For decades, people have preached home ownership as the best way to build wealth. But with high home prices and interest rates, Utah’s housing market is unattainable for many.
So, in those conditions do you continue to rent or buy?
“There's no silver bullet for this problem,” said Kem C. Gardner Policy Institute senior research fellow Dejan Eskic. “Getting into home ownership right now is very challenging because of the interest rates.”
According to the Federal Reserve, the national average for a 30-year fixed-rate mortgage has more than doubled in the last two years, from 3.11% in December 2021 to 6.61% as of Dec. 28, 2023. That means it’s more than twice as expensive to borrow money to finance a home.
With the way the market is right now, Eskic said the decision on whether or not to buy all depends on your goals as a homeowner.
“People always ask me, ‘Should I buy right now? Is it a good time to buy?’” he said. “If you're going to be in your home for 5 to 10 years, statistically, odds are you're going to make money. If you want to flip your home and make a bunch of money in the next five years, it's going to be rough.”
Utah home prices have seen meteoric increases since the start of the COVID-19 pandemic. While that growth was unprecedented, said Eskic, homeowners have still seen impressive returns on their investments over the long term.
“Every seven years since 1970, the price of a home in Utah has increased 52%, that's the rolling average,” he said. “Overall, average pricing ups and downs, it's 52%. So with that caveat, if you're going to be in it for the long run, owning a home probably gives you more than renting.”
That proposition could look even better in 2024 as the Federal Reserve is expected to begin cutting interest rates.
It’s not as simple though as sidestepping the home-buying decision. Rents have also gone up by record amounts in recent years. Even so, Eskic said the current high interest rates mean renters are still usually going to spend less per month than if they were paying a comparable mortgage.
“The typical rent for a single-family home in Utah is roughly about $2,100,” he said. “If you're buying a home, your monthly payment right now is roughly $3,500. So you're paying a $1,500 premium right now.”
Suddenly, staying in the rental market doesn’t sound so bad. More than 800,000 Utahns are renters, according to the Rental Housing Association of Utah, accounting for 30.3% of households.
That still leaves the problem of supply. The Utah rental market is tight, too. RentCafe, a national apartment listing service, said an average of 10 renters were competing for each vacant unit in Salt Lake City in 2023.
“The biggest problem in Utah is that we simply don't have enough rental housing for our demand, and that will continue into 2024,” said Paul Smith, the executive director of the Rental Housing Association of Utah. “We will have new construction, but not at the rates that we had this year, primarily because interest rates have stopped new construction.”
The new construction that is complete has led to an influx of apartment units that are now available to renters, Smith said. That increase in supply will help alleviate some of the demand, bringing rents down with it.
The next hurdle is improving the mix of rental units on the market.
“When people think of rental housing, they shouldn't just think of apartment communities,” he said. “They need to understand there's a massive mix, including a third that are single-family rentals in neighborhoods.”
Renters in single-family neighborhoods were in the spotlight during discussions about Salt Lake City’s new affordable housing incentives. Some residents who resisted the changes argued that renters are not as invested in their neighborhoods as homeowners.
For Eskic, the quality of a neighborhood doesn’t have much to do with who bought their house versus who rents.
“I think what makes the neighborhood great is where people can congregate,” said Eskic. “Whether you're a renter or an owner, it doesn't matter.”
For those who feel stuck in the rental market, Smith said it's important to know they are not alone.
“A third of Utah households rent,” he said. “It is common and it is particularly common for people between the ages of 18 and 40. And so whether there's a stigma or not, there shouldn't be. Renters are people too.”
