Housing Demand in Missoula, MT Continues to Grow

Housing Demand in Missoula, MT Continues to Grow

The state of Montana has long been known for being a great place to live and visit. Montana offers many wonderful communities that are surrounded by mountains and some of the most beautiful nature in the country. In recent years, many people have invested in new homes in cities across the state. While this started in Bozeman, it has expanded outwards and now the city of Missoula is seeing increased demand for any type of housing. Recently, the rental real estate market report for Missoula was released and provided data through the end of the third quarter of 2021. This report had some interesting information that highlights the demand in the area.

Very Low Vacancy Rates

One of the interesting facts about the rental market in Missoula is that vacancy rates are very low. Across the country, vacancy rates have consistently been around 5-6%. This tends to make sense as there can be a period of vacancy after someone moves out of a rental property as the owner may need time to make repairs and lease it back up. However, Missoula has continued to have a very low rental vacancy rate. The rental rate in 2021 through the end of the third quarter was less than 2%. There was also a quarter towards the end of 2020 in which the vacancy rate was under 1%. This high occupancy rate can make it hard for new people to find a home in the area and continued demand could see vacancy rates decline even further.

Available Supply is Declining

Similar to other markets across the country, housing prices across the state of Montana increased dramatically in 2021. Those that were investors in rental properties here could have seen this as an opportunity to capitalize on the demand and then sold their homes. Due to this, there are fewer properties available for rent now than there were just one year ago. Overall, there are reported to be 150 fewer available rental housing units, which is likely also contributing to the vacancy decline.

Increasing Rental Rates

Due to a continued increase in demand for housing in the Missoula area as well as a drop in supply, people all over the area are experiencing an increase in rental rates as the years go by. Since prior to the start of the pandemic in the Missoula area, average asking rents were up more than 8%. This is a significant increase for only an 18 month period. However, there seems to be some stabilization in rates as the increase in recent quarters was much more modest.

Those that are evaluating rental rates on average in Missoula should remember that the summer months tend to be more volatile. There are many people that will move in and out of the area towards the end of summer and many leases mature at this time. Due to this, there tend to be more openings and rental rates could decline slightly this time of the year.

New Rental Construction Starts in Area

While Missoula continues to have a lot of demand for housing, there is still a lot of undeveloped land in or just outside the community. Due to this, it is an area that is poised to bring on more new developments. As of the end of the third quarter of 2021, there were permits in the pipeline for the development of more than 1,100 new homes and units. This was more than triple the amount during the same time the prior year.

While there is clearly a need for more housing, the costs of developing a new project can be prohibitive. In the last year, the costs of lumber and other supplies have increased dramatically, and supply chain challenges are not helping. Further, with a low unemployment rate finding affordable and skilled labor is more challenging as well. Due to this, total project costs could increase, and it remains to be seen if market rental rates in the area will support the higher expenses.

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