Mortgage rates have reached their highest point in over two decades, and when combined with persistent high prices, the affordability of the U.S. housing market is now lower than it was at the height of the 2006 housing bubble. The Federal Reserve Bank of Atlanta reveals that its Home Ownership Affordability Monitor hit a low of 69.5 in June, based on a national median home price of $372,825 and a median income of $76,072. The annual total payment as a share of median income exceeded 43%, surpassing the advisable 30%.
This score contrasts with the 112.3 score from November 2012, when homes and interest rates were much lower. Since June, mortgage rates have continued to climb, exacerbating affordability issues. The recent 30-year fixed mortgage rate of 7.48% is the highest since 2000.
High Mortgage Rates Create Low Interest
According to Lisa Sturtevant, the chief economist at Bright MLS, the surging mortgage rates have caused some potential buyers to hesitate. The housing market could slow down this fall as some buyers choose to wait. While Sturtevant doesn’t anticipate significant drops in house prices due to the continuing low supply and stable economic conditions, there could be risk in areas like Austin and Boise, which were hot spots during the pandemic.
In 2023, Idaho and Utah experienced significant year-over-year home price reductions. Nonetheless, despite worse affordability levels compared to the period before the 2006 housing crisis, experts do not anticipate a similar market crash. The current housing demand, fueled by genuine population growth and household formation, contrasts with the pre-2008 scenario characterized by a surplus of homes and risky lending practices.
The housing shortage in the U.S., exemplified by a deficit of 6.5 million homes in 2022, is especially pronounced in rapidly growing areas like Utah. The state has made progress in addressing its housing shortage but continues to face challenges. The housing market has cooled, potentially exacerbating the shortage.
Price Drops Aren’t Changing Reality
In the context of Utah’s housing affordability, even though housing prices peaked last year, rising interest rates have kept the cost of home ownership high. Salt Lake City is identified as one of the least affordable metro areas, as indicated by the Atlanta Fed. The city’s low affordability score is attributed to a combination of median income, home prices, and interest rates, which collectively influence the total median monthly payment.
That said, this price correction is uneven across different areas. Data from the second quarter of 2023, provided by the Salt Lake Board of Realtors, highlights this trend. In Salt Lake County, the median price for a single-family home was $582,500, marking a 7% reduction from $623,138 the previous year. Similar trends were noted in Utah County (7% decline), Davis County (5% decline), Weber County (6% decline), and Tooele County (9% decline). Despite these decreases, prices have been gradually recovering since hitting their lowest points this winter.
The Board also identified the most budget-friendly ZIP codes in the counties of Salt Lake, Utah, Davis, Weber, and Tooele for the second quarter of 2023, offering a comparative analysis with the prices from 2022.
In the Salt Lake Valley, the most economical single-family homes are found in the Glendale neighborhood, located south of the Salt Lake City International Airport and north of State Route 201. The median home price in the 84104 ZIP code of Glendale was $381,000 in the second quarter of 2023, representing a 7% decrease from $409,000 the previous year.
Here are your most affordable candidates:
- Glendale, Salt Lake City (84104): The median price is $381,000, indicating a 7% reduction from the second quarter of 2022.
- South Ogden, Weber County (84403): Homes are priced at a median of $400,000, a 9% decrease from the previous year.
- Roy, Weber County (84067): The median price stands at $410,000, an 8% drop year-over-year.
- Kearns, Salt Lake County (84118): Homes are available at a median price of $420,000, marking a 7% decline from last year.
- West Valley City, Salt Lake County (84119): The median price is $420,000, a 4% reduction compared to the previous year.
These fluctuations in housing prices, influenced by factors like mortgage rates and housing shortages, paint a complex picture of Utah’s real estate landscape. Affordability, though relative, remains a pressing issue for potential homebuyers navigating this dynamic market.
Historic Highs Forcing New Lows
Despite the decline in prices, housing affordability remains a critical issue in Utah. Homes, apartments, condos, and townhomes are less affordable than ever in the state’s 50-year history. Falling home prices are not significantly aiding affordability, and record-setting rent increases are making homeownership increasingly unattainable for many residents.
The lingering effects of Utah’s housing affordability crisis are expected to persist, amplified by the fluctuating mortgage rates, home prices, and rents. Recent data reveals a decline in home sales to the lowest in nine years on the Wasatch Front, accompanied by a decrease in prices in several areas due to rate increases, ending a decade of real estate market boom.
A near 20% drop in home sales was recorded statewide in 2022, with further declines observed along the Wasatch Front between January and June 2023. Even though prices have dropped, the increase in mortgage rates from 4.5% to almost 7% in less than a year negates the benefits of reduced prices. For instance, buying a home at Utah’s median sales prices required an income of about $150,000, a significant increase from the previous year.
The Impact on Renters
The situation has adversely affected many renters, with a growing number believing homeownership is out of reach. The fall in home sales reflects a change in the demographic that can afford to buy homes in Utah. Young adults, families, and under-represented populations are particularly affected by the rising mortgage rates and affordability issues. The National Association of Realtors highlighted the difficulties these groups face, marking it as one of the most challenging affordability conditions in decades.
Looking ahead, the gap in housing affordability is expected to widen. While the issue of housing affordability is a national concern, Utah is experiencing a more pronounced contraction in homebuilding, leading to a steep decline in residential building permits. The state’s ongoing housing unit shortage is anticipated to rise again after a steady decline from 2017 to the last year. Similar trends are seen in apartment construction, with a slowdown expected due to higher interest rates affecting lending to developers. This situation is likely to maintain low vacancy rates and continue pushing rents upwards.
Kristin Matthews, a housing analyst, expressed sadness over the fact that a vast majority of Utah’s renters cannot afford the median home price due to these challenges. Dave Anderton, a spokesperson for the Salt Lake Board of Realtors, added that not only first-time buyers but also those looking to move up are finding it increasingly difficult to afford homes in the current market. Jessica Lautz of NAR emphasized the severe affordability issues faced by potential buyers, marking it as one of the most stringent conditions in recent decades.
The Slowdown’s Ripple Effects
Amid concerns from experts like Matthews, Anderton, and Lautz, it’s becoming increasingly clear that housing affordability is a significant catalyst for the market’s slowdown. The challenges of housing affordability aren’t just theoretical or isolated; they are causing tangible effects, triggering a ripple of consequences throughout Salt Lake County’s real estate landscape. The repercussions of this affordability crisis are exemplified in the stark numbers emerging from the most recent sales data.
The Salt Lake Board of Realtors has disclosed alarming statistics indicating a downturn in Salt Lake County’s real estate market. The June 2023 sales data shows a significant decline compared to the previous year. The sales of all property types plummeted by 26.1%, with the median single-family home price decreasing by 4.1% to $600,000. Additionally, single-family home sales mirrored this trend, dropping by 26.1%, while the median price per square foot decreased by 1.2% to $254.41. Overall, the median home price for all residence types fell by 4% to $519,000.
These worrying trends follow the Federal Reserve’s recent decision to hike key interest rates charged to banks by 0.25%, marking the 11th increase since the previous March and reaching a 22-year peak. It’s reminiscent of the 1984 scenario when interest rates soared to 18%, causing a stall in home sales and sparking panic among builders. To counteract the dire situation, the market introduced the “negative amortization loan,” which temporarily revived home sales in the region.
Such a loan offered seemingly attractive interest rates but came with a catch. Homebuyers initially faced lower interest rates, but the difference was subsequently added to the mortgage principal. This mechanism led to an increase in the owed amount each month, resulting in homeowners owing more than their property’s worth upon selling a few years post-purchase.
The Outlook for Real Estate Agents
The current economic landscape echoes the grim period of the 1980-’82 recession and the 2008-2009 financial crisis, where property values and public trust in the government plummeted. The June 2023 data highlights a struggling local real estate sector, rendering a living wage for real estate agents unattainable. With a total of 1,072 sales for all types of residences in the county and over 10,000 members of the Salt Lake Board of Realtors, only just over 10% of the members made sales last month.
These sobering statistics are a stark reminder of the challenges that lie ahead for those considering a career in real estate. The current market dynamics, influenced by policy changes and economic shifts, are contributing to a more competitive and demanding environment for professionals in the field. As the industry grapples with these changes, the need for strategic and adaptive responses becomes increasingly critical to navigate the complex landscape of the real estate market in Salt Lake County.