Utah's housing prices have definitely eased over the past year, but the state still logged the nation's third highest price increase - up 8.2 percent - during the 12 months from March 1996 to March 1997, according to the University of Utah Bureau of Economic and Business Research.
But for the past five-year period, Utah led the nation with an increase of 74.7 percent, reports James A. Wood, senior research analyst for the bureau.To illustrate just how dramatic the increase has been over the past five years, Oregon had the second largest increase at 56.5 percent and the national average increase was only 15.5 percent for the period.
The five-year trend could be viewed as Utah "catching up" from the doldrums of the 1980s when housing prices were stagnant. From 1980 to 1997, local housing prices increased 126.5 percent, 11th highest nationally and a much more modest 4.93 percent average annual increase over those 17 years.
In the short term, says Wood, only Michigan, up 9.5 percent, and Oregon, up 8.8 percent, had higher price increases than Utah during that 12-month period.
The rapid inflation in housing prices in Utah over the past five years has hit first-time buyers and low-income households particularly hard, says Wood.
"For these households, there is little consolation in the conclusion that a median-income household in Utah can afford a median-price home," he notes.
These people, renters and new households, have been "prevented from owning the very asset hat has proven to be the best source of wealth accumulation for the 475,000 homeowners in Utah," said Wood.
Despite the negative impact on that segment, Wood says his research shows that, for the broader market, the price increases have not impacted affordability much nor have they slowed demand or prevented increases in the rates of home ownership in the state.
"The recent run-up in prices is one of those relatively short-term distortions that characterize housing markets. There are signs that a correction may be under way. Price increases appear to have slowed down in the past 12 months and for the next few years will probably settle around Utah's long-term average price increase of about 5 percent a year."
Wood points out that getting reliable data to measure increases in home prices has been difficult because sources such as local real estate multiple listing services don't give an accurate reading since they measure prices from a different set of homes sold each year.
To accurately measure changes, he says, it is necessary to collect data on the same homes as they are sold at two separate times, a feat he terms a "formidable research task."
But the Office of Federal Housing Enterprise has launched a quarterly index that now does just that, using data provided by the Federal National Mortgage Association, better known as Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac.
The index is derived from repeat mortgage loans on single-family homes whose mortgages have been taken out since 1975. That index shows that a home that sold in Utah in 1980 for $100,000 would cost $226,500 in 1997, an increase of 126.5 percent, third highest in the nation.
Averaging the U.S. overall, that same $100,000 house in 1980 would have increased 204.40 percent by this year.
Why haven't higher prices hurt demand for housing? Wood says it's because higher prices have helped people who already own homes buy even more expensive ones using their inflation-created equity as a down payment on the next house. For them, higher prices actually help, not hinder, buying another home. Nearly half of all home purchases are made by people who already own a home.
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Additional Information
Utah Housing costs
The figures below reflect the rising cost of a $100,000 home in Utah. Cost in thousands Year of dollars
1980 $100.0
1981 108.7
1982 111.7
1983 113.8
1984 113.0
1985 116.2
1986 118.0
1987 116.1
1988 112.8
1989 114.4
1990 118.3
1991 125.2
1992 133.2
1993 147.7
1994 174.6
1995 195.8
1996
1st quarter $209.9
2nd quarter 215.0
3rd quarter 218.7
4th quarter 223.0
1997
1st quarter $226.5