McMansions. Condos. Kitchen remodels. Guest room additions. If you haven't noticed the recent slowdown in the real estate market, who could blame you? With million-dollar vacation homes peppering western Montana from the Bitterroot Valley to Flathead Lake's north shore - not to mention the hundreds of existing homes under remodel - it looks as though the region's real estate scene is going full-bore.
And it is. But it's surging in a new direction.
Nationally, rising home prices and interest rates are causing a noticeable slowdown in primary residential home sales. The new market is in second homes and investment properties, which now make up fully one-third of all residential real estate sales, according to the National Association of Realtors. In fact, primary home sales accounted for only
64 percent of total residential sales last year, the association reported.
The shift is largely due to the demands of the baby boomer generation, analysts say. The median age for vacation home buyers is 55, and for investment properties the median age is 47.
These buyers are looking for vacation homes in scenic places - places with tree-topped mountains and lake views, with ample recreational opportunities. Buyers of investment properties are looking for areas with at least modest real estate growth, though 27 percent of vacation homes will become their owners' primary residences when they retire, according to Realtor Association surveys.
That makes western Montana a second-home buyer's dream.
And while it may look like home prices are set to climb right out of reach, those same prices look mighty enticing to anyone who's tried to buy a house in, say, Fresno, Calif., recently. A look at Coldwell Banker's annual Home Price Comparison Index reveals that a 2,200-square-foot house with four bedrooms runs about $390,000 there - and Fresno boasts one of the least expensive real estate markets in California.
In Kalispell, you can buy the same home for $159,525.
Even in Fargo, N.D., that same house would sell for upwards of $200,000. That's not to say there aren't other places in the country offering the same - or better - for even cheaper, but to people living in some of the West Coast's bigger cities Montana is both refreshingly rural and conveniently located.
"It may not seem that way to us, but to a lot of other people who are moving in, our prices are very reasonable," said Teresa Manlove, owner of Capital Family Mortgage Co.
Further, soaring prices aren't likely to discourage the buyers of second or third homes, confirmed Joe Mahon, an associate economic analyst who follows real estate and housing construction trends for the Federal Reserve Bank in Minneapolis.
"The people who are building a lot of the newer, larger houses in western Montana are wealthy people, and they have seen their incomes and their wealth increase faster than the - I guess, the median of the population," Mahon said.
These buyers tend to fund construction of their vacation homes by borrowing against their first homes - which is adding up to a massive, nationwide run-up of debt, Mahon said: "There's been this huge increase in borrowing, a lot of it focused on residential construction borrowing."
Lenders are consequently competing harder for customers. They're offering longer terms, holding interest rates low and offering more loan options, said Manlove, whose company provides the majority of its loans in Missoula and Ravalli counties.
"As a whole, the lending institutions are trying to be creative," she said.
The national refinance market is down, with the number of new home mortgages growing more slowly than in recent years.
"That's been slowing a bit this year and is down from
this time last year about
15 percent," said Mickey Kalavsky, a research specialist at the Mortgage Bankers Association in Washington, D.C. "The applications for the purpose of home purchase are down 18 percent, and that usually goes up over time."
Much of the decrease is probably due to interest rates, which have gone up 140 basis points for a 30-year fixed-rate rate since July 2005, Kalavsky said.
Rising interest rates and debt saturation are leading many analysts to predict a plateau in the real estate market, with a corresponding plateau in the construction industry.
Already, new construction is starting to slow down in the Missoula area, said Bridgette Evans, executive officer for the Missoula Building Industry Association. The rising cost of building materials and the equally rising cost of raw property, which is increasingly scarce inside the city limits, are pushing most new construction into outlying areas, she said.
"There is still quite a bit going in Lolo and the Bitterroot, quite a bit of construction still going on in the Missoula County area. But if you just look at Missoula, it's turning into a remodeler's market," Evans said.
Rising home prices are helping to fuel the flood of remodels and driving down the foreclosure rate. In fact, foreclosure rates in Montana dropped to a five-year low in the first quarter of 2005, and currently rest at about
Billowing prices are also having an effect on the rental market, Mahon said.
"A lot of times what happens in markets in which there's a rush to purchase new homes is that there's a decrease in rental prices, and that's because when people purchase a new home, they often divest of their rental properties, which causes a glut in the rental market," he said.
It certainly looks like there are more properties on the market these days, said Twila Wolfe, a Lambros real estate agent since 1990. Nevertheless, they're selling like hotcakes. New people are constantly moving in, and the people living here already are updating and remodeling to sell to them. That's allowing them to move up as well, freeing up space for lower-income residents looking to buy that first home, she said.
"The long-term projections that I have heard in the past, and I haven't heard anything to refute it, is that this area is going to continue to grow," she said.
Reporter Tyler Christensen can be reached at 523-5215 or at email@example.com.