In a culture where national news sources reign supreme and are often used to get the bigger picture of our economic state, any objective assessment of the year must go beyond a comparison with prior years and consider the year in relationship with our state, region, and country.
For the US, median home prices at the end of December 2008 were down by about 25% from their peak in mid-2006, and in 2008 fell by 7%, the largest one-year decline in the past 38 years. For Missoula, median home prices for 2008 were down 2% from their highest-ever level in 2007, representing the only year-to-year decline this decade.
Foreclosures nationally surged by 81% from 2007 to 2008. For Missoula, foreclosures in 2008 increased by 18% over 2007. In the US, building permits issued for new construction fell by 63% from 2005 to 2008. The equivalent decline for the city of Missoula was 49%.
Due to the relative strength of the Missoula housing market as compared to the national picture, housing affordability has not improved locally to the same extent it has improved in some regions in the US. For the US as a whole, the mortgage payment on a median priced US home had fallen to about 17% of average family income by year-end 2008, from more than 25% two years ago. Affordability arguably remains thegreatest challenge in our local market.
Regarding the future, expert consensus is that the recovery of the US economy in general and the housing industry in particular will be a slow. A few indicators have recently brightened the national housing picture, for example, with home sales nationally jumping by more than 6% in December 2008 from the previous month’s sales – the largest one-month gain in nearly seven years.
December’s increased home sales nationally were likely aided by mortgage interest rates hovering around 5%, the lowest level in decades, and an increased number of distressed sales. Historically low interest rates also prevailed at year-end 2008 in our local market, yet did not immediately spur home sales. Caution among would-be Missoula homebuyers may be a natural reaction to nationwide indicators and fears – such as a pervasively gloomy near-term outlook for the US economy, consumer confidence that’s at an all-time low, and the absence of mortgage liquidity, among other factors.
So Missoula’s housing market, as well as its overall economy, enjoys a level of health and stability in early 2009 that would be envied by most of the country. This state of affairs, combined with favorable indicators such as mortgage interest rates, as well as the historical resilience of Missoulians, combine to provide realistic potential for a stronger local housing market when the economy begins to rebound.