2021 President, Northern Wasatch Association of Realtors
A new report is shedding light on why Utah’s home prices are rising so fast — and it’s not because of a housing bubble. Rather, the rapid increases are the result of a housing supply shortage and pandemic challenges that fueled demand for homes.
The findings are part of a new research report from the Kem C. Gardner Policy Institute at the University of Utah. “The State of the State’s Housing Market” report, written by James Wood and Dejan Eskic, details both the history of Utah real estate as well as current housing conditions in the existing, new and rental markets.
“Our research confirms that Utah is in the midst of a housing shortage, which occurs when the growth in households exceeds the growth in housing units, historically an uncommon condition in Utah,” said Dejan Eskic, senior research fellow at the Gardner Institute, in a press release about the report. “In addition, housing prices and affordability will likely be persistent themes for some time to come, but other issues are sure to arise, some unexpectedly, like a global health crisis.”
Home Price Increases
Home prices have skyrocketed during the past year. According to the report, Utah home prices increased 29% in the second quarter or about 22% when adjusted for inflation. That is significantly higher than Utah’s typical housing growth.
Historically, Utah single-family home prices increase an average of nearly 6% each year, or about 3% when adjusted for inflation.
Northern Utah also experienced the fast-moving prices. In Weber County, the median sales price increased 28.5% during the first six months of this year compared to the same period in 2020. In Davis and Morgan counties, the median sales price increased 24% and 59% respectively.
The report also looked at cities with more than 50,000 people. In Layton, the median sales price increased 42% in the second quarter of 2021 compared to second quarter 2020. During the same time, Ogden saw a nearly 33% gain.
This price growth is the result of not having enough supply to meet demand. From 2010 to 2020, Utah had a cumulative housing shortage of nearly 45,000 housing units. Even though there’s been record home-building to help fill that gap, builders have faced numerous challenges in constructing units because of COVID-19-related supply chain disruptions.
Furthermore, the Federal Reserve’s efforts to prevent a deep, pandemic-induced recession created extremely low interest rates, which fueled a housing boom and home price increases.
Even with the price spikes, the report says a housing bubble is unlikely because “prolonged” house price drops are always associated with “job losses and recessions,” neither of which are expected in the next few years.
“The most likely outcome for housing prices in Utah over the next two to three years is the beginning of a period of price moderation,” the report said. “A period of extended price declines created by a bursting bubble is extremely unlikely.”
The analysts say the forecast for 2022 includes a continued increase in prices albeit the gains will be lower. Instead of 29% growth, they expect the median sales price will increase between 3.5% to 7.2%.
Even though affordability challenges will remove some buyers from the market, “demographic tailwinds” will keep demand for Utah homes high. That’s because a significant share of Utah’s population is reaching their peak first-time home-buying age. This will keep “the demand for housing strong for the rest of the decade.”
To learn more about current real estate market conditions in your own area, contact a Northern Wasatch Realtor. Find one at NWAOR.com.