While economists are still debating whether the Fed has achieved a soft landing, the big news in real estate throughout 2023 was the lack of inventory and a decrease in sales volume. It is a bit of a chicken and egg question, but interest rates are playing a role on both sides of the equation.

Mortgage rates, which hovered around and even below 3% for much of 2020 and 2021, began to rise in the spring of 2022. They sat around 6% at this time last year, then rose to a peak of around 8% in 2023 before beginning to come down. As of writing, they’re currently in the mid-6 range, but have been volatile, and change daily.

These high interest rates, in addition to affecting buyers’ decisions to purchase, have also affected sellers’ decisions to sell. Some call it a seller’s strike, others have called it the locked in effect. Essentially, homeowners with historically low interest rates have been hesitant to sell if they have to trade in their low interest rate for a much higher rate on their new home. The typical sequence of first-time home buyers upgrading into a larger home, followed by empty nesters downsizing into smaller homes, has been disrupted by the higher interest rates.

Looking at new listings of all residential types, including condos, townhouses, and single family, both inside and outside city limits, the peak year for inventory and sales was 2020, in which 1,982 homes were listed for sale, and 1,816 of those sold. The number of new listings has consistently ticked down every year since. In 2021, 1,747 homes were listed and 1,669 were sold. Last year, there were 1,607 new listings and 1,160 sales. This year, new listings were down to 1,514, with 1,070 sales.

Restricting the data to just single-family homes inside Bozeman city limits tells a similar story, although 2019 was the peak for new listings, when 707 homes were listed and 591 were sold. By 2021, those numbers had decreased to 555 new listings and 514 sales. Last year saw 475 new listings and 355 sales. This year, it continued to decrease, with 465 new listings and 344 sales.

If there had been more inventory to choose from, would it have sold? That is a tough question to answer, but there is no doubt the higher interest rates has made purchasing difficult for buyers. Pricing has essentially been flat. There are multiple ways to run the median sold price, depending on whether we include just homes inside city limits, or condos and townhouses. Looking at just single-family home sales inside Bozeman city limits, the median sold price continued to climb in 2022, rising 14% from $700,000 in 2021 to $799,000 in 2022. This year, it appears to be down slightly from last year, sitting at $770,000, which would indicate a 3.6% decrease in median sold pricing.

However, when taking sales outside of city limits into consideration, median sold pricing for single family home sales looks to be up just slightly, rising just over one percent, from $889,950 last year to $900,000 this year.

The new construction numbers are also interesting. Looking in both Bozeman and Belgrade, across all residential types including condos, townhouses, and single family: In 2020, there were 729 new construction homes listed for sale on our local MLS. This does not include custom homes or homes sold directly from builder to buyer, just new construction homes listed for sale. In 2021, that number decreased by more than 50% to 345. 2022 was up just slightly with 395 new construction homes listed for sale. That trend continued in 2023, with 397 new construction homes listed for sale on our local MLS.

Looking at high end sales, numbers are down just slightly, but still remain strong. The pandemic saw a significant increase in the number of luxury homes sold in our market, and those numbers have held or increased. In 2019, only 11 homes sold for more than $2 million. That number nearly tripled to 32 closed sales in 2020, then nearly doubled again to 56 homes sold for more than $2 million in 2021. Sales volume continued to rise in 2022, to 63 sales. This year, it’s down, but just slightly, as 52 homes sold north of $2 million in and around Bozeman in 2023.

This year (2024) will be a very interesting one for real estate. Will interest rates continue to tick downwards? Will there be more inventory to choose from? What will buyer demand look like? Only time will tell. As usual, I have included the most recent sales numbers for Bozeman. In addition to these sales, there are currently 74 single family home sales pending in and around Bozeman.

The included data reflects sales of homes in the greater Bozeman area, including Four Corners, Gallatin Gateway, Bridger Canyon, and Bozeman city limits. The data includes home sales reported through the local Big Sky Country MLS, and does not include private party sales.