As the U.S. housing market shows signs of stabilizing after over two years of upheaval amid the pandemic housing frenzy, followed by skyrocketing mortgage interest rates, the West continues to be the heart of home price correction.

In Utah, price drops haven’t stopped. But they appear to be slowing.

The median price of all home types sold in Salt Lake County, Utah’s most populous county along the Wasatch Front, fell below the half-million dollar mark in February, down to $494,500, a nearly 4% decrease from a year earlier, according to the Salt Lake Board of Realtors.

The median price of a single-family home in Salt Lake County fell to $560,000 in February, down $90,000 from its peak in May 2022 when the median home sold for $650,000. That’s an almost 14% price decrease. Year over year, the median price of a Salt Lake County single-family home declined nearly 4.3% in February.

Put that in perspective, however, of just how much home prices skyrocketed from March 2020 to May 2022 during the height of the pandemic housing madness. In Salt Lake County, the median single-family home price jumped nearly 60%.

Has the housing market bottomed yet?

The Salt Lake Board of Realtors has forecast that home prices will continue to drop year over year until this fall.

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“So we’re not done with the price drops, but they are slowing,” said Dave Anderton, spokesman for the Salt Lake Board of Realtors. “I think we’ll have several more months of price drops year over year, but we could be getting close to the bottom.”

While the median single-family home price fell nearly 14% in February from its May 2022 peak, that drop was even more dramatic in January, when the median single-family home price in Salt Lake County hit $533,500, 9% lower than January 2022.

February also saw more sales activity than in January. Only 590 Salt Lake County homes sold in January, down 36% compared to 927 sales in January 2022. That marked the fewest number of homes sold in a single month since January 2011, when 571 homes were sold, according to the Salt Lake Board of Realtors.

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Multifamily homes saw the biggest percent decrease in sales for the month at a decline of 46%. Single-family homes were down 33%.

“Mortgage interest rates continue to hinder sales,” Rob Ockey, president of the Salt Lake Board of Realtors, said in a prepared statement at the time. “However, we expect the 30-year mortgage rate will trend lower in the coming months, as the spread between the 30-year mortgage and 10-year Treasury returns to its historical average (around 170 basis points). If that happens, we could see rates around 5.5%.”

In February, sales picked up a bit, but were still down 24% year over year, with 758 homes sold compared to 1,000 in February 2022. Single-family home sales declined 19.6% while multifamily homes declined over 34% year over year, according to the Salt Lake Board of Realtors.

What’s slowing the market?

Mortgage interest rates have fluctuated slightly in early 2023, but they’re still high compared to the sub-3% rates some buyers enjoyed in 2021. However, Anderton notes while today’s interest rates seem high compared to those days, the average 30-year fixed-rate interest rate over the past 50 years is 8%, according to Freddie Mac.

Granted, Utah’s and the nation’s home prices reached historic highs over the past several years. That, combined with the sudden jump in interest rates as the Federal Reserve has battled record levels of inflation, shocked the market and priced many out of buying.

In Utah, that prevented over 75% of Utahns from being able to afford the state’s median priced home in late 2022, according to estimates by Dejan Eskic, a senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute.

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At the time, mortgage interest rates hovered around 7%. As rates tick down closer to 6% and lower, “we expect sales to increase,” Anderton said.

Demand still exists, he said, even though it seems muted thanks to interest rate shock.

“There are still many homebuyers, but interest rates have deterred or unqualified many of them,” Anderton said.

But that may be slowly changing. Anecdotally, real estate agents have said they are seeing multiple offers on lower-priced homes. Sales are also expected to pick up as seasonal demand increases during spring.

A key factor likely continuing to sustain demand even amidst its affordability problems is Utah’s persistent housing shortage. Despite a record home building year in 2021, Utah’s statewide cumulative housing shortage is estimated to be 31,000 units, according to estimates by James Wood, an Ivory-Boyer senior fellow at the University of Utah’s Kem C. Gardner Policy Institute.

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National housing market

It’s a “tale of two housing markets” playing out across the country. In the East, home prices are trending up, but in the West they’re still down. Nationally, home prices rose a slight 0.16% in February when seasonally adjusted — the strongest single-month gain since May 2022, according to Black Knight’s latest mortgage monitor report released earlier this month. However, home price growth also fell below 2% for the first time since 2021.

The West, which was ground zero for the pandemic housing frenzy, was also hit hard by the national housing market correction once the craziness died down amid higher interest rates. It’s seen the steepest home price declines since the end of 2022 and the start of 2023.

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