Over the past 18 months, Bozeman’s housing market has transitioned from scarcity to abundance. During 2021 and 2022, tenants grappled with waitlists, escalating rents, and a generally challenging market, while landlords were able to increase rents and fill units even before advertising them.
By 2023, production had ramped up, and new, albeit pricey, units were being introduced to the market across the city. Developers and landlords initially feared that this influx of new properties would lead to soaring vacancy rates and plummeting rents.
Throughout 2024, the market seemed uneasy. Rumors spread about Bozeman losing its allure and experiencing a decline in population, with remote workers reportedly returning en masse to places like California and Seattle.
So, what has actually transpired in 2024, and what does the future hold for Bozeman’s housing into 2025? Is it time for housing developers and investors to exit the market? Let’s examine what the data reveals about the Bozeman multifamily market.
Vacancy
The vacancy rate for Q4 2024 currently stands at 10.49%, suggesting an oversupply. The trailing 12-month vacancy rate is 7.29%. This analysis indicates an oversupply in multifamily housing, with the lowest availability in studios and three-bedroom apartments. Notably, almost 90% of available units are one or two bedrooms. For landlords of older properties, the vacancy rates are significantly lower, with properties built before 2020 showing a vacancy rate of 3.5%.
Rents
Surprisingly, rents have increased by 2.46% year-over-year, although there was a drop in the last quarter, particularly in studios and one-bedroom units. It is important to note that these rent figures do not include rent concessions. The trailing 12-month average asking rent for all units stands at $2,148. Comparatively, new construction units demand higher rents, averaging $2,392, which requires a household income of $95,479 to be affordable—this figure is above Bozeman’s median household income.
Absorption
In 2024, Bozeman saw a positive absorption of over 800 units, the highest since such data began to be tracked in 2020. This supports the notion that the increase in vacancy is more attributable to new supply rather than a decline in demand. Over 1,000 new units were delivered in 2024, suggesting that rent levels may be outstripping what the market can sustain. Note that only 25% of households earning over $100,000 per year rent and have more housing options, including single-family homes. This target market has greater housing choices. However, this group could continue to expand as mortgage rates and persistent shortages in for-sale homes push more high-income households into the rental market.
For Sale
Home sales in the City of Bozeman remained flat through 2024, down nearly 50% from 2020. The median sales price was $659,500, up from 2023 but down from the peak in 2022. Using a 10% down payment and the current interest rate of 6.7%, the average monthly home payment would be $4,614, significantly higher than the average rent. In Gallatin County, the median home price slightly increased to $699,600, with sales flat from 2023 and about 44% down from 2020.
What to Watch For
Development in Belgrade continues, with a focus on creating affordable for-sale housing. The current median asking price for a home in Belgrade is $564,000. If mortgage interest rates decrease through 2025, it could become more economical to buy a home in Belgrade than to rent one in Bozeman.
Additionally, 371 income-restricted units are currently under construction in Bozeman, providing needed relief for lower-income families. This influx is likely to affect landlords of older units as eligible tenants move into these new projects.
Close to 1,200 additional market-rate units are under construction in the city of Bozeman, with most set to be completed in 2025. Another 473 units are in the permitting stage, indicating continued forward movement despite a more competitive market.
Opportunities
In such a competitive market, one of the biggest opportunities lies in innovation. If developers can meet the needs of niche markets, they can often lease up quickly and charge premium prices or rents. If home prices stabilize and mortgage rates remain unchanged, there is an opportunity to cater to specific groups of renters who traditionally lean towards homeownership. Properties targeting families with children and empty nesters may be able to command premium rents.
Another opportunity lies in affordability, as many markets have seen a rise in the popularity of micro-units, which offer less square footage for lower rents. The average new studio in Bozeman provides 595 square feet of space, which is 36% larger than older studios.
Summary
In conclusion, when multifamily vacancy rates exceed 10%, it is prudent to closely monitor the market and conduct thorough analyses. Our research suggests that the rise in vacancy rates is primarily due to the introduction of new supply that is priced above the market average, potentially leading to prolonged vacancies unless rents are adjusted.
For new developments, a careful assessment of area incomes and a comprehensive examination of the competitive landscape are essential to deliver the right product. Bozeman continues to grow and absorb housing, but addressing the specific needs of tenants is crucial as the supply increases.
How SterlingCRE can help
If you own a multifamily property in Bozeman, now is the time to have SterlingCRE prepare an updated opinion of value. Even if you are not planning to bring the property to market, these reports hold valuable information like steps to take to insure you are charging market rents and what new competition may be coming to your neighborhood.
If you are looking to invest in Bozeman, SterlingCRE can prepare a site selection package. Whether you are looking to acquire land or a strategic investment, we have a large pool of on and off market options.
