The Outlook for Real Estate and Construction

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1 The Outlook for Real Estate and Construction Brandon Bridge Economist and Director of Forecasting Bureau of Business and Economic Research University of Montana

2 Are Real Estate Markets Finally Normal? Distress sales, foreclosures, & delinquencies are behind us Many Montana markets are booming Price appreciation, sales volumes roaring back Low inventories in high demand areas creating sellers market Single family home construction is restrained Underwater mortgages still exist

3 Strong Housing Price Growth Since 2011 FHFA Housing Price Index, U.S., 1991= Montana United States Source: Federal Housing Finance Agency,

4 Housing Price Increases Since 2000 Closely Track Economic Growth Percent Change, Housing Price Index, 2016 vs. 2000

5 Housing Price Increases Since 2000 Closely Track Economic Growth Percent Change, Housing Price Index, 2016 vs Whitefish Glasgow Sidney Missoula Conrad Havre Miles City Glendive Bozeman Billings

6 Price Growth in Great Falls Region is More Restrained Percent Growth in Housing Price Index by Zip Code Since 2012 Conrad, 11.9% Great Falls, 11.6% Source: Federal Home Finance Agency

7 Whitefish Pacing Price Growth in Northwest Montana Percent Growth in Housing Price Index by Zip Code Since 2012 Kalispell, 19.3% Whitefish, 26.8% Somers, 24.2% Source: Federal Home Finance Agency

8 Strong Price Acceleration in Bozeman Percent Growth in Housing Price Index by Zip Code Since 2012 Belgrade, 41.0% Bozeman, 36.2% Bozeman, 35.0% Source: Federal Home Finance Agency

9 Price Growth More Restrained in Helena Percent Growth in Housing Price Index by Zip Code Since 2012 Helena, 10.9% Townsend, 12.6% Source: Federal Home Finance Agency

10 Urban Areas Faring Well in Missoula Region Percent Growth in Housing Price Index by Zip Code Since 2012 Missoula (Rattlesnake), 16.9% Hamilton, 17.3% Source: Federal Home Finance Agency

11 Billings Home Prices Holding Up Percent Growth in Housing Price Index by Zip Code Since 2012 Billings, 16.6% Livingston, 24.6% Source: Federal Home Finance Agency

12 No Sign of Moderation in Rents $750 $700 $ % per year -.1% per year $600 $550 $ % per year $450 Montana Residential Rent, Inflation Adjusted (2014$) Source: U.S. Census Bureau.

13 Will the Erosion of Homeownership Rates Continue? Percent 76% 74% 72% Montana 70% 68% 66% 64% U.S. 62% Source: U.S. Census Bureau.

14 Markets Looking Much Healthier Cascade County Market Statistics Number of Sales Median Sale Price 1,100 $190,000 1,000 $180,000 $170, $160, $150, $140, $130, Source: Great Falls Association of Realtors Days on Market

15 Markets Looking Much Healthier Flathead County Market Statistics 2,000 1,800 1,600 1,400 1,200 1, Number of Sales $260,000 $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 $190,000 $180,000 Median Sale Price Source: Montana Department of Revenue.

16 Market Continues to Heat Up Gallatin County Market Statistics for Single Family Homes 1,600 1,400 Number of Sales Median Sale Price Days on Market 1, , Source: Gallatin Association of Realtors.

17 Sale Price Growth Lewis and Clark County Market Statistics 1,480 1,280 1, Number of Sales $250,000 $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 Median Sale Price Source: Montana Department of Revenue.

18 Sale Price Growth Missoula County Market Statistics 1,880 Number of Sales $260,000 Median Sale Price 1,680 1,480 1,280 $240,000 1, $220, $200, $180,000 Source: Montana Department of Revenue.

19 Markets Looking Much Healthier Ravalli County Market Statistics 750 Number of Sales $260,000 Median Sale Price 650 $240, $220,000 $200, $180, $160,000 Source: Montana Department of Revenue.

20 Markets Looking Much Healthier Silver Bow County Market Statistics 450 Number of Sales $140,000 Median Sale Price $130, $120, $110, $100, $90,000 Source: Montana Department of Revenue.

21 Markets Looking Much Healthier Yellowstone County Market Statistics 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1, Number of Sales $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 Median Sale Price Source: Billings Association of Realtors

22 Markets Looking Much Healthier Fergus County Market Statistics Number of Sales $150,000 $130,000 $110,000 $90,000 $70,000 $50,000 Median Sale Price Source: Montana Department of Revenue.

23 Markets Looking Much Healthier Hill County Market Statistics Number of Sales $170,000 $150,000 $130,000 $110,000 $90,000 $70,000 Median Sale Price Source: Montana Department of Revenue.

24 New Home Construction is Restrained Housing Permits, Montana Permits 10,000 9,000 8,000 7,000 6,000 5,000 Total Single Family 4,000 3,000 2,000 1,000 0 Multi-Family

25 Thousands Surge in Multi-Family Structures New Privately Owned Housing Units Under Construction, 5-Units or More, U.S. Source: U.S. Census Bureau

26 Housing Starts, 2016 as Pct. Of Peak Source: BBER

27 Percent Housing Starts, Cascade County vs. Montana Index, 2001 = 100 Montana Cascade Source: Bureau of Business and Economic Research and U.S. Census Bureau.

28 Percent Housing Starts, Flathead County vs. Montana Index, 2001 = 100 Flathead Montana Source: Bureau of Business and Economic Research and U.S. Census Bureau.

29 Percent Housing Starts, Gallatin County vs. Montana Index, 2001 = Montana Gallatin Source: Bureau of Business and Economic Research and U.S. Census Bureau.

30 Housing Starts, Lewis and Clark County vs. Montana Index, 2001 = 100 Percent Montana Lewis & Clark Source: Bureau of Business and Economic Research and U.S. Census Bureau.

31 Percent Housing Starts, Missoula County vs. Montana Index, 2001 = 100 Montana Missoula Source: Bureau of Business and Economic Research and U.S. Census Bureau.

32 Percent Housing Starts, Ravalli County vs. Montana Index, 2001 = Montana Ravalli 0 Source: Bureau of Business and Economic Research and U.S. Census Bureau.

33 Single Family Housing Starts, Silver Bow County vs. Montana Index, 2001 = 100 Percent Silver Bow Montana 0 Source: Bureau of Business and Economic Research and U.S. Census Bureau.

34 Housing Starts, Yellowstone County vs. Montana Index, 2001 = 100 Percent Yellowstone Montana 0 Source: Bureau of Business and Economic Research and U.S. Census Bureau.

35 Home Inventories Lowest in 25 Years Homes for Sale as Percent of Households, U.S. Source: NAR and U.S. Census Bureau

36 Steady Growth in Mortgage Originations 26,000 Mortgages Originated, Montana 4 Mortgage Dollar Volume, Montana , , , , * * Source: AEI

37 Housing Affordability Not Easily Solved Percent Housing Prices Median Household Income Montana Housing Price Index and Montana Median Household Income Index, 2001 = 100 Source: U.S. Federal Housing Finance Agency and Census Bureau.

38 Looking Ahead to 2018 Interest Rates are Moving Up

39 Mortgage Rates Creeping Up to Historical Norms 6.00 Predicted year mortgage Federal Funds Source: IHS Markit

40 Looking Ahead to 2018 Interest Rates are Moving Up Tax Reform Takes Hold

41 How Will Tax Reform Impact Real Estate? Law is friendly to commercial development Mortgage interest deduction caps (from $1M to $500K) will have limited impact on Montana Subsidized housing programs may be affected What will happen when budget deficits swell?

42 Looking Ahead to 2018 Interest Rates are Moving Up Tax Reform Takes Hold Is Real Estate Risk Growing?

43 Assessing Housing Risk Price growth is challenging loan quality Median down payment of home buyer in 2017 was 10% 1.36 million mortgages underwater in 2017 is still twice the pre-crash level Other forms of debt (especially student debt) have risen significantly

44 Outlook for 2018 Real estate markets in Montana will remain strong Affordability will get worse Residential construction will continue to underperform The boom in multifamily construction is over Risk is growing, but still not a concern

45 Questions?

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