Utah’s housing market might not be as red-hot as it was a year ago, but that doesn’t mean first-time buyers are having an easier time getting into a home.
Buyers will be hard-pressed to find an interest rate under 6% right now. According to the Federal Reserve, the national average for interest rates for May sits at 6.39%.
New housing construction permits in Utah have also fallen off sharply since all-time highs just a few years ago. Experts say the decline is a direct effect of the increased cost of borrowing money.
“The market was so hot for homebuilders for several years,” said Kem C. Gardner Policy Institute Senior Fellow James Wood. “Particularly in 2021 and going into 2022 there was a fair amount of speculative building. Builders had committed to build new homes that had not been sold. And then when the market turned, they got caught with some inventory. Consequently, by the fall, they just stopped building and taking new permits to clear their inventory.”
Demand also started to dry up, too.
“I've talked to builders and they say, in May [of 2022] the phone stopped ringing,” said Wood. “And I know for real estate agents that there was a period there in the summer and into the fall where the phone stopped ringing.”
High-interest rates combined with less inventory have caused the housing market to cool off. According to real estate brokerage Redfin, the year-over-year median home price in Utah has declined 6.2%, 23% fewer homes have been sold and homes are on the market a median of 37 more days.
“The mortgage rate doubled in less than a year,” said Wood. “It went from 3.3% to over 6% in nine months. And we've never had that before.”
Some of the slowdown can be blamed on interest rates, but prices have also not declined much since home values skyrocketed during the COVID-19 pandemic.
“It's just kind of putting a burden on the middle class,” said Cottonwood Heights realtor Allan Argueta. “And some of the buyers that we work with, buyers and sellers, some sellers don't want to sell because they are afraid they can't find a payment that they can afford anymore.”
Most of that slowdown, Argueta said, has been with middle-income buyers between the ages of 30 and 45.
The downturn has not been limited to the Wasatch Front, either. Housing markets throughout Utah have gotten tighter.
“You look at the last couple of years, every county except for maybe Daggett and Piute have had significant increases in the median sales price of their homes,” added Wood. “It's becoming less affordable to own a home throughout the state.”
But not everyone is being squeezed out of home ownership. People who were able to purchase a home before 2020 have seen significant increases in their investments and many could be back in the market again.
“There's the ‘move up’ market,” said Wood. “Those who have been in the housing market for a number of years or even a few years, your equity is probably double. Those are the households that are able to move out now and purchase.”
It’s not all bad news for potential home buyers. Wood said barring an economic catastrophe outside of Utah, like the pending debt ceiling negotiations in Congress, he expects sales to begin to recover in the third and fourth quarters of 2023.
“I think we're going to be picking up just a little bit, but I don't think we'll be where we were last year or the year before,” added Agueta. “Utah's one of the states that is kind of staying steady and not as bad as other states, but I think that interest rates and inflation going down will help us as well.”
First-time buyers might look a little different than they did in the past, too. According to Wood, for most people, the days of getting a job and buying a home right out of college are gone.
“[People] can't graduate from college and get into homeownership,” he said. “They're going to have to have a job for a few years and probably a second income in the household in order to get into the housing market.”
And when they do get into the market, Wood said it will likely be in higher-density neighborhoods with more budget-friendly condominiums and townhomes as the norm.
“The builders see that,” he said. “They're building more and more high density, moderately priced condominiums and so on. That's where the first-time homebuyers are going.”
