By Darrell Ehrlick DAILY MONTANAN
If you could pick only one statistic to illustrate Montana’s lack of affordable housing, it may be this: Roughly 80% of mortgage holders in the Treasure State have rates that are 2% to 3% below the current mortgage rates.
That means that unless a property owner is forced to move, it usually doesn’t make any sense to buy a different house — just the interest rates alone would mean hundreds of dollars more a month in mortgage, even for the same amount of house.
Montana’s market is essentially frozen.
Couple that with soaring house prices that have seen the average median cost more than double in less than a decade in most Montana cities, and it means that current homeowners would get substantially less for the same amount of money — if they could afford housing at all.
“Like many of you, I couldn’t afford my own home,” said Missoula Mayor Andrea Davis.
The problem isn’t just squeezing folks who were already struggling to pay a mortgage or rent, it has been hitting some unexpected residents.
Davis told an auditorium full of people convened to talk about housing troubles that the University of Montana law school, the state’s only one, couldn’t hire its top choice of a dean because the six-figure salary was insufficient for housing.
“This is a concern everywhere,” said Benjamin Horowitz, with the Minneapolis Federal Reserve Bank, one of the regional federal banking branches that makes up the Federal Reserve System. Among the things “The Fed” controls is the federal loan rate, the amount that the government charges banks for money, which, in turn, helps dictate interest rates for a number of things from home mortgages to credit cards.
The concern about housing, credit and affordability aren’t new to the financial experts at The Fed, and Horowitz said it extends beyond just putting a roof over your head.
“We’re seeing the concern everywhere,” Horowitz said. “We’re connecting the housing problem with problems in economic development.”
Workers cannot move to take better jobs and climb an economic ladder. Or, workers cannot afford to move to other communities. That puts a drag on different communities’ economic development plans.
He pointed out that problems with housing and affordability also branch out into other areas. For example, new research also indicates that rent levels are a better predictor of homelessness levels than any other other statistic. Higher rents equal more homelessness.
If you don’t build it, they’ll still come
Looking at Montana compared to its neighboring states shows that while the Big Sky State is facing similar trends, several of its unique aspects help explain why affordable housing is more acute here.
“Montana sees a lack of production relative to demand,” Horowitz said.
That lack of production has meant a compounding of the problem: More people continue to move to Montana without having enough housing in the first place, which has caused prices to escalate even more.
That problem worsened during the 2020 COVID-19 pandemic. During the pandemic, home prices across the Rocky Mountain West skyrocketed, but Montana pulled away from most of the surrounding states, becoming an outlier among outliers. From 2010 to 2020, there was a 9.6% population growth while only a 6.6% housing growth.
After the pandemic, surrounding states saw a burst of home building, but between 2020 and 2023, Montana was the only state to still lag.
“The trend has still not reversed,” Horowitz said.
Even though Montana has a net negative population replacement rate— that is, residents are dying faster than the birth rate— that is completely offset and overshadowed by the net in-migration rate, which is the number of people moving here from out of state. In other words, despite more deaths than births, the state’s population is still growing, completely because of in-migration.
Montana led most states in the region with domestic migration, or the number of people moving here from other states. It’s current yearly rank is No. 5, eclipsing even Idaho. And, Horowitz said, nearly all that in-migration is coming from other states — Montana ranks No. 51 when it comes to international migration.
A state not like the others
One of the other unique trends that makes Montana a bit of a case study unto itself is that pattern of growth, as compared to its neighbors, Horowitz said.
While the common narrative about housing tends to blame out-of-state residents for gobbling up the homes available on the market, Horowitz said that the statistics blow that narrative out of the water. Most competition for housing comes from other Montanans, and because of housing that hasn’t kept pace with population growth for years, the limited supply and high demand has caused meteoric price increases.
Though places like Bozeman and Missoula have become national poster children for unaffordable housing, and in some cases becoming more expensive than even Seattle or Portland, the housing demand has also been more spread out in Montana. In other words, it’s not just Bozeman and Missoula.
That stands in stark contrast to surrounding states. Take North Dakota, for example, Horowitz said. In North Dakota, 99% of the population growth has been concentrated in Fargo and Bismarck.
In South Dakota, 75% of the population growth has been limited to Sioux Falls and Rapid City. In Idaho, more than half of the growth has been isolated to the Boise region.
“In Montana, you don’t see one region dominate in one way like that,” Horowitz said.
Until the COVID pandemic, many markets in Montana were still considered relatively affordable, he said.
“That’s no longer the case,” Horowitz said. “Every metro region in Montana is experiencing its lowest level of affordability on record.”
Unaffordable meet unaffordable
While many home shoppers look at the price of housing, whether apartments or houses, as being out-of-reach, the same can be said of potential sellers. Horowitz presented data that show 66% of Montana homeowners who have a mortgage have a rate of 4% or less, well below current lending rates. That means that most Montanans couldn’t afford to move, or if they did, they’d get considerably less house for arguably more money.
That’s a frozen market.
But it also disrupts a common cycle seen for years where homeowners “trade up,” using stable mortgage rates to buy bigger, or newer houses using equity and interest rates to climb a ladder. That, in turn, opens up lesser-cost housing for first-time homebuyers. But the increase in lending rates and home prices stopped that cycle.
Horowitz pointed out that currently there’s a 14,000 housing unit gap, more than triple the amount that existed just a few years ago in 2021.
Put another way: It would take three years of constant building at Montana’s current rate just to meet the demand that already exists, without adding any more demand.
