Housing market is 'stabilizing' in this state. Here's what that means

SALT LAKE CITY — For the first time in about two years, Utah has actually seen a small dip to its median home price.

In June, it dipped to $530,000, down ever so slightly from $535,050 in May.

Meanwhile, sales are slowing dramatically. From April to June, single-family homes in counties across the Wasatch Front dropped 10%, down to 7,140 single-family homes sold from 7,921 sold a year earlier. In Salt Lake County, single-family home sales fell 15% from the second quarter of 2021, down to 2,800 homes sold from April to June of this year.

But don't get too excited — or jump to any doomsday conclusions that Utah is about to see a housing bubble burst and prices are about to hit free fall.

This means Utah's home prices are beginning to "stabilize," as the Salt Lake Chamber put it. It's actually welcome news in a housing market that's been battering homebuyers, said Dejan Eskic, a senior research fellow at the University of Utah's Kem C. Gardner Institute and one of Utah's leading housing experts. He's also the chief economist for the Salt Lake Board of Realtors.

"After two years of a frenzied market with multiple offers tens of thousands of dollars above asking price, Utah's real estate market is approaching normalcy," Eskic said.

While homebuyers over the last two years have struggled to navigate a brutal market, with often only days to submit a winning offer before a home would get snatched up, finally the market is easing up.

"Instead of a home taking a couple days to sell, it probably will take a few weeks," Eskic said.

It's something Eskic feels personally. He remembers the sense of urgency he felt when he bought his home in the height of the frenzy, quipping that he likely "spent more time deciding what running shoes to buy" than he did considering whether to put in an offer on his home.

So what does all this mean for Utah's housing market, and where do we go from here?

Yes, home prices are beginning to stabilize. But they're stabilizing at record highs, and for several reasons Eskic will break down for us below, they're expected to stay high.

Utah home prices are stabilizing — but stabilizing high

That's not good news for Utahns and Utah's home affordability crisis. Yes, higher mortgage rates to the tune of 5% to 6% these days have tempered demand somewhat, but they've also priced out a staggering 70% to 75% of Utahns, according to Eskic's calculations. That's ballooned the typical monthly mortgage payments from $1,400 a month earlier this year, when interest rates were lower, to now $2,600.

Again, context is key. Yes, Utah's median home price has dipped slightly but it's still well over the half a million dollar mark. Compare that to January of 2019, when it was just below $300,000, according to UtahRealEstate.com.

"So our prices are still in the stratosphere," Eskic said. However, he noted the state's year-over-year price increases have dipped from over 20% down into the mid teens.

That's what Eskic predicted would happen — higher mortgage rates would certainly temper what's been a runway market for years, but because Utah's economy remains strong, because jobs abound, and because the state's housing shortage remains a persistent problem, demand will remain strong thanks to the state's growth.

Why Utah sits in its own 'bubble' compared to rest of nation

Utah's unemployment rate of 2% is the third lowest in the nation, tied with New Hampshire and closely trailing Minnesota and Nebraska, according to the Salt Lake Chamber's economic dashboard. Utah's consumer confidence, however, in June hit the lowest levels since data began being collected in October of 2020, tracking with national consumer confidence levels in a 70-year history.

That means Utah is seeing signs of "tapering growth as inflation and interest rate hikes weigh on consumers," said Derek Miller, president and CEO of the Salt Lake Chamber, in a prepared statement.

However, Utah's economy remains strong, Miller said, and despite these challenges "Utah remains a net positive for industry growth across sectors."

Even though Eskic said the "dirty 'R' word is being tossed around" — recession — as the U.S. grapples with inflation and other challenges, Utah has historically fared better than the rest of the nation thanks to its strong economic standings.

"We're not immune ... but we are also in a little bit of a bubble," Eskic said. "Our market has grown organically for a while now, and so even with whatever happens in the economy, after the dust settles, (people) come here because they feel comfortable in Utah. They realize there's a little bit less uncertainty in Utah because ... we're stable."

Why are home prices so high in Utah?

Utah home prices were already steadily rising before the COVID-19 pandemic hit. It only accelerated that to insane levels.

"We were exploding way before the pandemic," Eskic said. "It was just more fuel on the fire."

Now we're coming off of that sugar high. National headlines have noted Utah has recently seen some of the largest shares of home sellers slashing their prices — but that's because sellers have finally found homebuyers' breaking points, and they're adjusting their listings to reality.

Even though price appreciation is no longer in the 20% range, Eskic said price growth that continues to linger in the high teens is "technically not good. The market is still expensive, even though the sentiment is changing and things are slowing down," he said.

"We need to get price (increases) down into the single digits," Eskic said. "That's what we need to get back to."

But the good news, Eskic said, is he's seeing a sense of "seasonality" return to Utah's housing market. Along with the impact of high mortgage rates, he predicted July's numbers will show the state's market slowing even further — which would reflect a midsummer seasonal slowdown that we'd typically see before the pandemic sent the market into a frenzy.

"Finally, in two years (since COVID-19), we have seasonality returning to the market," he said.

Inventory is ticking up — but Utah's housing shortage persists

Utah's housing inventory is also returning to pre-pandemic levels, Eskic said, "which I'm glad to see. It probably happened a bit faster than I thought it would, quite frankly," but high mortgage rates had a dramatic effect.

Here's some historical context to put Utah's housing inventory today into perspective: From 2016 up until early 2020, before the pandemic hit, for every home that sold, 2.3 homes were listed on the market. During the COVID-19 housing rush, for every home that was sold, 0.8 homes were listed. Some months that even dropped down to 0.5 homes listed, Eskic said.

Now, Utah's home inventory is ticking back up — but it's still not back to pre-pandemic levels. In June, for every home that sold, 1.7 homes were listed. "Ideally, we need to get back up to the twos," Eskic said, predicting that may happen next month.

But still, even though inventory is rising dramatically compared to what it's been over the past two years, it still doesn't address what's been a problem in Utah for years. There still aren't enough homes.

That's even though homebuilding exploded here in 2021, putting Utah on the national map for its housing boom. It made a decent dent in Utah's housing shortage, but not enough to erase it.

As of this year, Utah's statewide cumulative housing shortage now stands at 31,000 compared to about 56,000 in 2017, according to a recent report written by James Wood, an Ivory-Boyer senior fellow at the University of Utah's Kem C. Gardner Policy Institute, and commissioned by the Salt Lake Board of Realtors.

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