The 2015 Flathead County Real Estate Market

The Flathead Real Estate Market continues to improve with a near record number of sales in 2015

By Jim Kelley Kelley Appraisal 1001 South Main Street Kalispell, MT (406)755-2015

http://kelleyappraisal.net/ [email protected]

TABLE OF CONTENTS

INTRODUCTION Summary: About Jim Kelley: EMPLOYMENT SUBDIVISION ACTIVITY NEW CONSTRUCTION LOT CREATION VS NEW CONSTRUCTION Flathead County: RESIDENTIAL SALES Residential Sales (No Waterfront and Less than Two Acres): Foreclosures (No Waterfront and Less than Two Acres): Residential Sales Volume: Price Distribution of the Residential Market: RESIDENTIAL SUB-MARKETS Kalispell(City Limits): Kalispell Area(Within 3.5 Miles of the City Limits): Whitefish (City Limits): Whitefish Area(Within 3.5 Miles of the City Limits): Columbia Falls(City Limits): Columbia Falls Area(Within 3.5 Miles of the City Limits): Bigfork Area(Within Five Miles of Electric Avenue): Lakeside Area(Within Five miles of downtown Lakeside): Flathead Lake Lakefront Homes (Flathead and Lake County: Whitefish Lake Lakefront Homes: LAND MARKET HOUSING AFFORDABILITY FORECLOSURES COMMERCIAL REAL ESTATE MARKET Yearly Commercial Sales: Percentage of New Commercial Listings that Sold: Commercial New Construction in 2015:

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INTRODUCTION Summary: This report addresses statistical details of the Flathead County Real Estate market over the last few years and summaries on the 2015 market. In general, 2015 was mostly stable with numbers similar to 2013 and 2014. The following is a list of some key points: 1. 2.

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7. 8. 9. 10.

The employment picture continues to improve. Subdivision activity continues near its all-time low, but as the inventory of bank-owned has mostly gone away. There is some new interest in development, but mostly within the City limits. There continues to be little interest in rural subdivision development. New home construction continues at a relatively low rate. It did increase in Kalispell, decreased in Whitefish and was about the same in Columbia Falls. There was a small increase in septic permits in the County. The number of residential home sales increased by 11.0% in 2015 and the inventory of homes has mostly stabilized. REO sales continue to decline and are no long a material segment of the Flathead Market. Of the County’s sub-markets, most areas showed a slight increase in the number of sales. The largest increases were in the Columbia Falls area as well as the Lakeside/Somers area and the Bigfork area. Whitefish had a substantial decrease in the number of sales and is most likely due to some relatively steep price increase in their median and average home price. The number of land sales were very slightly lower than 2014. Housing continues to be affordable, but as interest rates start to increase, the affordability level tends to decrease. The number of foreclosures continued to decrease through 2015. Commercial property sales increased in 2015 and the number of commercial REO sales decreased. Commercial vacancies decreased through 2015.

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About Jim Kelley: Jim is the owner of Kelley Appraisal and is a 1975 graduate of the University of Montana Business School. He has been a leading provider of appraisals for commercial, residential and investment real estate in northwestern Montana for the last 36 years. With extensive professional experience and education in Finance, Mr. Kelley specializes in appraisals for purchases, sales, commercial loans, residential loans, and litigation. Mr. Kelley has built the most extensive statistical data base for the economic and real estate in northwestern Montana and been a guest speaker in the finance industry on numerous occasions. He was an invited lecturer to college students in China in 2007 on how the real estate and the appraisal business works in the United States. Mr. Kelley's active roles in the Flathead Valley community in the past 36 years extend also into sailboat racing on the Flathead Lake and skiing on the Big Mountain. Kelley Appraisal has extensive experience, education and qualifications in the following: • • • • • • • • • • • • • • • • • • • •

All Classes of Commercial Property Appraisals All Classes of Industrial Property Appraisals Commercial and residential real estate loans Subdivision analysis, valuation and market studies Condominium project analysis, valuation and market studies Complex real estate problems Appraisals using the Uniform Appraisal Standards for Federal Land Acquisitions aka “Yellow Book” Real estate portfolios Proposed properties and construction loans Legal and tax matters Litigation support and court testimony Partial interests of property rights Estate settlements Estate planning High-end residential properties Rural land and large acreage appraisals Recreational and waterfront properties Historical values and related value trends Forensic real estate valuation Market studies and analysis

For information on pricing for any of the services offered by Kelley Appraisal, E-mail [email protected]

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EMPLOYMENT

Throughout most of 2015 the unemployment rate continued to decrease with a low in September of 4.4%. A key number that I look at is the actual number of people that are employed. In 2015 the average number of people employed was 41,906, which is about the same as it was in 2014 with 41,997 employed.

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SUBDIVISION ACTIVITY Kalispell: In the City of Kalispell, there were 34 new lots created, compared to 36 in 2014. Land Subdivision, City of Kalispell 1996-2015 (includes all types of lots including roads and open space)

Source: City of Kalispell Planning Department Subdivision Applications: 1996-2015

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Whitefish: In the City of Whitefish, there were 48 new lots created, compared to 44 in 2014.

Columbia Falls: In Columbia Falls there was a three lot commercial subdivison.

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Flathead County (Outside the Cities):

Flathead County reported that there were 125 plated lots and 83 lots created by a certificate of survey. The total number of lots created in the County in 2015 was 208, which is down from 277 in 2014.

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NEW CONSTRUCTION In Kalispell, there were 72 Single Family Residences, 4 duplexes, 12 townhouses and 96 multifamily units for a total of 184 units. The following graph of Kalispell's activity is from the 2015 Kalispell Building Department report. Building Permits Issued for New Residential Units by Type, 1991 – 2015

Source: City of Kalispell Building Permits 1991-2015

Whitefish reported 48 SFRs, 12 duplexes or townhouses and 7 multifamily units. Columbia Falls reported 15 SFRs, no duplexes, two townhouses and 14 multifamily units.

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Flathead County: Because Flathead County does not issue building permits, the next best estimate comes from the number of septic permits. In 2015, there were 466 final septic inspections, 439 written permits and 564 applications.

The 466 septic inspections are a reasonable estimate of the number of completed properties in the County. They include both residential and commercial. These figures can be somewhat misleading, because if there is a community sewer system, several new homes could be under one septic inspection.

Note:

Areas are based on the zip code areas that is outside the cities. Page 9 of 39 - Kelley Appraisal

City and County Construction Summary:

The following graph shows a 11-year history of the totals from each city with the line graph showing the overall totals.

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LOT CREATION VS NEW CONSTRUCTION The following graphs illustrate the historic relationship between new lot creation and new construction. City of Kalispell: Kalispell had 34 new lots created and 184 building permits. There are currently preliminary plats on file for new 1,055 lots in Kalispell. In the l a s t s i x ye a r s , preliminary plats on 478 lots have already expired. Supplied by the Kalispell Building Department.

City of Whitefish: Whitefish had 67 building permits and 48 new lots created. At this time, there are preliminary plats for 20 lots which will likely be completed in 2016. Supplied by the Whitefish Building Department.

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Flathead County: The graph to the right shows the relationship between lot creation and final septic inspections in Flathead County. Up until 2010, lot creation out paced new construction. From 2010 through 2014, the number of lots created were approximately the same as the number of new construction projects. In 2015 new constrction outpaced lot creation with 208 lots created and 466 new constrction projects. Since 1991, the total number of l ot s created was 18388 and the total number of final septic inspections totaled 13610. The net difference over the last 24 years is that there have been 4,778 more lots created than there have been construction projects on them.

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RESIDENTIAL SALES The following is a 16-year history of home sales in Flathead County. The key data points are the number of sales and the median price. The market appears to have found its bottom from the recent recession in 2011. In 2013 prices started to increase and that continued through 2015. A primary factor in the increased over the last three years, is the bank-owned and shorts sales are no longer a primary factor in the market.

2015 was the best year for home sales since 2006. There were 1673 homes sales reported in Flathead County in 2015, compared to 1,505 in 2014 which represents an 11.2% increase. The median price finished at $242,500, which is 5.4% above the 2014 median of $230,000. Although the 2015 median is up from 2014, it is still 3% below the 2007 high of $250,000 and very close to the 2006 median of $245,000. Overall, the entire year was strong with the number of sales being up 14% in the first quarter, up 16% in the second quarter, up 5% in the third quarter, then finishing off the year with a plus 13%. This January, there are 1065 homes that are on the market compared to 1088 in January of 2015 and 1185 in January of 2014. With 1076 current listings, this represents 7.6 months of inventory compared 8.8 months of inventory in January of 2015. .

As we go into 2016, it will be interesting to see if the strong market that existed all though 2015 will continue. In 2015, the average 30-year mortgage interest rate was just under 4% as compared to an average rate of 4.3% in 2014. This continued lower rate is likely one of the reasons for the near record number of home sales in 2015. In December the Federal Reserve increased that rate for the first time in several years and will likely result in higher mortgage interest rates in 2016.

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Overall Residential Foreclosures: Of the 1,673 Flathead County residential sales in 2015, only 6.9% were bank-owned properties and 1.0% were short sales. Both the percentage and total number of bank-owned sales were down from previous years.

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The following graph shows a month over month history of REO listings. It is noted that the number of REO listings is decreasing.

The number of residential REO sales continued to decrease through 2015. The low munber of REO sales as well as the low number of REO listings all suggest we are returning to a strong housing market. Page 15 of 39 - Kelley Appraisal

Residential Sales (No Waterfront and Less than Two Acres): The graphbelow addresses just residential properties which do not have water frontage and are on less than two acres. This is the type of residential properties that are more typically bought and sold by full-time Flathead County residents.

This residential properties show the same general pattern as were seen in the overall market. In 2015 the medina price of these homes was $220,000 and the average sales price was $254,461.

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Foreclosures (No Waterfront and Less than Two Acres):

On this class of residential property, only 6.9% were bank-owned properties and 1.0% were short sales. This continues to indicate that distressed properties are no longer a material factor in the Flathead home market.

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Residential Sales Volume: This following graph illustrates a history of residential sales as they relate to the number of new listings that came on the market. This graph shows a increase from 55.3% in 2014 to 60.2% in 2015.

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Price Distribution of the Residential Market: This following table shows the distribution of the listings and sales in each price range and the total months inventory in each price range.

According to the National Association of Realtors research department, the national average inventory as of November 2015, was 5.1 months. In Flathead County, the average inventory for properties under $300,000 is 4.0 months and the overall average is 7.6 months.

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This next table show the distribution of residential listings and sales by lot size and shows that the largest percentage of the demand is for homes on small lots that are typically in an urban location.

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RESIDENTIAL SUB-MARKETS Kalispell(City Limits): This data represents sales and listings that are only within the City limits of Kalispell.

In 2015, home sales in the Kalispell City limits sales represented 27% of the overall residential market with 450 home sales. This is up 2% from 441 sales in 2014, but the percentage of sales in down from 29% of the market in 2014. The median home price in Kalispell was $189,500, which is a 6.8% increase over the 2014 median of $177,500. This 6.8% increase was greater than the 5.4% median price increase that was seen in the overall housing market in Flathead County. The 2015 median price of $189,500 nearly equaled the 2007 high of $190,000. Both 2014 and 2015 represented a record number of sales in Kalispell, with the previous high being 412 sales in 2005. This January, there are 151 homes that are on the market within the City limits compared to 179 in January of 2015 and 222 in January of 2014. With 151 current listings, this represents just four months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was five months inventory in Kalispell. Forclosure sales were slightly up, representing 8.4% of the sales, but short sales were down to 1.3%. Overall, distressed sales remained about the same as 2014, with 9.7% of the Kalispell market in 2015 and 10.2% in 2014.

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Kalispell Area(Within 3.5 Miles of the City Limits):

The total number of sales within 3.5 miles of the Kalispell City limits represents 44.9% of the total number of residential properties sold. The median price increased by 6% to $203,500, which is equal to what it was in 2006 and less than 2% below the high of $207,000 in 2007. This January, there are 300 homes that are on the market in the Kalispell area compared to 341 in January of 2015 and 443 in January of 2014. With 300 current listings, this represents just 4.8 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 5.7 months inventory in this same area. Bank-owned and distress sales were about the same as they were in 2014.

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Whitefish (City Limits): This data represents sales and listings that are only within the City limits of Whitefish.

The Whitefish City limits sales represented 8.3% of the overall Flathead residential market with 139 home sales. This is a 23.6% drop in the number of sale from what it was in 2014 following an 8.1% drop from 2013. One of the likely reasons for two strait years of decreasing numbers is that the median home price increased by 17.3% in 2014 and another 11.3% in 2015 to $320,000, which is nearly equal to the high of $322,000 in 2007. The combination of rapidly increasing prices and the decreasing number of sales suggest that Whitefish is pricing itself out of the market. This January, there are 142 homes that are on the market within the City limits compared to 131 in January of 2015 and 132 in January of 2014. With 142 current listings, this represents 12.3 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 8.6 months inventory in Whitefish. In 2015 there were aonly five forclosure and distressed sales, compared to seven in 2014, which represents a very small part of the Whitefish housing market.

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Whitefish Area(Within 3.5 Miles of the City Limits):

The total number of sales within 3.5 miles of the Whtefish City limits represents 17.5% of the total number of residential properties sold. The median price increased by 9.6% to $312,500, which is still below the 2006 and 2007 median home price. This January, there are 272 homes that are on the market in this Whitefish area compared to 262 in January of 2015. With 272 current listings, this represents 11.2 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 11.3 months inventory in this same area. Bank-owned and distress sales were slightly lower than what they were in 2014.

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Columbia Falls(City Limits):

The Columbia Falls City limits sales represented 5.4% of the overall residential market with 90 home sales, which is the most that have ever sold in the city limits. This is a 34.3% increase in the number of sale from what it was in 2014. One of the likely reasons is that as Whitefish becomes more and more unaffordable, buyers are shifting to Columbia Falls and Kalispell. Prices had large increases in Columbia Falls from 2012 through 2014 and have now appeared to stabilize wilth only a 1.8% increase in 2015. This January, there are 31 homes that are on the market within the City limits compared to 32 in January of 2015 and 37 in January of 2014. With 31 current listings, this represents 4.1 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 5.8 months inventory in Columbia Falls. Forclosure and distressed sales have decrease substantially and are now only a small part of the Columbia Falls market.

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Columbia Falls Area(Within 3.5 Miles of the City Limits):

The total number of sales within 3.5 miles of the Columbia Falls City limits represents 11% of the total number of residential properties sold. The median price showed a slight decline of 1.6% to $210,000.. This January, there are 80 homes that are on the market in this Columbia Falls area compared to 98 in January of 2015. With 80 current listings, this represents 5.2 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 8.1 months inventory in this same area. Bank-owned and distress sales in the greater Columbia Falls area were also slightly lower than what they were in 2014.

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Bigfork Area(Within Five Miles of Electric Avenue):

The total number of sales within five miles of Bigfork represents 8.7% of the total number of residential properties sold and a 17.6% increase over the number sold in 2014. The median price showed a slight decline of 4.1% to $278,000. This January, there are 146 homes that are on the market in this area compared to 140 in January of 2015. With 146 current listings, this represents 12.0 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 15.2 months inventory in this same area. Bank-owned and distress sales were about the same as there were in 2014.

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Lakeside Area(Within Five miles of downtown Lakeside):

The total number of sales within five miles of Lakeside represents 5.1% of the total number of residential properties sold witha total of 86 sales. This is a 62.3% increase over the total number of residential sales in 2014. The median price in the Lakeside area declined by 7.1% to $274,000. This January, there are 88 homes that are on the market in this area compared to 78 in January of 2015. With 88 current listings, this represents 12.3 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 17.7 months inventory in this same area. Bank-owned and distress sales were about the same as there were in 2014.

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Flathead Lake Lakefront Homes (Flathead and Lake County: The first table addresses all residential lakefront homes, which includes condominium and townhouses.

In 2015, there were a total number of 48 waterfront residential sales around Flathead, compared to 47 in 2014. The median price was up 8.5% to $682,500, which is 26.5% lower than the 2007 high of $928,500. This January, there are 110 homes that are on the market around Flathead Lake compared to 90 in January of 2015. With 110 current listings, this represents 27.6 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 23.1 months inventory in around Flathead Lake. Bank-owned and distress sales were about the same as there were in 2014.

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The second table addresses residential lakefront homes, excluding condominium and townhouses.

This class of lake front home had 47 sales in 2015, compared to 44 in 2014. The median price was up 4.7% to $690,000, which is 37.3% lower than the 2007 high of $1,100,000. This January, there are 109 of these lakefront homes that are on the market around Flathead Lake compared to 87 in January of 2015. With 109 current listings, this represents 27.9 months of inventory compared 7.6 months of inventory in Flathead County. Last year at this time there was 23.8 months inventory in around Flathead Lake. Bank-owned and distress sales were about the same as there were in 2014.

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Whitefish Lake Lakefront Homes: The first table addresses all residential lakefront homes, which includes condominium and townhouses.

In 2015, there were a total number of nine waterfront residential sales around Whitefish Lake, which is the same as 2014. The median price was up to $2,000,000, which is 25% increase. This January, there are 21 homes that are on the market around Whitefish Lake, which is the same as January of 2015. With 21 current listings, this represents 28.1 months of inventory compared 7.6 months of inventory in Flathead County. Bank-owned and distress sales were about the same as there were in 2014.

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The second table addresses residential lakefront homes, excluding condominium and townhouses.

In 2015, there were a total number of nine waterfront residential sales around Whitefish Lake, cpmapred to eight in 2014. The median price was up to $2,000,000, which is 1.9% increase. This January, there are 20 homes that are on the market around Whitefish Lake, compared to 21 in January of 2015. With 20 current listings, this represents 30.1 months of inventory compared 7.6 months of inventory in Flathead County. There were no bank-owned or distress sales in 2015.

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LAND MARKET

Residential land sales decreased from 500 in 2014 to 481 in 2015. The next graph shows all land sales, including commercial and waterfront:

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This next graph shows the number of land sales that occurred over the last few years on a monthly basis:

In 2015, 37.9% of the new land listing resulted in a sale.

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HOUSING AFFORDABILITY This next graph illustrates the current and historic relationship between housing affordability and the median home price in Flathead County. Since 1984, housing affordability and been closely related to the median home price, then that all changed in 2004 as the housing bubble drove prices above the historic affordability level. In 2011, the median price of $180,000 dropped well below the historic affordability level. In 2012 the median price increased to $187,500 and still below the historic affordability level. In 2014, the affordability index and the median price are nearly the same and both are slightly above the historic trend line.

A key factor in affordability is the mortgage interest rate. In 2015 the average 30-year mortgage rate was around 3.95% comparabed to 4.27% in 2014. As interest rates increase, affordability tends to decrease. A one percent increase in the mortgage interest rate equates to approximately a 10% decrease in affordability.

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FORECLOSURES This first table shows an eight-year history of the recording of Notices of Trustee Sales that were recorded at the Flathead County Courthouse. Throughout 2015, the number of notices was generally similar to 2014.

Notices of Trustee Sales

The previously addressed notices give a 120-day notice that the lender can foreclose if the payments are not brought current. This next table shows the actual number of Trustee Sales that have occurred over the last eight years.

Trustee Sales

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COMMERCIAL REAL ESTATE MARKET

The number commercial property sales increased in 2015 and the REO sales decreased, which continues to point to an improving commercial market.

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Yearly Commercial Sales: This first graph shows the annual number of commercial building sales that have been reported by the Realtor’s Multiple Listing Service.

Percentage of New Commercial Listings that Sold: This graph shows a history of the percentage of new listings that were sold.

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Commercial Listings Leased: This final graph shows a six-year history of the percentage of new commercial listings that were offered for lease and resulted in a closed lease agreement. The red line shows the percentage based on the number offered and the green line shows the percentage based on the overall square footage offered. In 2009, 9.5% of the total square footage and 17.9% of the properties that were offered through the MLS system were leased. In 2015, 34.5% of the total square footage and 40.8% of the properties that were offered resulted in a lease agreement.

Note: This graph only reflect lease listings that were reported thought the Realtor’s MLS system. There are several rental agencies as well as private party leases that are not reflected in this lease graph. Overall, the commercial market is improving, but not at the rate that the housing market has in the last year. Generally, commercial vacancies have been steadily declining, but lease rates have remained depressed from what they were prior to the recent recession. Commercial New Construction in 2015: Kalispell Building Permits: Seven Whitefish Building Permits: Four Columbia Falls Building Permits: Two

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