The housing market is correcting — but Utah’s affordability crisis isn’t going away
Gov. Cox says housing is Utah’s No. 1 issue, hand-in-hand with water. What will state leaders do about it?
Yes, home prices are correcting as higher mortgage interest rates clamp down on demand. But it’s not erasing Utah’s housing shortage — and that means Utah’s housing affordability crisis isn’t going anywhere.
That’s what one of Utah’s leading housing experts told a panel of Utah lawmakers this week during an interim committee meeting — and it’s something Gov. Spencer Cox spent a fair amount of time discussing during his monthly PBS press conference Thursday.
Housing affordability crisis
Utah’s home prices peaked in May, before fallout from the Federal Reserve’s fight with inflation hit the housing market. Since then, Utah’s median sales price has declined 9.3%, according to calculations by Dejan Eskic, a senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute.
While that’s a sharp shift, Eskic told the Economic Development and Workforce Services Interim Committee on Wednesday he doesn’t expect it to continue plunging into a sustained drop like it did in 2007, after the subprime mortgage crisis when the housing bubble popped.
While the Fed’s rate hikes are stemming demand for now, it’s not addressing Utah’s housing shortage, which has for years fueled Utah’s housing affordability crisis even long before the pandemic housing frenzy.
How much has Utah's housing affordability worsened? This chart gives us a fun (depressing) look. @EskicDejan notes how the monthly payment almost flatlined in 2020 amid low rates, but as prices and rates rose... Ouch. @KemGardnerInst #utpol #utecon pic.twitter.com/PHnKe8JkeR— Katie McKellar (@KatieMcKellar1) October 19, 2022
Now, even though home price increases are slowing and in some areas dipping, higher rates are keeping monthly mortgage payments sky high. While the median monthly mortgage payment in Utah was about $1,400 in 2018 — and actually dipped slightly to $1,386 in 2021 amid low, mid-pandemic mortgage rates even as home prices were climbing rapidly — the mask is off, Eskic said. Now, as mortgage rates hover around 7%, the median monthly payment has exceeded $2,600, depending on the day.
That’s priced out a startling 76% of Utahns from being able to afford the state’s median priced home, Eskic said.
“So we’re just going to keep seeing more pressure on affordability that’s going to have to fall on the back of the rental market,” Eskic said, “because we’re a growing state. Whether people can afford housing or not, we still have kids, people still move here. Our demand is going to keep continuing.”
While that’s tempering homebuyer demand, it’s also pinching homebuilders. While Utah was among states that led the nation in 2021 for its housing boom, this year’s housing market correction could also dampen homebuilding and further exacerbate Utah’s housing shortage down the line. Eskic said Utah’s new residential sales are down 19% in the Salt Lake Market.
“So it puts us in an interesting bind,” he said. “For nearly a decade now we’ve been talking about our housing shortage, and we expect less homes to be built in the next two to three years as the financial markets work themselves out.”
Housing is No. 1 issue, Gov. Cox says
In his conversations with Utahns, Cox said the No. 1 issue that’s top of mind is housing — which also goes hand-in-hand with water and the historic drought gripping the West.
As the U.S. faces bleak economic forecasts, Cox said he’s confident in Utah’s economic standing, adding that he’s confident the state is on strong footing to weather whatever comes. That’s why Cox said he’d like to see another tax cut during next year’s legislative session — something Utah’s Republican legislative leaders have also said they support — as well as continued investment in affordable housing initiatives.
“The good news is we can do both, and we did both,” Cox said, pointing to the $70 million the 2022 Utah Legislature approved for homelessness and affordable housing initiatives. Even though it was far short of the $128 million Gov. Spencer Cox recommended in his last budget for housing and homelessness programs, he said it was still a “huge increase.”
Of that $70 million, the Utah Homelessness Council recently doled out $55 million to a slew of affordable housing projects across the state. Cox said his administration is excited to see those projects come to fruition, and “we will be working on similar numbers this year, and I believe we have the funds to do that.”
Asked if he’d like to see the Utah Legislature tackle additional policy decisions to deal with Utah’s affordability crisis, the governor said he and legislative leaders are working on some proposals through the Unified Economic Opportunity Commission.
“One of our major focus areas is reducing the cost of housing in this state,” Cox said. “It is very, very simple — I will never tire of saying it — it’s supply and demand. This is economics 101. We have more demand than supply, and anytime that happens, the price of housing is going to go up.”
While home prices are correcting, Cox said the reason that’s happening “is because the Fed has decided ... we’re going to artificially destroy demand” by upping the key borrowing rate, which has an indirect impact on mortgage rates.
“Artificially destroying demand,” Cox said, “(isn’t) a great way to improve housing outcomes in Utah. So what do we have to do? Well, it’s very simple. We have to increase supply.”
That’s easier said than done, especially since city leaders largely control what types of housing gets built in their communities — and if higher density projects are proposed, residents fearful of impacts to their neighborhoods often pack council meetings in protest. Meanwhile, homebuilders are often at the whim of market conditions and their bottom line.
Cox said his administration is currently working with the Utah League of Cities and Towns to hash out some new policies ahead of the Utah Legislature’s 2023 session, set to begin in January.
“We’re not there yet on final proposals, but we are close, and I suspect within the next month, month and a half, you’re going to see some very major and significant proposals that will help us increase the supply of housing in our state.”