Utah’s housing prices are still lower than they were this time last year, but they’ve been on a slow incline since they appeared to bottom in January.

The latest local home sales data shows today’s high interest rates, these days over 7%, are continuing to chill home sales across the Wasatch Front, but prices are still sticking high amid low availability, despite last winter’s price correction.

Utah housing prices

Salt Lake County’s median single-family home price fell to $582,500 in the second quarter of 2023, marking a 7% decline from $623,138 in the second quarter of 2022, according to a news release issued Thursday by the Salt Lake Board of Realtors.

On a month-to-month basis, Salt Lake County’s median single-family home price climbed to $610,000 in July, a slight increase from June’s $600,000. That marks a seven-month upward trajectory (minus some flat or slightly negative months).

July’s median price of $610,000, however, is up nearly 14% from when Salt Lake County’s single-family median price bottomed in January at $535,700. It’s also a staggering 49% increase from when Salt Lake County’s median single-family home was $410,000 in March of 2020, before the pandemic housing frenzy sent prices in Utah and the West sky high.

Why are home prices still so high?

The Federal Reserve’s war on record inflation levels sent mortgage interest rates from their low days of 3% during the pandemic to now over 7%. The rapid pace of those rising interest rates shocked the U.S. housing market in late 2022, and since then the market has been comparatively ice cold. Sellers are reluctant to sell, locked in with low rates, while many would-be buyers have been priced out or reluctant to stomach such high rates.

“Interest rates have sidelined buyers, but prices are holding up better than expected,” said Dejan Eskic, chief economist for the Salt Lake Board of Realtors and a senior research fellow specializing in housing research at the University of Utah’s Kem C. Gardner Policy Institute.

“The economy’s hotter than expected,” Eskic said, noting the Federal Reserve and other national economists are expecting a 5.9% GDP growth despite efforts to tamp down on inflation, “which is insane. That’s a recovery number, after you’ve gone through a recession,” and not a number that would indicate the economy is cooling.

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Job openings have softened — declining from 9.2 million in June to 8.8 million in July, according to the U.S. Bureau of Labor Statistics, but “we’re still not seeing unemployment rates increase, (and) we’re not seeing unemployment insurance filings like you would in a recession,” Eskic said. “So until we start losing jobs, we really don’t have a recession.”

“So It’s a resilient economy,” he said, “and that’s why we’re having high interest rates.”

The result has been crushing for home shoppers, who face much higher monthly mortgage payments thanks to stubbornly high home prices and the impact of high rates. For example, a buyer looking to buy a $494,250 home, the state’s median price in the second quarter of 2023, would face a total mortgage payment of $3,750 with 5% down ($24,713), and an interest rate of 6.5%, according to Eskic’s calculations.

That monthly payment would be even higher for someone looking to buy a Salt Lake County home priced at $610,000 with today’s interest rates of over 7%.

“It’s a double-edged sword,” said Salt Lake Board of Realtors’ spokesman Dave Anderton. “We’re getting control on inflation, but these high interest rates are really hurting first-time homebuyers.”

Home sales in Salt Lake County are down 25% in the second quarter of 2023, down to 2,161 homes sold from 2,864 in the second quarter of 2022. “We’re selling about 400 fewer homes a month in Salt Lake County,” Anderton said.

“That’s affecting homebuilders, that’s affecting realtors, that’s affecting mortgage people. Anyone in the housing industry, that’s affecting their jobs,” he said. “And most of all it’s affecting people that want to get into a house.”

Has housing market bottomed — or could 8% rates send prices even lower?

Even though Utah’s home prices have been slowly gaining traction since they appeared to hit bottom this winter, it remains to be seen whether the state has weathered the entirety of its price correction.

It all depends on what happens to interest rates in coming months or years. Some economists say it’s possible mortgage rates could hit 8%, which could tamp down on housing demand even more and possibly tip prices down. Late last year, the National Association of Realtors chief economist Lawrence Yun predicted mortgage rates had already peaked and would fall to 5.7% by the end of 2023, but that hasn’t happened. More recently, Yun and other economists told MarketWatch it’s possible rates could hit 8%.

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“If the 30-year-fixed mortgage rate can hold at a high mark of 7.2% — and the 10-year yield holds at 4.2% — then this would be the high for mortgage rates before retreating,” Yun told MarketWatch. “If it breaks this line and easily goes above 7.2%, then the mortgage rate reaches 8%.”

In Utah, “if interest rates go up to 8%, I think we’ll see some further price declines, because something’s got to give,” Anderton said.

But in that circumstance, could Utah’s home prices dip even lower than last winter? Anderton said that’s a difficult call to make, especially considering not only buyers but sellers would also peel back from the market and worsen the low availability of homes, which has been helping keep prices high.

But 8% rates don’t necessarily mean Utah’s housing prices would drop even lower than last winter, given its persistent housing shortage.

“It would take a big interest rate shock” for Utah prices to drop lower than they did in January, Eskic said.

While Eskic said there could be “a bit more fluctuation” in prices depending on what happens to interest rates, he said he believes Utah has already bottomed, so long as there’s not a “crazy job loss recession.”

“We really can’t have dramatic price drops without dramatic job loss,” he said.

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