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SALT LAKE CITY — The Wasatch Front housing market has been among the hottest in the region over the past decade, and that trend is expected to continue.
Speaking Friday before an audience of real estate professionals at the Salt Lake Board of Realtors' annual housing forecast event, Jim Wood, Ivory-Boyer Senior Fellow at the Kem C. Gardner Policy Institute, said housing prices in Salt Lake County have climbed 80 percent since 2005. Wood authored the study titled the 2019 Housing Forecast Report, which was commissioned by the board.
"That (housing price increase) includes a period in which we had 16 continuous quarters of decline in housing prices," he said. Among the concerns surrounding such robust growth is the fact that housing prices are increasing much faster than household income, he noted.
The median sales price of a single-family home in Salt Lake County in 2018 was $355,000 — up 9 percent over 2017, the report stated. Meanwhile, the median sales price of a multifamily (condominium or townhouse) unit came in at $248,257 — a 10 percent increase year over year.
The report noted that in 2013, the mortgage payment for a median-priced home in Salt Lake County was $1,299. By 2018, the payment for the median-priced home jumped dramatically to $2,014 — a 55 percent hike in just five years.
Historically low-interest rates have hidden the affordability issue somewhat, he said, because those rates allowed some buyers to purchase homes that may have been out of their range under normal circumstances, Wood said.
Wood said the Wasatch Front has seen eight years of significant housing price increases, which should continue for the next year or two. However, a big concern will be how much wages increase over the same time period, he said. Average pay rose 3.8 percent in 2018 — the largest increase since 2006 — but is projected to decline to 2.5 percent this year, he added.
He said that the most recent forecast released in October 2018 showed continued growth among most economic indicators, though at a slightly slower rate of growth. Employment growth will slow from 3.3 percent in 2018 to 3.1 percent in 2019 — still an impressive growth rate, he projected.
Wood also said the local labor market is expected to tighten as the unemployment rate drops to 3 percent in 2019. Over the past 70 years, just 2006 and 2007 have had lower rates of joblessness, he said.
The underlying factors that will contribute to the slowdown are higher prices and rising interest rates — in other words, housing affordability, Wood said. The 45 percent increase in the median price sales price, along with higher interest rates, reduces the home buying incentive for potential buyers. That's not only buyers transitioning from rental to homeownership, but also buyers considering moving up, Wood told the audience of approximately 700 people.
"What we've seen is a shift to condominiums and townhomes driven by affordability," Wood said. "Twenty-seven percent of (residential home sales) were condominiums and townhomes, which was the highest ever."
He said most economic analysts believe that mortgage rates will move above 5 percent in 2019, which would impact buyers' ability to purchase properties — especially those in the first-time market. Slightly lower economic and demographic growth, along with higher prices and interest rates, will dampen demand in 2019, he said.
"These conditions mean fewer single-family sales but more condominium and townhome sales as buyers seek affordable housing," Wood said. "We are at a record level for the sale of condominiums and townhomes."
Single family sales will decline from 13,100 to 12,000 units, an 8 percent decline, while condominium sales will increase to 5,200 units, up 7 percent, he said. Total sales for both homes and condominiums will be down about 4 percent to 17,200 units, he added.
The median sales price of a single-family home will increase 5 to 7 percent to around $375,000 while the median price for condominium will increase by 10 percent to $275,000, Wood said. The value of residential sales is forecast at $6.5 billion, the report stated.
"Affordability is a really serious issue," Wood said. "It's really difficult because our wage rates and income just hasn't grown. We're getting income growth of 2 percent and housing growth of 5 percent, and if we lose the advantage of low-interest rates, that makes it much more difficult for (young people) to buy."
"Wealth creation really comes from homeownership for most households," he said. "The median net worth of a homeowner is about $231,000, while the net worth of a renter is about $5,000."
Despite the affordability concern in the housing market, he said the overall economic fundamentals of the Wasatch Front are still quite strong.