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Rising interest rates could impact Utah housing market, analyst says

By Jasen Lee, KSL | Posted - Jan. 29, 2019 at 6:43 a.m.

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SALT LAKE CITY — The new year could bring higher home values as well as rising interest rates in Utah, which could mean a more challenging market for prospective home buyers.

The Salt Lake Board of Realtors reported Monday that sales of already existing homes across the Wasatch Front fell to a three-year low in the final three months of 2018. However, the 9 percent decline in the number of properties sold in the five-county area did not mirror the price buyers were willing to pay for the privilege of owning a home there.

The median price for a single-family home along the Wasatch Front in the fourth quarter rose 11 percent to $334,000 compared to $300,000 in the same period the year before, the report said.

Salt Lake County’s median single-family home price of $350,000 was the highest of the five-county area — up 8 percent over the median price of $325,000 in the fourth quarter of 2017. The other counties included in the report are Davis, Tooele, Utah and Weber.

To go along with rising prices, the cost to get a mortgage is also expected to increase in 2019, according to Jeremy Holmgren, mortgage regional sales manager with Zions Bank, who says interest rates will likely trend upward.

The Federal Reserve is expected to raise interest rates again in 2019, which may impact mortgage rates, he said. This could decrease overall purchasing power, which may lead to more buyers sitting on the sidelines.

"A rising interest rate environment is always an indication that home buying power will go down a little bit," he said. "It's more likely than not that interest rates will stay the same or go up than go down (in 2019), which can have an impact on the (home) buying market for sure."

He said most typical homebuyers will be affected if the current environment continues, coupled with rising interest rates. How much rates will climb is still to be determined, Holmgren said, adding that adjustable rate mortgages will become more attractive to borrowers.

In a climate of climbing rates, an adjustable-rate mortgage often makes sense, he said. (Adjustable-rate mortgages) have lower initial rates compared to fixed-rate mortgages, giving borrowers lower monthly payments in the first few years.

"Most people don't keep a mortgage for five or six years because they move or refinance their house," he said. "That makes (an adjustable rate mortgage) a very attractive loan."

He also noted that the higher rates will likely result in fewer homeowners seeking to refinance their existing mortgage. If interest rates increase, refinance activity in 2019 is expected to decline, he said.

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Many homeowners refinanced while rates were lower, so the majority of consumers will not see a benefit to refinancing this year, he added.

Meanwhile, as home values climb, so will the stake homeowners have in their properties, Holmgren said. The rise in prices should also translate into increased home equity.

As homeowners continue to gain equity, the demand for home equity credit lines and home equity loans is likely to increase.

"When values go up, home equity goes up too," he said, explaining that because those types of loans are secured by the property, the interest rate is often lower than with other types of debt, which homeowners can use to their advantage.

Overall, the new year will continue to be a "seller’s market," he said.

Despite some deceleration in sales, it will likely still be more favorable to be a seller in 2019, Holmgren said. Many factors will impact the market and drive demand this year, including employment growth, wage growth, consumer confidence and interest rates.

"Inventory is low, which is a great place to be if you're a seller," he said. "(It's) tough and more competitive if you're a buyer. A lot of time you have to buy a house for more than the (seller) is asking because they have multiple offers."

To add to the dilemma, the number of available properties is still far below what is needed to satisfy market need, real estate professionals contend.

“While new listings are on the rise, overall inventory levels are not keeping up with home buyer demand,” said Scott Robbins, president of the Salt Lake Board of Realtors.

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