A once boiling hot housing market that’s been shocked by higher mortgage interest rates is taking its toll on Utah’s housing market.
Utah’s most populated county, Salt Lake County, has seen its first year-over-year decline in housing prices since 2011. In December, Salt Lake County’s median single-family home price dropped to $541,900 — 6% lower than the county’s median price in December 2021.
That’s according to new UtahRealEstate.com data released by the Salt Lake Board of Realtors on Tuesday.
Is the housing market crashing?
While it’s significant that Salt Lake County has seen real estate prices drop for the first time in over a decade, it’s also important to note these year-over-year declines come after about two years of wild price run-ups fueled by the pandemic home buying frenzy, which hit the West and states like Utah and Idaho particularly hard.
That rush caused Salt Lake County’s median single-family home price to jump nearly 60% from 2020 to 2022. In May of last year, the county’s single-family median home price was $650,000. Since then, home prices have fallen 17%.
Housing experts and economists in Utah do expect 2023 to bring a painful hangover to the housing market after two years of unprecedented price increases and a flurry of demand — but they also don’t predict a 2008-like crash.
Today, the U.S. housing market is going through what Federal Reserve Chairman Jerome Powell has called a “difficult correction” and a “reset” as it comes off the tail end of a pandemic frenzy fueled “housing bubble.”
Experts say Utah’s strong economy and job market will insulate the state from widespread job losses and foreclosures seen after the 2006 housing bubble popped, largely fueled by risky lending practices and a subprime mortgage crisis.
Housing experts in Utah, however, also are at odds over just how far Utah’s housing prices will fall in 2023 before possibly bouncing back in 2024.
Jim Wood, the Ivory-Boyer Senior Fellow at the University of Utah’s Kem C. Gardner Policy Institute, has a more optimistic forecast, expecting Utah will see minor “year-over-year price declines in the first and second quarter of 2023, but prices will begin to stabilize by the third and fourth quarter,” he told real estate professionals at the Salt Lake Board of Realtors’ 2023 housing forecast earlier this month.
However, Wood’s research colleague at the Kem C. Gardner Institute, Dejan Eskic, is more bearish, predicting Utah home prices will drop 9% year over year in 2023. From peak-to-trough, he expects prices to decline by a percentage somewhere in the mid to low teens, depending on interest rates.
Wood and Eskic predict Utah’s estimated 31,000-unit housing shortage will continue to keep home prices high, even if the state sees some price drops, so they expect Utah’s housing affordability crisis to remain a persistent issue that is pricing out more than 75% of Utahns from affording the state’s median-priced home.
Meanwhile, sales in Utah have fallen off a cliff.
Sales of all housing types fell to 761 units in Salt Lake County, down 50% compared to 1,508 sales in December 2021, according to the Salt Lake Board of Realtors. In all of 2022, Salt Lake County’s annual sales totaled 13,087, down 26% from 2021.
That’s the “steepest single-year drop on record, (1997 to the present),” according to the board. “Prior to 2022, real estate sales had been remarkably consistent for seven years at about 18,000 sales, only diverging in 2020, the pandemic year, when sales jumped to 19,000 units.”
What does this mean for homebuyers?
Even though housing prices remain high when compared to just three years ago, slowing sales and dipping home prices could help give homebuyers a bit more of an edge compared to 2020 and 2021’s frenzied market.
“Home buyers have more negotiating power,” said Rob Ockey, president of the Salt Lake Board of Realtors, in a prepared statement. “The good news for sellers is that, despite the recent price declines, a majority of homeowners are sitting on plenty of equity. A large majority of homeowners don’t need to sell. They can step back and wait for the dust to settle.”
Additionally, Ockey said price declines are expected to stabilize by the third quarter of 2023.
Meanwhile, given Utah’s housing shortage, housing demand in Utah is expected to remain relatively strong.
“Demand for housing is strong because of net in-migration and population increase,” Ockey said. “More than one-third (38%) of all active listings on UtahRealEstate.com are under contract, which indicates there is still strong buyer demand in our market.”
Mortgage rates in 2023
Mortgage rates are also beginning to temper, after they crossed the 7% threshold for a period of time last year.
Mortgage interest rates fell last week to 6.15%, the lowest since September of 2022, according to Freddie Mac.
Rates are predicted to fall to 5.5% this spring, according to Lawrence Yun, chief economist of the National Association of Realtors.
“The spread between the 10-year Treasury and the 30-year mortgage rate is exceptionally wide,” Yun said during the Salt Lake Board of Realtors’ forecast earlier this month while visiting Salt Lake City. “If we had a narrowing, or say, a normal spread condition, today’s mortgage rate would be 5.5%.”