ‘Make Montana Home’ campaign in March. We were targeting certain cities. The majority of buyers are coming from California, Texas, the East Coast. All the places you would imagine, like Washington. It was a record year overall for luxury real estate.”
The marketing campaign highlighted the notion that Montanans social distance all the time due to the very nature of the state’s relatively low population density and wide-open spaces.
A property listed at $7.6 million had three offers, she said, and a lodge listed at $5.7 million got a “very strong” cash offer. Many of her buyers offer cash, she said, so she doesn’t have to deal with financing implications.
“It’s a strong sellers market,” she said. “Things are going for a premium. It’s really great for our luxury sellers. Primarily, our buyers are vacation-home buyers. We’ve always done well in that sector."
According to the Federal Housing Finance Authority’s repeat-sales housing price index for the third quarter of 2020, year-over-year housing prices increased by 10% in Montana. That ranks 5th highest in the nation behind first-place Idaho, Arizona, Washington and Utah.
That represents a “significant acceleration” over recent years, according to economist Bryce Ward with the University of Montana and ABMJ Consulting in Missoula. Between 2017 and 2019, that housing price index averaged about 6% in Montana.
“Montana’s 4-percentage-point increase above the recent average ranks third behind Connecticut and New Jersey,” Ward explained.
The repeat-sales index looks at the price change in houses as they sell repeatedly over time.
“It’s looking at the same house over time,” Ward said. “The problem with looking at the median sales price or something is the composition of what’s sold is changing. We know that happened in Missoula this year. There were a lot of sales of higher-end houses, so we saw a big huge change in the median sales price. So the problem is, is that real or is it just this segment of the market sold more this year than last year?"
The beauty of the repeat sales index is it takes that composition effect away.
"You go back in time and compare that house to itself and you can see the true asset appreciation on average in the market," Ward said.
He described Montana’s increase over the third quarter in 2019 as drastic compared to almost any metric.
“Ten percent is big in absolute terms and it’s big in relative terms compared to other places,” he said. “It’s also big relative to Montana’s own history for at least the 25 years or so we have those data. Basically, it’s on par with the highest year-over-year changes we’ve seen since the early ‘90s.”
Ward said the interesting thing is that the first quarter in Montana showed the same accelerating housing prices before the pandemic took hold. Things dipped in the second quarter during the stay-at-home order, but then rose again in the third quarter. So, he said, it appears the escalating prices are part of a trend that started before the pandemic took hold.
The big question, he said, is whether that will continue into 2021.
In the past, periods where prices have escalated like this have not lasted more than a few quarters, Ward explained.
“It’s one thing to have it spike for a short period of time and another thing to have it last for years,” he said. “Houses are already getting to a head-scratching level compared to wages. The question is how much is this new work-from-home equilibrium going to affect it. We’ve had a nationalization of the housing market in places with high amenities because it’s not tied to the labor market, or at least a large margin is not tied to the labor market.”
In layman’s terms, that means people who are earning big-city wages can afford to live in western Montana now and are choosing to do so. Ward said that the 10% rise in the statewide housing price index means that there’s probably been an even higher rise in places like Missoula and Bozeman, although that data isn’t available yet.
Wages in Missoula and elsewhere in Montana have not kept up with housing prices, and lower-income workers have increasingly struggled to purchase homes. For links to extensive coverage on those issues, visit this story online at Missoulian.com.
Ward said low interest rates are part of the reason why housing prices have escalated, but it’s also because people who are now working from home have decided that they need to upgrade their situation. He also said that for people who are still employed, savings rates are much higher since April than normal. In fact, he said there's $2 trillion more in Americans’ savings accounts than there otherwise would be.
“There’s a lot of money that’s not going into vacations in Hawaii or into meals,” he said. “So it’s a combination of people having money, particularly at the upper end, if you’re not a service worker who’s been hammered by the loss of service employment. And it’s also a re-assessment of housing needs and really low interest rates."
There is also a dearth of supply in almost every segment of the market.
"There’s a demand-side shock, but there’s also a supply-side piece," he said. "A lot of people were like ‘why would I want to move during a pandemic?’”
In Missoula, Ward said, the number of houses available for sale earlier this year was at half the normal level.
“So that’s the demand side pushing out and a retraction in supply, and that’s very basic Econ-101,” Ward said.
McDavid, the broker with Hall and Hall in Missoula, said the average deal he brokers is between $8 and $10 million, and he is licensed in Montana and a few other states. This year he brokered the sale of the 1,188-acre Kootenai Springs Ranch in Stevensville, listed at $14.5 million, along with the 785-acre One Horse Creek Ranch in Florence, listed at $10.5 million.
He can’t disclose specific information about specific buyers, but he can say they’re from out-of-state.
“I’ve had a lot of people, they maybe have a beautiful home in San Francisco, and a lot of people have toyed with the idea of buying a ranch over the years,” he said. “And during the pandemic, they found themselves thinking, ‘why didn’t I do this because I could be flying to an enclave and spending the pandemic with a few thousand acres around me.’"
He sometimes works with clients for years.
"And there's people that, because of the pandemic, they had never looked at ranches before, but thought how great it would be to take a hike on their own property and ride a horse or whatever it is," he explained.
So, McDavid said, it’s been a “perfect storm of people fleeing urban and suburban centers to the promised land.”
“People come for all the reasons you would expect: Breathing room, and a common theme is privacy,” he said. “Beyond that, people really love to fly-fish, ride horses, hike or some combination thereof. It’s all kinds of outdoor recreation that is the real driving force.”
Another interesting thing McDavid has found is a huge increase in people inquiring about temporary rentals of ranches.
“In a typical year I’ll field one or two phone calls from a very wealthy individual who will say they’re thinking about buying ranches, but they ask me ‘can I rent’,” McDavid explained. “I tell them we’re not in that business. My usual answer is there is no AirBnB for ranches. But this year, I don’t know if I could even count the number of calls, and the amount of money people have demonstrated they’re willing to pay to rent a ranch is staggering."