The 2016 Flathead County Real Estate Market

The 2016 Flathead County Real Estate Market The Flathead Real Estate Market continues to improve with a near record number of sales in 2016 By Jim Kelley Kelley Appraisal 1001 South Main Street Kalispell, MT (406)755-2015 http://kelleyappraisal.net/ jim@kelleyappraisal.net

TABLE OF CONTENTS INTRODUCTION Page 2 Summary: Page 2 About Jim Kelley: Page 3 EMPLOYMENT Page 4 SUBDIVISION ACTIVITY Page 5 NEW CONSTRUCTION Page 8 LOT CREATION VS NEW CONSTRUCTION Page 11 Flathead County: Page 12 RESIDENTIAL SALES Page 13 Residential Sales (No Waterfront and Less than Two Acres): Page 16 Foreclosures (No Waterfront and Less than Two Acres): Page 17 Residential Sales Volume: Page 18 Price Distribution of the Residential Market: Page 19 RESIDENTIAL SUB-MARKETS Page 21 Kalispell(City Limits): Page 21 Kalispell Area(Within 3.5 Miles of the City Limits): Page 22 Whitefish (City Limits): Page 23 Whitefish Area(Within 3.5 Miles of the City Limits): Page 24 Columbia Falls(City Limits): Page 25 Columbia Falls Area(Within 3.5 Miles of the City Limits): Page 26 Bigfork Area(Within Five Miles of Electric Avenue): Page 27 Lakeside Area(Within Five miles of downtown Lakeside): Page 28 Flathead Lake Lakefront Homes (Flathead and Lake County: Page 29 Whitefish Lake Lakefront Homes: Page 30 LAND MARKET Page 31 HOUSING AFFORDABILITY Page 33 FORECLOSURES Page 34 COMMERCIAL REAL ESTATE MARKET Page 35 Yearly Commercial Sales: Page 36 Percentage of New Commercial Listings that Sold: Page 36 Commercial New Construction in 2016: Page 37 Page 1 of 37 - Kelley Appraisal

INTRODUCTION Summary: This report addresses statistical details of the Flathead County Real Estate market over the last few years and summaries on the 2016 market. In general, 2016 was mostly stable with numbers similar to th last three years. The following is a list of some key points: 1. The employment picture continues to improve. 2. 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. 3. New home construction is increasing in all areas of Flathead County. 4. The number of residential home sales was about the same as it was in 2015, but the inventories are down from 2015. 5. REO sales continue to decline and are no long a material segment of the Flathead Market. 6. Of the County s sub-markets, most areas showed an increase in the number of sales. The largest increase was in Whitefish. 7. The number of land sales were about the same as they have been over the last three years. 8. Housing is under pressure with prices outpacing the affordability as interest rates start to increase. 9. The number of foreclosures continued to decrease through 2016. 10. Commercial property sales decreased in 2016. Page 2 of 37 - Kelley Appraisal

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 jim@kelleyappraisal.net Page 3 of 37 - Kelley Appraisal

EMPLOYMENT In 2016 the unemployment rate was nearly the same as it was in 2015 with a low in September of 4.5%. A key number that I look at is the actual number of people that are employed. In 2016 the average number of people employed was 42,896, which is up 2.6% from 41,822 employed in 2015. This increase in the number of workers employed is a very positive development in the Flathead economy. Page 4 of 37 - Kelley Appraisal

SUBDIVISION ACTIVITY Kalispell: In the City of Kalispell, there were 39 new lots created, compared to 34 in 2015. Land Subdivision, City of Kalispell 1997-2016 (includes all types of lots including roads and open space) Source: City of Kalispell Planning Department Subdivision Applications: 1996-2016 Page 5 of 37 - Kelley Appraisal

Whitefish: In the City of Whitefish, there were 30 new lots created, compared to 48 in 2015. Columbia Falls: The final plat was granted on 40 new residential lots. Page 6 of 37 - Kelley Appraisal

Flathead County (Outside the Cities): Flathead County reported that there were 165 plated lots and 153 lots created by a certificate of survey. The total number of lots created in the County in 2016 was 318, which is up from 218 in 2015. Page 7 of 37 - Kelley Appraisal

NEW CONSTRUCTION In Kalispell, there were 110 Single Family Residences, 32 duplexes/ townhouses and 45 multifamily units for a total of 187 units. The following graph of Kalispell's activity is from the 2016 Kalispell Building Department report. Building Permits Issued for New Residential Units by Type, 1992 2016 Source: City of Kalispell Building Permits 1991-2015 Whitefish reported 49 SFRs, 16 duplexes or townhouses and 91 multifamily units. Columbia Falls reported ****. Page 8 of 37 - Kelley Appraisal

Flathead County: Because Flathead County does not issue building permits, the next best estimate comes from the number of septic permits. In 2016, there were 467 final septic inspections, 446 written permits and 598 applications. The 467 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. Page 9 of 37 - Kelley Appraisal

City and County Construction Summary: The following graph shows a 12-year history of the totals from each city with the line graph showing the overall totals. Page 10 of 37 - Kelley Appraisal

LOT CREATION VS NEW CONSTRUCTION The following graphs illustrate the historic relationship between new lot creation and new construction. City of Kalispell: Kalispell had 39 new lots created and 187 building permits. Supplied by the Kalispell Building Department. City of Whitefish: Whitefish had 156 building permits and 30 new lots created. Supplied by the Whitefish Building Department. Page 11 of 37 - Kelley Appraisal

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 2016 new constrction outpaced lot creation with 318 lots created and 446 new constrction projects. Since 1991, the total number of l ot s created was 18,706 and the total number of final septic inspections totaled 14,029. The net difference over the last 25 years is that there have been 4,677 more lots created than there have been construction projects on them. Page 12 of 37 - Kelley Appraisal

RESIDENTIAL SALES The following is a 17-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 2016. A primary factor in the increased over the last four 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 and 2016 is at the saem level as 2015. There were 1680 homes sales reported in Flathead County in 2016, compared to 1,683 in 2015. The median price finished at $255,000, which is 5.2% above the 2015 median of $242,500. The 2016 median of $255,000 is the highest its ever been and is $5,000 higher than the 2007 median of $250,000. Overall, the entire year mostly matched 2015 with the number of sales being up 8% in the first quarter, down 5% in the second quarter, down 2% in the third quarter, then finishing off the year with a plus 4%. This January, there are 851 homes that are on the market compared to 1065 in January of 2016 and 1177 in January of 2015. With 851 current listings, this represents 6.1 months of inventory compared 7.6 months of inventory in January of 2016. As we go into 2017, interest rates will be a key factor. The overall average 30-year rate in 2016 was 3.7% and the current 30-year rate is nearly 4.1%. The 15-year rate averaged around 3.1% in 2016 and is now nearly 3.6%. The question here in the Flathead is, how much will this affect our market? Page 13 of 37 - Kelley Appraisal

Overall Residential Foreclosures: Of the 1,680 Flathead County residential sales in 2016, only 3.9% were bank-owned properties and.4% were short sales. Both the percentage and total number of bank-owned sales were down from previous years. Page 14 of 37 - Kelley Appraisal

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 37 - 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 2016 the median price of these homes were $230,000 and the average sales price was $271,360. Page 16 of 37 - Kelley Appraisal

Foreclosures (No Waterfront and Less than Two Acres): On this class of residential property, only 3.9% were bank-owned properties and.6% were short sales. This continues to indicate that distressed properties are no longer a material factor in the Flathead home market. Page 17 of 37 - Kelley Appraisal

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 60.2% in 2015 to 61.6% in 2016. Page 18 of 37 - Kelley Appraisal

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 2016, was 4.0 months. In Flathead County, the average inventory for properties under $300,000 is 2.5 months and the overall average is 6.1 months. Page 19 of 37 - Kelley Appraisal

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. Page 20 of 37 - Kelley Appraisal

RESIDENTIAL SUB-MARKETS Kalispell(City Limits): This data represents sales and listings that are only within the City limits of Kalispell. In 2016, home sales in the Kalispell City limits sales represented 28% of the overall residential market with 470 home sales. This is up 1% from 450 sales in 2015. The median home price in Kalispell was $206,775, which is a 9.1% increase over the 2015 median of $189,500. This 9.1% increase was greater than the 5.2% median price increase that was seen in the overall housing market in Flathead County. This January, there are 91 homes that are on the market within the City limits compared to 151 in January of 2016. With 91 current listings, this represents just 2.3 months of inventory compared 6.1 months of inventory in Flathead County. Page 21 of 37 - Kelley Appraisal

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 44.6% of the total number of residential properties sold. The median price increased by 8.1% to $220,000, which is a mew high. This January, there are 196 homes that are on the market in the Kalispell area compared to 300 in January of 2016. With 196 current listings, this represents just 3.2 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 4.8 months inventory in this same area. Bank-owned and distress sales were dpwm substantially from the previous years. Page 22 of 37 - Kelley Appraisal

Whitefish (City Limits): This data represents sales and listings that are only within the City limits of Whitefish. The Whitefish City limits sales represented 11.5% of the overall Flathead residential market with 194 home sales. This is a 39.6% increase in the number of sale from what it was in 2015. This January, there are 126 homes that are on the market within the City limits compared to 142 in January of 2016. With 126 current listings, this represents 7.8 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 12.3 months inventory in Whitefish. Page 23 of 37 - Kelley Appraisal

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 17.3% of the total number of residential properties sold. The median price increased by 7.0% to $334,500, which is equal to the high in 2007. This January, there are 250 homes that are on the market in this Whitefish area compared to 272 in January of 2016. With 250 current listings, this represents 10.4 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 11.2 months inventory in this same area. Bank-owned and distress sales were slightly lower than what they were in 2015. Page 24 of 37 - Kelley Appraisal

Columbia Falls(City Limits): The Columbia Falls City limits sales represented 5.8% of the overall residential market with 98 home sales, which is the most that have ever sold in the city limits. This is an 8.9% increase in the number of sale from what it was in 2015. This January, there are 10 homes that are on the market within the City limits compared to 31 in January of 2016 and 32 in January of 2015. With 10 current listings, this represents 1.2 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 4.1 months inventory in Columbia Falls. Forclosure and distressed sales are about the same as they were last year at this time. Page 25 of 37 - Kelley Appraisal

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 10% of the total number of residential properties sold. The median price showed a slight increase of 1.7% to $213,501. This January, there are 55 homes that are on the market in this Columbia Falls area compared to 80 in January of 2016. With 55 current listings, this represents 3.9 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 5.2 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 2015. Page 26 of 37 - Kelley Appraisal

Bigfork Area(Within Five Miles of Electric Avenue): The total number of sales within five miles of Bigfork represents 8.8% of the total number of residential properties sold. The median price increased by 7.9% to $300,000. This January, there are 123 homes that are on the market in this area compared to 139 in January of 2016. With 123 current listings, this represents 10.1 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 11.7 months inventory in this same area. Bank-owned and distress sales were down from 3015. Page 27 of 37 - Kelley Appraisal

Lakeside Area(Within Five miles of downtown Lakeside): The total number of sales within five miles of Lakeside represents 4.9% of the total number of residential properties sold with a total of 82 sales. This is a 4.7% decrease over the total number of residential sales in 2015. The median price in the Lakeside area increased by 1.3% to $277,500. This January, there are 71 homes that are on the market in this area compared to 88 in January of 2016. With 71 current listings, this represents 10.4 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 12.3 months inventory in this same area. Bank-owned and distress sales were about the same as there were in 2015. Page 28 of 37 - Kelley Appraisal

Flathead Lake Lakefront Homes (Flathead and Lake County: The first table addresses all residential lakefront homes, which includes condominium and townhouses. In 2016, there were a total number of 53 waterfront residential sales around Flathead, compared to 61 in 2015. The median price remained the same as it was in 2015. This January, there are 83 homes that are on the market around Flathead Lake compared to 110 in January of 2016. With 83 current listings, this represents 18.6 months of inventory compared 6.1 months of inventory in Flathead County. Last year at this time there was 21.7 months inventory in around Flathead Lake. Bank-owned and distress sales were about the same as there were in 2015. Page 29 of 37 - Kelley Appraisal

Whitefish Lake Lakefront Homes: The first table addresses all residential lakefront homes, which includes condominium and townhouses. In 2016, there were a total number of 12 waterfront residential sales around Whitefish Lake, compared to nine in 2015. The median price of those 12 sales were down from $2,000,000 in 2015.. This January, there are 23 homes that are on the market around Whitefish Lake, which is the same as January of 2016. With 23 current listings, this represents 23.1 months of inventory compared 6.1 months of inventory in Flathead County. Bank-owned and distress sales were the same as there were in 2015. Page 30 of 37 - Kelley Appraisal

LAND MARKET Residential land sales were about the same as there were in 2015. The next graph shows all land sales, including commercial and waterfront: Page 31 of 37 - Kelley Appraisal

This next graph shows the number of land sales that occurred over the last few years on a monthly basis: In 2016, 42.9% of the new land listing resulted in a sale. Page 32 of 37 - Kelley Appraisal

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 2013, the affordability index and the median price are nearly the same. Over the last three years, prices have started to outpace the affordability index and this will likely become exaggerated as interest rates increase, resulting in a lowering of affordability. A key factor in affordability is the mortgage interest rate. In 2016 the average 30-year mortgage rate was around 3.7% compared tp 3.95% in 2015 and 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. Page 33 of 37 - Kelley Appraisal

FORECLOSURES This first table shows an nine-year history of the recording of Notices of Trustee Sales that were recorded at the Flathead County Courthouse. Throughout 2016, the number of notices was generally lower than they were in 2015. 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 nine years. Trustee Sales Page 34 of 37 - Kelley Appraisal

COMMERCIAL REAL ESTATE MARKET The number commercial property sales decreased in 2016. Page 35 of 37 - Kelley Appraisal

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. Page 36 of 37 - Kelley Appraisal

Commercial Listings Leased: This final graph shows a seven-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 2016, 24.1% of the total square footage and 36.4% 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. The commercial market continues to improving, but not at the rate that the housing market has over the last few years. 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 2016: Kalispell Building Permits: 15 Whitefish Building Permits: 11 Columbia Falls Building Permits: Three Page 37 of 37 - Kelley Appraisal