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Weekly UpdatesMore than 76,000 home sales took place in Montana since January 1, 2003. 2005 was the peak year for sales, with 16,179 transactions taking place, but this was only slightly higher than the 2004 and 2006 sales levels (Figure 1). In calendar year 2007, sales dropped by more than 20 percent. The available 2008 year-to-date data show further declines.
The majority of home sales take place in just a few counties. On average, two-thirds of the homes sold were located in Yellowstone, Flathead, Missoula, Gallatin, Cascade, or Lewis and Clark counties, generally following a pattern of the most-populated counties having the highest sales levels. Many other counties have relatively few sales in a given year.
Total sales volume in Montana was more than $14 billion from 2003 to 2007, with sales in eight counties representing more than 80 percent of the total dollars spent in home purchases. Flathead County had the highest sales, totaling nearly $2.6 billion between 2003 and 2007. Available 2008 year-to-date data show $1.4 billion in total sales.
Newly-constructed homes sold for, on average, 30 to 50 percent more than existing homes, pushing statewide average home prices higher (Figure 2). While the average price of existing homes rose from $151,109 to $226,255 between 2003 and 2008, average prices of new homes rose from $208,964 to $349,071 in the same time period. Comparisons of median prices show a similar pattern, with the median price of new homes 25 percent above that of existing homes.
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Over the past five years, fewer inexpensive homes were sold, with homes priced at less than $150,000 declining from 57 percent of sales in 2003 to less than 30 percent in 2007. During the same time frame, sales of homes costing $500,000 or more grew from 2 to 5 percent of transactions statewide.
Statistical tests confirm that average home prices grew in 20 of Montana's counties in 2006 and in 13 counties in 2007. Using available data, seven counties showed statistically-significant increases between 2007 and 2008. In two cases--Gallatin County in 2006-2007 and Flathead in 2007-2008--average prices fell by a significant amount. In the rest of Montana, price differences from year to year were too small for the tests to identify.
Average Prices: The Mix Matters
If you have ever shopped for a home, you know how difficult it can be to compare properties, which may differ in such areas as size, style, and location. This problem also exists when you compare average home prices between year-to-year or county-to-county. Average prices could be higher one year due more to the characteristics of the properties that sold than because overall home values in that area were increasing.
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Using a statistical model of home prices, which reduces the influence of the home's characteristics, it often is possible to see if prices are changing because the underlying value is changing or just the mix of properties which sold in that time frame. Using this type of model--once differences in the size, age, style, condition, and location of the home are isolated--it appears that the underlying value of Montana housing properties continued to grow even in 2008.
Average Montana home sale prices grew by a statistically-significant amount each year since 2003. In 2008, this increase is estimated at 2 to 3 percent. A 40-square-foot increase in living area or a three-year decrease in the effective age of the home added 1 percent to its sale price. Higher appraisal scores for Condition, Desirability, and Usability (CDU) or Residential Grade, led to higher prices.
The style of home also mattered, with log homes, for example, selling for 35 percent above average and condominium units selling for 25 percent less.
These model results also suggest that a home sold in some parts of Montana would bring a significantly higher price than if this same house were found in other parts of the state. For example, a given house located in one of the gray-shaded counties in Figure 3 would likely sell for 50 percent or more than if that same home was located in one of the dark gold-shaded counties. In some counties, this price differential could be even higher.
Using the same model-based approach, the available data shows that average Montana home values continued to grow in 2008 for each of the following categories: small homes, large homes, new homes, and existing homes.
With these results, it appears that the decline in 2008 average prices for small and large homes was due to the characteristics of the homes sold in that year, not to a decline in the underlying value of these home types.
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A Forecast of 2009 Housing Sales
Forecasting sales for 2009 is a daunting task. Figure 4 shows the substantial decline in the number of homes sold each month since 2006. A time-series analysis of 2003 to 2008 data suggests a 25 percent or larger decrease in total 2008 home sales, with approximately 8,950 transactions, and an additional 5 percent decline in 2009. Important factors of this forecast include an estimated 50 percent decline in new home sales and continued weakness in the overall economy.
From the available data, it is possible that average Montana home sale prices will decline in 2009, while underlying home values hold steady or even grow. With newly-built homes selling for significantly more than existing homes, the fall-off in their share of total sales will reduce sales price averages. Also declining are sales of high-end properties, with price tags of more than $1 million. The combination of these factors could, in themselves, reduce the average price of those sales that do take place in 2009. But to date there is insufficient evidence that the typical Montana home, if sold in 2009, would bring less than it would have sold for in previous years.
Summary
From its peak in 2005 to 2006, the Montana housing market has slowed considerably, but in general, home prices continue to hold. A few of the counties that saw the most rapid run-up in sales and prices are now experiencing price declines, but overall, the value of typical Montana homes continues to grow. This sales downturn may continue into 2009, with the change in the mix of homes sold pushing average sale prices lower than previous years.
Scott Rickard is the director of the Center for Applied Economic Research at Montana State University--Billings.
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