What You Need to Know about the Housing Market

    What You Need to Know about the Housing Market

    Dec 03, 2021

    The Kem C. Gardner Policy Institute at the University of Utah published a very comprehensive report on the state of the housing market in the state of Utah last month. This is a brief summary and commentary on a few of the key points.

    “A Housing Bubble Looks Unlikely”

    The housing market is increasing rapidly and people have become concerned that the housing market is headed for another bubble like the one we experienced in 2008-09. While the rapid growth does seem indicative of a housing bubble, the key indicators of a housing bubble are not present. Home prices in Utah have historically fallen consistently when there is either a recession or long-term job loss. Neither of those seems likely in the next few years and so it is unlikely that the housing market will experience significant declines. In contrast, the overall economy seems to be strong and the job market appears robust which would lead to sustained growth. No one has a crystal ball and can say that a housing bubble is impossible, but it is extremely unlikely in the next few years.

    Take Away: if fear of a housing market bubble pop is the only thing keeping you from buying a home or an investment property, you can rest easy knowing it is extremely unlikely and move forward with your goals.

    “Covid-19 created unprecedented conditions in the housing market”

    The Covid-19 pandemic had an enormous impact on every aspect of the economy including the housing market in Utah. There was already a high level of demand before the pandemic started. The pandemic served to increase the prices of materials (30% of new construction materials come from China), decrease the labor force and displace large numbers of people. The Federal Reserve in turn lowered interest rates which increased demand and pushed market growth to a level the state has not experienced before.

    Take Away: We will still feel the effects of the pandemic on the housing market in the months and the year to come but many of the causes should diminish and the effects should begin to normalize.

    “More than half of Utah’s homeowners are unable to afford the median-priced home”

    While many Utah homeowners are experiencing huge wealth and equity growth, the growth does come at a cost. In recent studies, the Gardner policy institute determined that “by the end of 2020, the median price reached $380,000, pricing out approximately 48.5% of Utah households”. Since home prices have continued to rise, they expect that at least 50% of Utah households can no longer afford the median price home. The case is even direr for renters. Only about 40% of renters could afford the median-priced home in 2019. By the end of 2020, that number had dropped to less than 30%. We expect that the number has continued to fall in 2021.

    Take Away: if you have been considering building your family's wealth and security through investing in real estate, this is a great time to jump in. The rental market is robust, and the demand is high. 

    “Price acceleration and production are expected to remain positive in 2022”

    People are beginning to get hesitant about buying a home in our area and are choosing to “wait until the market comes back down”. Expert projections indicate that the market isn’t headed for a decline anytime soon. In fact, they are expecting that housing market growth will remain positive throughout 2022 and that demand will keep it positive for the rest of the decade.

    Take Away: There is no time like the present to get involved in buying a home or investment property.