The State of Bozeman's Real Estate

(The following article was the cover story in the April issue of Bozeman's Tributary magazine.)

by Ray Sikorski

Home-seekers Bill and Margot Zell aren't asking for much: something in walking distance to Bozeman's Main Street, not too decrepit, with at least two bedrooms – three would be great – and a nice, tree-filled yard for their two-year-old to play in. The ideal home would incorporate at least one rental unit, so they could have some income to help offset the mortgage. The Zells would also like to spend less than $300,000.
So far, they haven't come up with much.
“It's a little discouraging right now,” said Margot Zell. Currently the family is living in the two-bedroom basement of their Montana Whitewater rafting business in Gallatin Canyon, which Zell admits is getting a bit cramped. They've looked at about a dozen homes, but haven't found anything that fits the bill. The the nicer in-town houses have had “For Sale” signs with $400,000-plus price tags on them for months, but so far there's been no indication that owners are interested in lowering their prices. And the lower-priced in-town homes?
“What we're looking at is 400 houses that need to be renovated,” Zell said, referring to some of the prospects as “falling apart and manky and disgusting.”
“The sellers are acting like they don't even have to sweep the floor,” she said. “They're still hoping for the old days when they don't have to do anything.”
She was referring to the heady days of 2004-5, when a house listing sparked instant interest, with potential buyers lining up to outbid each other on the asking price.
She admits that she and her husband may be a bit picky. Despite lower prices in the now-sprawling suburbs, the Zells are adamant about moving into either the south or north side of old Bozeman, for its small-town, walkable feel, and where many of their friends live.
“But maybe we can't afford that, and have to buy a big Yukon and drive around all day,” Zell said.
For now, the Zells are willing to wait it out, hoping for prices to go down a bit.
“I need to feel that feeling,” Zell said. “I need to get that chemistry. For the amount that people are asking, I need to love it.”

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Realtor Jaclyn Katz doesn't pussyfoot around the facts of the local housing market.
“When even local people tell me, 'Oh, I was born and raised in Bozeman and I can't afford to live here,' I tell them, 'Look, I'm a great realtor, I can do a better job for you than anybody else, but I don't have a magic wand. You are competing with people who have a lot more money than you do.'”
Katz explained that Bozeman, with its outdoors-based lifestyle, has simply become an extremely desirable place to live, and is still a bargain for many who come from other parts of the country, particularly retirees.
“A bungalow they bought 40 years ago is now worth so much money, they can now come here and write a check for anything and it doesn't seem expensive to them. But the person who's moving from anywhere else in Montana, or Idaho, or Washington State, wants to tell me why they have to have land and why they have to be within 20 minutes of Bozeman, but they can't go over 300.”
Katz suggested that potential home buyers need to adjust their expectations, and consider buying a condo or townhouse or living in Belgrade instead of insisting on their dream home.
“You wouldn't believe how many people I talk to who refuse to compromise. They want everything.”
And buyers aren't the only stubborn ones, Katz said. She agreed with the Zells that many sellers are still living in the roarin' 2000s.
“It's too much testosterone in pricing,” she said. “Because they've got it all in their head that they couldn't possibly live with themselves if they didn't make a profit. If you want to sell it at 2004 prices, then sell it in 2004.” She said that sellers are being greedy, and so are buyers.
“Buyers think they've got it to where they want to low ball everybody. So we're not getting anybody together.” The result, she said, is an overall slowdown in home sales.
She added that the desire for land has been driving prices up around the valley for years, and despite a nationwide decline in real estate, she doesn't expect prices on more modest homes to go down anytime soon.
“Bozeman is not like the rest of the country,” she said.
“If you are tied in to anything below 200 or below 215, there's nothing on the market, or almost nothing, and it's not a buyer's market. And a lot of buyers are under the misconception that they should keep looking and looking and looking because the prices are gonna go down, and I don't think that's gonna happen in that range of property, and the interest rates are probably gonna go up,” she said, adding that in the higher range there are a glut of new homes. She explained that builders prefer building bigger, more expensive spec homes to get a larger return on the price of land and other expenses.
“Nobody's building anything affordable,” she said.
Of course, “affordable” isn't what it used to be. Katz explained that when she moved to Bozeman from New Orleans in 1994, “affordable” was anything below $100,000... and long-time residents complained that 20 years earlier “affordable” was around $25,000.
“What's 'affordable' today is well over 200,” she said.

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Gallatin Association of Realtors president Tricia Bailey said the median price of a single family home without acreage is $285,750... and that now is a great time to buy a home.
“It's gotten a lot better for buyers in Bozeman in the last six months,” she said, explaining that there's plenty of homes on the market. She said that currently there are 116 homes – mostly condos – under $175,000 in Bozeman; of those, 85 percent are brand new. Plus, interest rates are still below 6 1/2 percent, she said.
“It's still a great rate,” Bailey said, adding that while home prices may not be noticeably coming down, they're not going up, either.
Of course, those prices still remain out of reach for many people who work in Bozeman, where wages haven't increased at anywhere near the rate that home prices have. It's with that in mind that the Gallatin Association of Realtors read a letter of support for a draft of the Workforce Housing Agreement that's being hammered out by a coalition of home buyers, realtors, builders, lenders, and low-income advocates.
Jennifer Olson, a lender with First Horizon Home Loans and a member of the Workforce Housing Task Force, said the idea of the agreement is that everybody involved will have to give a little, for the ultimate benefit of the community. She said that when the original draft of the ordinance came out, the burden was overwhelmingly placed on the developers. “I totally didn't agree with it,” she said. The new version fixes that, she said.
“We've asked developers, builders, parks and rec, lenders, realtors, landscapers... even the taxpayers are going to have to give some,” Olson said, explaining the agreement makes it possible to sell lots to builders at cost so they can build affordable homes.
The agreement aims to help people who make 80 to 100 percent of the area's median income buy a home. These are the teachers, civil servants, police officers, and firefighters; Olson said that assuring that these workers are able to live in the city in which they work is integral to concept of community. Without that possibility, “You're good enough to save my home and my family, but you're not good enough to live here,” is the message they would receive, Olson said.
“It's good for the city of Bozeman,” Olson said. “It's the right thing to do.”
Former mayor and city commissioner Marcia Youngman first started addressing Bozeman's housing situation as long ago as 1980. Also a member of the task force, Youngman said that despite an initial “sense of doom,” she was amazed that the disparate group was able to reach consensus on the agreement. She said that there are a number of builders who have been interested in building affordable housing, but due to the high cost of land haven't been able to do so without taking a loss.
“Now they will be able to do it and still make a living,” she said.
Youngman expressed optimism for the agreement's outcome with the city commission; hearings are expected to take place in either April or May. She said that all city commissioners have shown support for the basic concepts of the ordinance, which could go into effect as early as July 1.
Human Resources Development Council president and city commissioner Jeff Rupp said he expected the city commission to tweak the agreement a little bit, particularly in the controversial area regarding city park land, before it passes.
“I think it's good that we're now talking just about how we're doing it, rather than whether we're doing it,” he said. “And I think that's a monumental step forward.”
Rupp said that despite progress on the ordinance, helping provide housing for families that make $50,000 to $60,000 a year still ignores a significant swath of Bozeman's workforce.
“That does not get down to what the need is,” he said. “People who make $10 an hour in our town, $20,000, $30,000 a year should have a chance to own their own home. A condo. Something that builds wealth.”
He said he'd like to make appreciation and equity available to as many people as he can.
“For every action there's a reaction. For everybody who's speculating and flipping homes and making a living on the fact that our homes are appreciating at 15 to 18 percent a year for several years, there's a downside to it.”

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So, can the average person afford to live in Bozeman?
“I think it's possible, you just have to be a little bit more creative sometimes,” said Tracey Menuez, who hosts home buyer education and counseling as HRDC's Community Development Associate.
“The idea that someone who's making $20,000 a year is just going to go and buy a home in Bozeman... it's just not an idea that's going to happen,” she said. However, she added, if you connect that person with down payment assistance programs, matched savings account programs, the Montana Board of Housing lower interest program; if you ask if they can bring in a roommate, or get help from their parents, maybe they have a shot.
“You just have to be more creative, and add more pieces to the puzzle.”
HRDC's Home Ownership Education Program and individual counseling attempts to realistically address home seekers' needs, Menuez said.
“They all know they're going to give up something,” she said. “I don't ever have somebody who comes in here – sometimes maybe for the first appointment, but definitely not for the second appointment – do they come in here and think, Okay, I'm getting a house, on an acre, in Bozeman... they know that's not happening.”
Instead, Menuez attempts to figure out what programs home seekers might qualify for, and what their monthly payments might be.
“Sometimes we're the bearers of bad news. We sit down and say, 'You know, you really can't afford this loan.'”
A private non-profit that receives its funding from federal and state grants as well as private sources, Menuez said that HRDC's Home Ownership Center was able to help lower-income families when it started the program in 2003, but now it’s using the same amount of money to help higher-income families. She said the last five loans she worked on were for people in professional positions or very high in the service industry.
“They're not just starting out at six dollars an hour,” she said.
Menuez said that while Bozeman lagged behind cities such as Missoula, Billings, and Great Falls in gaining federal funds for housing assistance, the city has gained ground in using big box funds and affordable housing mills to help people buy homes.
“The city of Bozeman has contributed $230,000 to date, mostly for down payment assistance,” she said.

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“We had hoped to have a house with some property,” said Alexandra Divis, who moved into a three bedroom, two bath condo off Durston Street on the city’s west side in December. “We waited too long. I feel we got the next best thing.”
Divis, a retail clerk, and her husband, who works in video production, moved to Bozeman in July from Orlando, Florida, where they lived in a house with a swimming pool and “the whole nine yards.” Divis said the couple is not rich.
“We could probably afford a house in Bozeman, but there'd be nothing else,” she said. “It would stretch us to the max.”
She said she's concerned Bozeman will go the way of Santa Fe and Jackson Hole, where prices have spiraled well beyond the reach of the average worker.
“I've seen it happen in California, I've seen it happen in Florida,” she said. “A lot of people discover it, and prices go up. I don't know if that will happen here. I think it could.” She added that she hopes Bozeman doesn't become so densely built-up that it takes away from her reason for moving here.
Despite not landing the home of her dreams, Divis is happy with her condo.
“Literally, I can look out my kitchen window and see the Bridgers. You can't get that with some houses. It's out there, you have to look for it,” she said.