MAGNA — As if the Utah housing market wasn’t hot already hot, the coronavirus pandemic and falling interest rates have only added fuel to the fire as the competition for properties continues to rise along the Wasatch Front.
According to a July ranking by Redfin, the Salt Lake City metro area has become the country’s third-most competitive housing market, due in large part to an increasing number of prospective buyers vying for a decreasing supply of properties.
This year, approximately half as many homes are on the market for sale as there were at this time last year, explained Robert Spendlove, senior economist for Zions Bank, resulting in a highly competitive marketplace in May and June. The Salt Lake City metro area saw 64% of offers produce bidding wars last month, trailing only Boston at 72% and San Diego 66%, he noted.
Speaking at a news conference in Magna, Spendlove said the last few months have seen historic changes in the local economy since the outbreak began.
“The impacts have been dramatic and they’ve been severe. One of the things we couldn’t have predicted and we still are having to struggle predicting is the economic impact of the coronavirus and of COVID-19 on the housing market,” he said. “For instance, as the pandemic began in March, the Salt Lake metro area saw the sharpest decrease in the nation in overall listings — falling 47% year over year.”
“So what that means is that there is now intense competition for existing homes that are for sale, and that competition continues to drive up home prices,” he added.
Another reason is falling interest rates, which have dropped to historic lows, he said.
“Last week, Freddie Mac reported that 30-year fixed rates for home mortgages dropped below 3% for the first time in nearly 50 years,” Spendlove said. “That lower interest rate enables people to be able to buy more of a home, but that also tends to drive up home prices.”
Another dynamic contributing to the housing price hikes is increased population growth and in-migration to the Beehive State that has become a long-term trend, he said.
Spendlove noted that as recently as 2006 home prices in Utah were the same as the national average at approximately $215,000. Today, the national average price has risen to $252,000, while in Utah, the mean price has climbed to $365,000 — 45% above the U.S. average.
While the price for a home may be rising, the cost to borrow money to purchase it has fallen to levels not seen in a half century, which has driven demand even during the COVID outbreak.
“Our mortgage department has seen a record number of Utahns apply for new mortgages and refinances through the peak pandemic months despite furloughs and layoffs in April,” said Mike Gould, director of Zions Bancorp’s mortgage division. “We never really saw a downturn in the number of new home applications. In fact, for the first half of 2020, our mortgage loans in Utah were up 50% year over year — both in numbers and dollars funded.”
He noted that inventory along the Wasatch Front has moved quickly even with lockdowns and stay-at-home orders. Homes were on the market a median of 20 days in May compared to a median of 37 days nationwide, he said.
“This part is due to historically low mortgage rates. Demand for renewed refinancing is twice what it was a year ago,” Gould said. “Low rates have increased buying power for people purchasing a home. Of course, that has an impact on affordability.“
He noted that affordability is increasingly becoming a significant issue for prospective buyers — especially first-timers or working class individuals and families.
“We expect affordability to be an ongoing issue for Utahns as pent up demand puts upward pressure on (existing) home (inventory),” he said. “New home construction has made a strong rebound with a 14% increase in June. That’s the highest level seen since 2007.”
He said the lack of existing home inventory is leading many consumers to new construction. One reason may be that sellers are wary to open up their homes to potential buyers because of the pandemic, he added.
Spendlove said another factor affecting rising home prices has been supply chain disruptions in the construction industry caused by the global pandemic.
“So it’s becoming difficult to get the supplies the builders need to keep up with demand. That’s one of the reasons why the supplies are low,” he said. “And it’s one of the long-term struggles that, frankly, we don’t have a good solution to yet. But it could drive those prices up and make it even more difficult for people to find affordable housing.”