When it comes to Bozeman real estate, it has been another year of high demand, low supply, and rising prices. At the beginning of the year, the median sales price of a single-family home was $650,000. By the end of 2021, that price increased 20% to $780,000. What will 2022 bring? While we don't have a crystal ball, we have some predictions of what the real estate market might look like this year.
1) The Housing Boom Will Slow Down
By no means is the real estate bubble bursting, but we have seen signs of normal seasonal fluctuations return. This has been the case in Bozeman and nationwide. The fall and winter months generally see a slow down when it comes to real estate, especially during the holidays. In 2020, this did not happen so a few people thought the market was bursting when we began to see things calm down. Original predictions made in December of 2020 had housing prices increasing by 8%. What actually happened was prices saw a 23% increase, nearly triple those predictions! This makes the seasonal slow-down a welcome change, especially for home buyers.
As we look to 2022, Realtor.com estimates median sale price appreciation will be up 2.9%, homes sales will be up 6.6%, and mortgage rates will average 3.3% throughout the year. As we have seen in the last two years, Bozeman's market is no exception to the growth in home prices and we anticipate similar if not higher increases for 2022 although nothing like the frenzy we saw in 2021.
2) There Will be More Inventory
According to a research study by Zillow, 70% of real estate experts say they expect more houses to be listed in 2022 than in previous years. After years of historical lows, 2022 should see a rebound of homes for sale. Since 2020 buyers have been steadily increasing while the number of sellers has gone up and down. For 2022 Realtor.com predicts homes for sale will be up 0.3% which is encouraging. There are no signs of buyers slowing down, however, so the market will remain competitive. More inventory can cause a drop in value, but we don't anticipate that happening in Bozeman because buyer interest remains high and mortgage rates low.
New construction should begin to recover from 2021 adding to the increase in homes for sale. Supply issues and high prices for lumber, steel, and concrete (lumber prices rose as much as 250% in 2021!)* should start to calm down making it easier for new home starts.
3) Millennials Are Ready to Buy
Experts expect 45 million Millennials to enter the home buying market this year.** This will comprise more than half the market! This generation has waited longer to buy their first home than previous ones which makes them different than other first-time homebuyers. More Millenials are choosing the suburbs over city living and because many work remotely this is an easy option. Because they have waited longer and might have more buying power, they are by-passing the starter home and buying large homes. Millennials put a high value on quality of life, making moves to Instagrammable places like Montana a popular choice. They are also changing the way real estate happens, opting for technology over traditional practices.
4) The Migratory Surge is Slowing Down
Bozeman was a direct result of the urban to suburban flight! It happened all over the country when the pandemic began and cities started to lockdown. This has played out and while we are still in the middle of the pandemic we don't see it going crazy as it did before. When everyone began working remotely it made sense to get out of the city and move someplace with more space. As more people have gone back to work, the migratory surge slowed down. However, there are companies that have decided to stay remote or have some sort of hybrid work environment, so we will continue to see people leaving cities. If you only have to go into the office a couple of days a week, having a long commute for more space doesn't seem so bad.
We expect Bozeman and other Montana cities to stay on the radar but, we were not listed as one of the top ten housing markets positioned for growth for 2022! Salt Lake, Boise, and Spokane took the top three spots which does indicate the continued popularity of the mountain west. We are happy to welcome new people to Bozeman, but are fine with it slowing down a little!
5) Affordability Will Continue to be a Challenge
Across much of the country and certainly in Bozeman, affordability will remain a challenge. Even with the expected increase in inventory the market will stay competitive. Rental rates are predicted to outpace home price growth which will put more buyers in an already full market. Buyers are more likely to find a home in 2022, but they will still need to act fast and make strong offers.
In Bozeman, affordability has been a huge struggle made even more difficult with the surge of out-of-state buyers driving up home prices. The City of Bozeman has been working on ways to address these issues as we move forward. Companies, like Bozeman Health, are buying housing for employees, and HRDC continues to work to provide affordable housing to residents. Unfortunately, there is no easy solution and with growth continuing in Bozeman it is unlikely to be fixed anytime soon.
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*National Association of Home Builders