SALT LAKE CITY — Since the onset of the Federal Reserve's fight with inflation, which has pushed mortgage rates to 20-year highs, the impact on the U.S. housing market has been swift and dramatic.

Since they peaked in May, home values in certain local markets have shifted downward — and areas with the biggest shifts are concentrated in the West, largely in states that went wild during the pandemic housing frenzy: California, Arizona, Nevada, Colorado, Idaho and, yes, Utah.

But just how much of an impact have higher mortgage rates — these days hovering over 7% — had on the West's housing prices? And has this price correction made much of a dent on the dramatic price gains these markets experienced during the pandemic frenzy?

Let's dive in.

The West's home price correction

Using the Zillow Home Value Index, Fortune Magazine analyzed over 400 regional markets to determine which areas have seen the most dramatic home price declines since values peaked in May, before the national market took a turn.

Areas that have seen the deepest shifts fall in what Fortune deemed two different groups.

The first is "frothy" markets that saw housing demand skyrocket during the pandemic housing frenzy, as Americans suddenly set free by remote work seized the opportunity to buy larger homes, in some cases at more affordable price points in more desirable areas. Think Boise, Austin, Phoenix and Salt Lake City.

The second group is what Fortune called "high-cost tech hubs" like San Francisco, San Jose and Seattle. "Those markets got hit by a double whammy: Not only are their high-end real estate markets more rate-sensitive, but so are their tech sectors," wrote Fortune's housing reporter, Lance Lambert.

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Of the 896 regional U.S. housing markets included in the Zillow Home Value Index, 121 saw a home price decline between May and September. Of those, 19 markets saw home price declines of over 5%, according to Fortune's analysis.

Here's how they rank:

1. San Jose, California: -10.59%.
2. Austin, Texas: -8.23%.
3. San Francisco: -7.88%.
4. Santa Cruz, California: -7.51%.
5. Boulder, Colorado: -7.46%.
6. Kalispell, Montana: -6.98%.
7. Salt Lake City: -6.75%.
8. Phoenix: -6.60%.
9. Los Angeles: -6.52%.
10. Boise: -6.35%.
11. Grants Pass, Oregon: -6.13%.
12. San Diego: -6.13%.
13. Reno, Nevada: -6.12%.
14. Breckenridge, Colorado: -6.04%.
15. Sevierville, Tennessee: -5.92%.
16. Bend, Oregon: -5.75%.
17. Sacramento, California: -5.59%.
18. Carson City, Nevada: -5.30%.
19. Fernley, Nevada: -5.23%.

Is the housing market crashing?

While today's home price correction is sharp, it's important to put it in perspective, particularly what happened to home prices over the past two years. Nationwide, home prices jumped roughly 43% from the start of the COVID-19 pandemic, according to the S&P Case-Shiller national home price index.

In the West, housing prices skyrocketed even higher and faster. In Utah, the median single-family home price in Salt Lake County increased a staggering 63% since the start of the pandemic housing frenzy, up from $400,000 in March of 2020 to over $650,000 in May of 2022, according to the Salt Lake Board of Realtors.

So with that in mind, it will take a lot more to reverse those gains than what we're seeing on a month-to-month basis at this point.

Though home prices are correcting, national housing experts and economists continue to say it's not a crash like what happened in 2007, when a housing bubble fueled by a subprime mortgage crisis popped and sent the economy into the Great Recession.

While the Federal Reserve's fight with inflation and the resulting higher mortgage rates is indeed tempering demand, it's not addressing a key issue that helped drive home prices higher each year, even before the pandemic frenzy accelerated those rates.

The U.S. is still grappling with a nationwide housing shortage — an issue that remains especially poignant in fast-growing areas like the West, even though states like Utah experienced an extraordinary housing boom in 2021.

Still, it's not clear just how deep today's housing correction will run. Economists say it would take a dramatic economic shift and widespread layoffs to experience a 2007-like housing crash.

Big banks and other mainstream firms are predicting the housing correction will deepen into next year, with a growing chorus of forecasters predicting year-over-year home price declines in the single digits. But they're not predicting, at least so far, dramatic enough declines to erase price gains seen over the last two years.

Home prices in Utah

Let's zoom in to local data from our own Utah, which can give us a more detailed look at how 7% mortgage rates have been impacting home prices here and where home prices currently stand compared to last year.

Dejan Eskic, a senior research fellow at the University of Utah's Kem C. Gardner Policy Institute, recently gave Utah lawmakers an update on the state of Utah's housing market. In that update, he included a county-by-county breakdown of how much home prices have changed year over year thus far as higher mortgage rates eat into their month-to-month price changes.

Most counties' home prices are still up year over year, but some are only up single-digit percentages while others are still up by dramatic double digits.

For example, home prices in Utah's most populated Salt Lake County are up 9.1% year over year, with a median price of $525,000 in September, and Utah County prices are up 10.3%. Meanwhile, some rural counties, including Duchesne County, are seeing prices up nearly 47% year over year. Sevier County is up over 49% and Beaver County is up a staggering 60%.

However, some counties on the south end of the state are seeing year-over-year price declines. That includes Washington County, home to booming St. George, down 3.7%. Kane County is down 12.9% and San Juan County is down 6.7%.

These mixed results show Utah's housing market is indeed correcting — but the state's housing shortage and thus its affordability problems aren't going away, Eskic said.

"So we're still seeing the pressure, although the pressure valve is turning off," he told lawmakers.

While in most counties prices are still high even compared to last year, Eskic told KSL-TV on Monday he's predicting Utah will see year-over-year price declines as soon as later this year or next spring.

"In terms of prices I think we'll start seeing year-over-year declines come late winter and early spring," he said. "But I think, overall, that's necessary in the market because the demand is there, it's just the affordability is so bad."

Contributing: Ladd Egan

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