Home prices are increasing faster than Americans’ incomes.

The first-time homebuyer ratio in 2023 was 3.6, “meaning the median FTB spent 3.6 times household income to purchase a home in 2023. This is up from 3.0 in 2013. FTB affordability was further worsened by rising mortgage rates, which averaged 6.8% in 2023 compared to 4.0% in 2013,” according to the American Enterprise Institute.

A report by AEI examined 60 of the most populated metros in America and found that the Midwest and South outranked the West and the coasts in terms of affordability.

Top 5 best metros for new homebuyers and their FTB affordability ratios:

  1. Pittsburgh, Pennsylvania — 2.5.
  2. Cleveland, Ohio — 2.7.
  3. Oklahoma City, Oklahoma — 2.9.
  4. Omaha, Nebraska — 3.0.
  5. Detroit, Michigan — 3.0.

Top 5 worst metros for new homebuyers and their FTB affordability ratios:

  1. San Jose, California — 4.8.
  2. Salt Lake City, Utah. — 4.7.
  3. San Francisco, California — 4.6.
  4. Los Angeles, California — 4.5.
  5. San Diego, California — 4.4.

Salt Lake City has been competing with San Jose for the top ranking in the last few years. Following the 2020 COVID-19 pandemic, the Utah capital was hailed as the least affordable for new buyers from 2021 to 2022 but was overtaken by California in 2023.

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Why is Utah so unaffordable?

Home prices were up 3.7% last month compared to a year prior, making the medium home sale in May $545,900, per Redfin. Even with the price increase, people are still buying homes in Utah. Year-over-year home sales were up 1.2%, with the 3,468 sold in May, 58 more than a year prior.

“In May, we saw inventory jump 22.6% while buyer demand stayed steady. This increase in listings is providing a small respite for our battle-worn and financially strapped home shoppers, and has been frustrating for our sellers whose homes are taking longer to sell than they expected,” Alex McEwen, founder of McEwen Realtors and a third-generation realtor in Salt Lake City, told Deseret News.

“Many of our seller clients are weighing the cost and benefit of giving up a sub 4% mortgage and will simply choose not to sell if they don’t get the high price they were expecting. This is why, even with higher inventory, home values remain sticky. We expect that prices will not fluctuate much in either direction over the summer,” she added.

There are three key reasons Norada Real Estate Investments believes the Beehive State’s housing market is in its current condition:

  • Economic growth: Utah’s robust economic base continues to draw new residents, leading to a rise in housing demand.
  • Limited supply: The shortage of available homes is a key factor in driving up prices, creating a competitive environment for prospective buyers.
  • Interest rates: More favorable interest rates compared to last year encourage home-buying, motivating individuals to enter the housing market.

“You’ve got an entire generation of pent-up demand,” Dave Liniger, founder of real estate brokerage RE/MAX, told Bankrate. “We’re in this fascinating position of tremendous demand and too little inventory. When interest rates do start to come down, it’ll be another boom-and-bust cycle.”

As of June 13, Freddie Mac reported a 6.95% 30-year fixed-rate mortgage, a slight decrease from last month’s highest rate of 7.22%, but is it enough?

“Homebuyers generally have two options: to buy a new construction home or to buy an existing home. New construction homes are still being built, but total supply suffers from zoning restrictions that limit houses, particularly in the most desirable cities and neighborhoods,” Porter Openshaw, director of finance at Ivory Innovations, told the Deseret News in an email. “And existing homes are in short supply as current owners are disincentivized to sell their homes if they, like 78% of borrowers, are holding a mortgage with an interest rate below 5%.”

In May 2024, Utah had 14,513 homes for sale, a 9.8% increase from the previous year. The number of newly listed homes was 5,248, a 6.5% rise year over year. Redfin also reported that the average supply duration remained steady at three months, showing no change from the previous year.

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