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Hamilton & Bitterroot Rental Property Outlook – 2015

The property management outlook for Missoula and the Bitterroot Valley, through Hamilton, is cheery for 2015.  While there are some small changes to market conditions that will affect these markets, and several changes that will affect the rental market nationwide, there is no major disruptor that I’m aware of that could cause dramatic change.

Last year home prices rose at a rate of 10 – 12% nationally.  The regional average is in line with this.  Projections for this year are about half of 2015, for around 4-6% growth.  This is because more supply will be coming into the market as builders have increased production to meet demand.  Right now, inventory is below the usual six month average, which will likely change in 2015.

Credit is still very tight, and, while unemployment and underemployment have decreased over the past year, they will remain high.  Home values will raise more slowly this year also due to the low average equity Americans have in their homes.  About 40% of Americans have negative or very low equity in their homes, preventing them from trading up, making lateral moves, or even downsizing.  This further suppresses overall housing demand.

For those with the resources to buy, interest rates are continuing to tick upwards.  Lending standards have not been relaxed, making it more difficult to qualify for home loans.  Lenders are required to meet certain requirements for making “qualified mortgages” (QM).  QM loans have greater protection from lawsuits and are desirable for lending institutions, especially because Fannie Mae and Freddie Mac, by law, are only allowed to buy QM mortgages.  As these two institutions combined purchase over two-thirds of mortgages, institutions that deal in mortgage loans must deal on the terms that they set forth.  These QM loan rules will continue to slow the momentum of housing valuation increases, but hopefully protect us from a crisis like the one we witnessed in 2007.  Fannie and Freddie are also raising the fees they charge mortgage lenders, which makes Fannie and Freddie-backed loans more expensive.

These are some national trends that affect our local markets, but as is well known, real estate is a local phenomenon.  While Missoula and the Bitterroot markets will be affected by the above national factors, these two markets will continue to grow and stabilize.  Missoula will be affected by several major housing developments that should be completed this year.  But the number of new doors will be welcomed in Missoula and help to accommodate a very tight rental market.  Demand, reflected in vacancy rates, should not change significantly and should stay at a healthy 5%.

The Bitterroot will be fairly stable, with demand ticking upwards as not many new homes or housing developments have begun.  For both Missoula, Hamilton, and the rest of the valley, rent prices should reflect the general low vacancy rates, stay similar to last year, and increase slightly throughout the course of the year.

Property owners that own rentals should feel confident going into the New Year that housing prices are solidly stable with slow growth ahead. Rental vacancy rates are low and will continue to stay that way.  For those looking to invest, it is becoming increasingly more difficult to identify “bargain” properties, and margins are becoming thinner, but don’t let that worry you – opportunities always exist.

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