June 9, 2022

Over the past 10 years, a typical Salt Lake homeowner has gained more than $421,000 in housing wealth through a combination of home price increases and paying down their mortgage.

That’s the 12^th highest gain in the country with $388,500 of the increase from just price appreciation alone.

The findings are from a new report from the National Association of Realtors that studied housing wealth by metro area over periods of five, 10 and 30 years.

Nationally, a homeowner who purchased a single-family home 10 years ago would have gained $240,200 in home equity — with $209,400 due solely to price appreciation.

The most significant gains occurred in the West region, which had 15 of the top 20 metro areas. San Jose topped the list with $1.4 million in home equity gains, and California had seven of the top 10 metros.

The calculations are based on median sales price data of existing single-family homes along with principal repayment based on a 30-year loan with a 10% down payment.

“The equity gains will depend on the home’s characteristics but over a 5- or 10-year period, the characteristics of a typical home will likely not have changed much, so the change in the median sales price is still a good indicator of the typical equity gains due to price appreciation,” wrote Scholastica (Gay) Cororaton, research economist with the National Association of Realtors. “However, talk to a Realtor when buying or selling a home who can assist with giving you the best offer or list price on your home.”

Five, 10 and 30-year gains in Salt Lake

The long-term value of homeownership is demonstrated by the housing wealth gains over time — although the rate of change depends on the year.

The study showed that the most significant increases in home equity have occurred over the past five years due to soaring home prices.

For example, a typical Salt Lake homeowner who purchased a home five years ago gained $296,100 in home equity with $272,100 of that equity the result of higher prices. That’s an annual gain of 14.4% over the five-year period.

Wealth gains were also strong over a 10-year period with annual appreciation of 12.7%. Salt Lake homeowners gained $421,300 because of price increases and mortgage payments.

Annual growth was not as high for the 30-year period but was still strong at 7%. Salt Lake homeowners gained $550,800 in housing wealth during that time with $483,700 from price increases and $67,100 from principal payments.

“Homeownership is the largest source of wealth among families, with the median value of the primary residence worth about ten times the median value of financial assets held by families,” Cororaton wrote.

Outlook

With the recent rise in mortgage rates, some are concerned the more expensive borrowing costs will soften demand and cause prices to fall. However, the National Association of Realtors predicts prices will continue to rise because of the housing shortage but at a slower pace. The organization expects U.S. price appreciation of 10% for 2022 and 5% in 2023.

“However, even if home prices were to fall, it will take a massive dip in prices to wipe out home equity gains,” Cororaton wrote.

For example, as of first quarter 2022, Salt Lake homeowners had built up $421,300 in the last 10 years through price appreciation and by paying down debt. In fact, that wealth gain is 2.5 times the median single-family price of $168,400 paid is 2012.

“So even if home prices were to fall and sellers had to sell their homes, they will likely still not have to sell at a loss relative to the price at which they bought the home but will experience smaller gains,” Cororaton wrote.

To learn more about housing trends in your neighborhood, contact a local Realtor.

Utah home buyers seeing more choices as housing inventory rises

June 2, 2022

Utah home buyers had more choices in April as year-over-year housing inventory rose for only the second time since 2019. That’s according to April numbers from the Utah Association of Realtors that show the effect of rising mortgage rates and the continued housing shortage.

The number of active listings in Utah increased nearly 19% in April. Other than March, that’s the first increase in year-over-year inventory since August 2019. Even so, the strong seller’s market remains intact with only 1.1 months of inventory. A normal market has six months of inventory.

“Housing supply has started to improve, albeit at an extremely sluggish pace,” said Lawrence Yun, chief economist of the National Association of Realtors in a press release about U.S. existing home sales.

Because there is still strong demand for the limited number of homes, Utah homes continued to sell quickly. The average number of days to sell a home was 19 in April, which is a record low for this time of year. Additionally, sellers continued to receive more than their asking prices at an average of 103% — about the same as last year.

“The vast majority of homeowners are enjoying huge wealth gains and are not under financial stress with their home as a result of having locked into historically low interest rates, or because they are not carrying a mortgage,” said Yun in a statement about U.S. pending home sales. “However — in this present market — potential homebuyers are challenged and thus may attempt to mitigate the rising cost of ownership by opting for a 5-year adjustable-rate mortgage or by widening their geographic search area to more affordable regions.”

The rise in mortgage interest rates is beginning to affect Utah buyers. Closed sales were down about 15% in April although they remained 9% above levels in April 2020 before the pandemic sales boom.

April pending sales were also down about 12% in Utah. The pending sales figure represents the number of properties that had offers accepted during the month.

“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” Yun said, referring to U.S. pending sales that were also down in April. “The latest contract signings mark six consecutive months of declines and are at the slowest pace in nearly a decade.”

The slower sales are a result of declining affordability both in terms of higher home prices and higher interest rates.

In Utah, the median sales price rose nearly 26% in April compared to a year ago. At $534,807, this is a record high and marks 121 consecutive months of year-over-year increases.

“Higher home prices and sharply higher mortgage rates have reduced buyer activity,” Yun said, referring to U.S. existing home sales. “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years.”

That strain on affordability is evident in the Utah Association of Realtors’ Housing Affordability Index, which has declined 37% in the past year. In April, a Utah family making the median income only had 66% of what it needed to purchase the median-priced home.

“If mortgage rates stabilize roughly at the current level of 5.3% and job gains continue, home sales could also stabilize in the coming months,” Yun said. “Home sales in 2022 are expected to be down about 9%, and if mortgage rates climb to 6%, then the sales activity could fall by 15%.

“Home prices in the meantime appear in no danger of any meaningful decline. There is an ongoing housing shortage, and properly listed homes are still selling swiftly — generally seeing a contract signed within a month.”

To learn more about housing market conditions in your area, contact a local Realtor.

How will higher interest rates impact the housing market?

May 12, 2022

As the Federal Reserve works to tackle elevated inflation through higher interest rates, would-be homebuyers will likely feel the strain of more expensive borrowing costs. Meanwhile, the housing market is likely to return to more normal pre-COVID conditions with fewer transactions and home prices increasing at a slower rate.

Those were several of the takeaways from Lawrence Yun, chief economist of the National Association of Realtors, who spoke to Realtors last week about how current economic conditions are affecting the housing market.

“Mortgages now compared to just a few months ago are costing more money for home buyers,” Yun said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”

Although mortgage rates may have already adjusted to future moves from the Federal Reserve, the recent spike in rates will impact housing budgets, even without additional increases.

“The mortgage rate has already responded to what the Fed is likely to do,” Yun said.

Yun calculates homes are 55% more expensive today when accounting for the cost of higher prices and interest rates compared to one year ago. For a $400,000 loan with a 3% interest rate, a buyer would have paid $1,686 per month last year for principal and interest. That increases to $2,606 per month this year with a $480,000 loan at a 5.1% interest rate.

In response, the number of cash buyers — who are unaffected by the higher rates — is at the highest level since the 2010-2012 period.

Because the additional costs will squeeze out some buyers, Yun is predicting the higher mortgage rates will slow the housing market. In fact, past data show that home sales do tend to decline when mortgage rates rise, but the decrease is not usually dramatic.

Yun expects unit sales to fall 9% in 2022 and home price increases to slow to 8%, down from the nearly 17% appreciation in 2021. Yun predicts home prices will grow 4% in 2023.

“This means that we may be dealing with unit sales activity down to pre-COVID days,” Yun said. “We had a huge surge; now we’re retreating back to pre-COVID days. Prices are still high; they are not retreating, … Then by 2023 sometime with job creation, home sales may return to positive territory.”

In fact, the current jobs situation will likely help the housing market.

“Even if there’s a recession, it looks like job creation will continue, which is important for the housing market,” Yun said.

In fact, Utah has more jobs today than before the pandemic — up 5.3% and the best-performing job market in the country.

For those who are worried about a housing bubble, another positive aspect is the fact that mortgage balances are not rising, even with increasing home prices.

“We’re clearly not in an excessive debt situation,” Yun said.

The housing shortage, which is not going away anytime soon, will also support home prices.

“After the over-production [of homes during the mid-2000s], we had under-production for almost 15 straight years,” Yun said. “So, the cumulative effect of under-production for 15 straight years is falling inventory, falling inventory, falling inventory.”

As America’s population rises, he said we need more housing construction to make sure opportunities remain available to those who want to become homeowners.

“Some of the demand will taper off just because we are in a rising interest rate environment, but the price increases certainly have been justified by the excessive demand and [lack of] supply,” Yun said.

To learn more about housing market conditions in your area, contact a local Realtor.