SALT LAKE CITY — In the wake of some record-setting heatwaves this past summer, the Salt Lake Valley’s housing market was also mirroring that blazing-hot streak.
The demand for new housing stock has risen to historic levels.
A big upward trend in the national housing market has continued based on the latest new home sales data from the U.S. Census Bureau. The figures show new single-family home sales up 43.2% year-over-year in September.
A report from Robert Charles Lesser and Company, a data analytics and strategic planning firm for the real estate industry, states increased market demand is being driven by low interest rates for homebuyers, demographic shifts, along with changing consumer attitudes about where they choose to reside in the era of the new coronavirus.
The report notes that given the fact there is just a 3.3-month supply of new homes available, the current pace of robust sales may not sustainable in the long term.
Considering various factors, including the current sales pace, rising lumber costs and availability of suitable land, there are strong indications that demand for new housing will remain high, However, builders may have trouble keeping up, one Utah observer said.
Jaren Davis, CEO of the Salt Lake Home Builders Association, said demand for new housing has been overwhelming producers’ capacity to provide units, particularly as more and more people choose to make the Beehive State their home.
While the influx of new residents is a major driver in the demand for housing, he said keeping up the supply is also an ongoing challenge.
“The existing house inventory is readily available and the transaction occurs (immediately),” he said. “But in new construction, there isn’t a lot of spec housing out there, meaning the builders built something waiting for the buyers to come in. So what happens when the consumer comes into our assets, they actually agree to a longer term buildout. They’re looking at a plat map, identifying a lot that they want and then getting on a schedule for the construction and that oftentimes would take as long as six months.”
He added that the build-out phases could also be long if the home is larger or has specific features that require more time to construct. The robust demand has also put more pressure on builders to produce a greater volume at a high rate.
The high demand is straining the existing home market as well. The Salt Lake Board of Realtors reported that sales in Salt Lake County for July were the highest on record in the history of the Multiple Listing Service — more than 2,100 sales. It was the first time sales eclipsed the 2,000 mark. Sales last month were also up slightly, the report states.
Meanwhile, Davis noted that the construction industry was designated as an essential service during the COVID-19 pandemic, which has allowed builders to continue producing much needed housing stock.
“You still had that mindset for the social distancing. In our industry, we naturally social distance, the framers aren’t standing next to the plumbers — they’re coming in at different times and they’re standing in different parts of the home,” Davis explained. “We absorbed that fallout from those first months (of the pandemic), had some slowdown in the construction and they’re now back up to full steam.”
He said even at full capacity, the industry still cannot keep up with the demand from prospective buyers.
“If we could build enough inventory for the demand, we would probably be twice as busy,” he said. “Existing housing follows new construction. If there isn’t enough inventory in new construction, prices go up. Because of our lack of ability to meet that demand, prices are pushed upward because there is a shortage of inventory.”
He said those rising prices are putting tremendous pressure on affordability across the Wasatch Front.
Analysts contend the high demand has been exacerbated by the lack of existing home inventory for sale. Dejan Eskic, senior research associate at the University of Utah’s Kem Gardner Institute, said the pandemic prompted many potential sellers out of the market due to fears raised during the initial outbreak in the spring.
“We’ve seen a lot of existing for-sale inventory pull back, so we’re about 52% or so behind where we are usually with existing sales inventory this time of year and throughout the summer,” he said, “That’s created a kind of bottleneck. You have this pent up demand who want to buy, but they have nowhere to go.
“You have the global health pandemic issues as well, people are not comfortable having people walk into their homes,” Eskic said. “They don’t want to move in a pandemic, so that’s preventing them from putting their house on the market as well. You’re seeing this in our market and across the nation, we’re really short on existing home sales.”
Regarding affordability, he said Utah faces the daunting prospect of becoming like California is today where many residents cannot afford to rent or buy based on their typical household wages.
“Really, it comes down to income. Between 2013 and 2018 — that five-year period, income (in Utah) has gone up 18% while housing prices have gone up over 65%,” Eskic said. “In comparison, if we go back to this May and April when this whole thing started, the median price of a single-family home in the state of Utah was about $365,000, now it’s $399,000. That’s about 9% in just five to six months.”
He said civic leaders need to work on some possible solutions or risk the situation worsening.