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SALT LAKE CITY — Utah is among the top states in the West and the nation with record-breaking housing price increases — and is now facing a "severe imbalance" in its housing market.
Housing prices have skyrocketed so much, now more than half of Utah's households are unable to afford the state's median-priced home, which for single-family homes was $460,000 in 2021. For renters, these relentless price increases mean the path to ownership has narrowed even further.
That's according to the latest research released Wednesday by the University of Utah's Kem C. Gardner Policy Institute in a report titled the State of the State's Housing Market.
By the end of 2020, Utah's median home sale price climbed to $380,000, pricing out about 48.5% of Utah households. Prices continued upward in 2021, and now more than 50% of Utah households can't afford to buy. For renters, realities are even more challenging. In 2019, the median-priced home was already out of reach for about 63% of renter households. In 2020, that share of priced-out renters increased to nearly 73%, according to the report.
"Utah has a long history of rapid price acceleration in housing," said one of the report's authors, James Wood, the Ivory-Boyer senior fellow at the University of Utah's Kem C. Gardner Policy Institute, during a panel discussion about the report Wednesday morning.
But over the past year, especially as the COVID-19 pandemic disrupted supply chains and threw the national housing market into upheaval, Utah's housing market has emerged as one of the hottest in the nation, second only to Idaho. In the second quarter of 2021, Utah's housing prices increased a staggering 28.3% from 2020, ranking No. 2 in the nation for year-over-year percent increase. Idaho saw a jaw-dropping increase of 37.1%.
"An aberration, anomaly or outlier? I'm not sure," Wood said. "But this last year, in my work on housing over many years, we've never seen anything like this."
Naturally, seeing as prices have rocketed beyond what they were prior to the 2008 housing market crash and the ensuing Great Recession, Wood said he's often asked, "Do we have a housing bubble?"
"I believe that a housing bubble is unlikely," he said. "First of all, bubbles are defined by a prolonged period of price decline, not deceleration or moderation, but actual price decline."
Even though both "brief and prolonged" price declines in Utah have always come with job losses and recessions, "neither appears likely in the next two to three years," the report states.
"And I think the financial markets and household balance sheets are much better off than they were when we had what I consider really (Utah's) only housing bubble," Wood said, during the Great Recession when the state saw 15 consecutive quarters of declining housing prices.
Seeing no bubble about to pop, housing experts like Wood see no end in sight, though prices may slow slightly.
In 2022, "price acceleration and production are expected to remain positive in 2022," the report states. The year "will be dictated by mortgage rates, while demographic tailwinds are expected to keep housing demand robust for the rest of the decade," the report states.
An average of eight different mortgage rate forecasts shows the 30-year mortgage rate rests at 3.1% in 2021 and is expected to climb to 3.6% in 2022. "While this isn't a dramatic rise in rates, it is expected to impact affordability and bring price acceleration in Utah to single-digit growth," the report states.
The COVID-19 pandemic created "unprecedented conditions" in the national housing market by disrupting the labor market and supply chains (with 30% of construction materials imported from China). Plus, the Federal Reserve "distorted" demand through lower interest rates and an "extraordinary increase in liquidity via quantitative easing. Those moves "triggered high rates of demand, which in turn pushed up housing prices to record-breaking levels," the report states.
All this has exacerbated what housing experts have for years been sounding alarms for, even before the pandemic: Utah's housing shortage. The cumulative shortage from 2010 to 2020 totals 44,500 housing units, the report states, leading to record-low rental vacancy rates (now at about 2% along the Wasatch Front), the smallest ever supply of unsold vacant homes and the smallest supply of vacant for-sale existing homes.
"In other words, the shortage has removed vacant units from the housing market, an unhealthy condition leading to higher housing prices and rental rates," the report states. "Given the sizeable gap between household growth and housing units, it will take several years for the housing market to return to a healthy condition."