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Turning Houses into Homes®

Table of Contents Features 10 State of the State’s Housing Market James Wood and Dejan Eskic

andreykr©/ Adobe Stock

24 Marble is Becoming a Favorite From the Flooring to the Walls Melissa Dittmann Tracey 26 Rising Mortgage Rates Will Make Homebuying More Expensive Sharon Lurye

Columns

10 State of the State’s Housing Market

7 No Housing Bubble in Sight Matt Ulrich – President’s Message

Departments 8 Happenings 8 In the News onzon©/ Adobe Stock

28 Housing Watch

24 Marble Bathrooms

On the Cover: Cover Photo: Jason©/ Adobe Stock

Jim Vallee©/ Adobe Stock

This Magazine is Self-Supporting

26 Rising Mortgage Rates Will Make Homebuying More Expensive

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President Matt Ulrich Ulrich Realtors®, Inc.

Hannah Cutler Coldwell Banker Residential Laura Fidler Summit Sotheby’s

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Jennifer Gilchrist Utah Key Real Estate Tony Ketterling Equity Real Estate

Treasurer Carlye Webb Summit Sotheby’s

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Salt Lake Board: (801) 542-8840 e-mail: d ave@saltlakeboard.com Web Site: w ww.slrealtors.com The Salt Lake Board of REALTORS® is pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the nation. We encourage and support the affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status, or national origin. The Salt Lake REALTOR® is the monthly magazine of the Salt Lake Board of REALTORS®. Opinions expressed by writers and persons quoted in articles are their own and do not necessarily reflect positions of the Salt Lake Board of REALTORS®. Permission will be granted in most cases, upon written request, to reprint or reproduce articles and photographs in this issue, provided proper credit is given to The Salt Lake REALTOR®, as well as to any writers and photographers whose names appear with the articles and photographs. While unsolicited original manuscripts and photographs related to the real estate profession are welcome, no payment is made for their use in the publication. Views and opinions expressed in the editorial and advertising content of the The Salt Lake REALTOR® are not necessarily endorsed by the Salt Lake Board of REALTORS®. However, advertisers do make publication of this magazine possible, so consideration of products and services listed is greatly appreciated.

No Housing Bubble in Sight There is a lot of talk about falling home sales. However, 2021 is on track to being the second-best year in overall houses sold in Salt Lake County. From January through October, there were 14,794 houses sold in the county. That’s down just 7% from 15,866 sales in the same 10-month period in 2020. Last year was the No. 1 year in the number of houses sold in Salt Lake County and across the Wasatch Front. While Utah is experiencing a spike in home prices, it is unlikely that our housing market is in bubble, according to a new report by the University of Utah’s Kem C. Gardner Policy Institute. “In Utah, both brief and prolonged price declines have always been associated with job losses and recessions,” the report said. “Neither appears likely in the next two to three years. Furthermore, global and national financial conditions are much improved over the 2008–2011 period.” The rise in home prices can be blamed on a housing shortage that started a decade ago, after builders nearly stopped construction on new homes after the Great Recession. From the 1970s through the 2000s, the growth in housing units exceeded the growth in households by 15%. That all changed in 2010 when the additional households began surpassing additional housing units. “Each year, from 2010 to 2017, the growth in households was greater than the growth in housing units, although the gap gradually declined over the seven-year period. By 2018 and through 2020, the number of new housing units finally outpaced new households,” the report noted. Couple the housing deficit with last year’s pandemic as the supply chain for building materials was thrown into chaos—30% of construction materials are imported from China. “On the demand side, the Federal Reserve distorted demand through lower interest rates and an extraordinary increase in liquidity via quantitative easing,” the report said. “These policies triggered high rates of demand, which in turn pushed up housing prices to record-breaking levels.” What’s ahead? More people, more houses, and more growth. According to the report, “After a record year of price acceleration and construction activity, 2022 will be dictated by mortgage rates, while demographic tailwinds are expected to keep housing demand robust for the rest of the decade. An average of eight different forecasts shows the 30-year mortgage rate at 3.1% in 2021 and climbing 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 singledigit growth.”

Matt Ulrich President

OFFICIAL PUBLICATION OF THE SALT LAKE BOARD OF REALTORS ® REALTOR® is a registered mark which identifies a professional in real estate who subscribes to a strict Code of Ethics as a member of the NATIONAL ASSOCIATION OF REALTORS®. October 2005

November 2021 | Salt Lake Realtor ® | 7

Happenings

In the News

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Median Home Prices Rise to Record Levels Home prices jumped in the third quarter, as Salt Lake home buyers, on average, paid $120,000 more than they did the same quarter last year. The median home price in Alpine soared above $1 million. In Emigration Canyon, prices climbed to a median of $830,000. Draper prices ended the quarter at $825,000. Rising prices and limited inventory pushed sales down 20% in Salt Lake County. Sales of all housing types across the five-county area of the Wasatch Front fell 18% in the third quarter (roughly 2,350 fewer home sales).

NAR Supports Infrastructure Bill National Association of Realtors® President Charlie Oppler issued the following statement after final passage of the bipartisan infrastructure bill: “NAR is encouraged by the bipartisan support for the infrastructure bill. We supported many elements of this legislation, including significant investment in the power grid, managing climate risks, and repairing and replacing aging roads, bridges, ports, airports, and railways. These improvements will make communities more resilient and sustainable. “We also commend Congress for including a historic $65 billion investment in broadband. Our country has a dire need for broadband expansion, and NAR has long championed this cause. This new funding will ensure all communities have affordable access to a world-class communications infrastructure and provide opportunities to rural, underserved, and low-income areas.

More Home Buyers Paying Cash More Wasatch Front home buyers are paying cash for homes. Cash buyers made up 15% of total house sales in the July-August-September period. In last year’s third quarter, just 10% of buyers paid cash. The increase in cash buyers happened as the median price of a Wasatch Front home (all housing types) climbed to $460,000 in the third quarter, a 27% rise from $362,500 a year ago. 8 | Salt Lake Realtor ® | November 2021

“While this bill contains critical investments in America, we continue to have concerns over the use of guarantee fees charged by GSEs as a funding source. The nation faces critical challenges as Americans struggle to meet their mortgage obligations, find affordable housing amidst a supply shortage, and confront a widening homeownership gap among racial groups. We look forward to working with Congress and the administration to ensure this redirected money does not diminish the vital GSE mission to provide affordable housing and equal access to credit in America.”

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The State of the State’s Housing Market By James Wood, Ivory-Boyer Senior Fellow, and Dejan Eskic, Senior Research Fellow

Analysis in Brief

analytical approach to the most current issues and the implications for homeowners, renters, homebuilders, developers, and the Utah economy.

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This inaugural edition of The State of the State’s Housing Market marks the beginning of an annual fall publication by the Kem C. Gardner Policy Institute, Key Findings University of Utah. The publication will examine the State ofissues the State’s Housing most pertinent housingThe market over theMarket past year • Despite record increases in prices, a housing and provide a construction estate forecast for Researchbubble By James Wood, Ivory-Boyerand Seniorreal Fellow, and Dejan Eskic, Senior Fellow looks unlikely—In Utah, both brief and the coming year. Housing prices and affordability will prolonged price declines have always been associated Analysisbe in Brief likely persistent themes, but other issues are sure to with job losses and recessions. Neither appears likely This inaugural of The State of thelike State’s markscrisis. the beginning fall publication arise, someedition unexpectedly a Housing globalMarket health The of an annual in the next two to three years. Furthermore, global by the Kem C. Gardner Policy Institute, University of Utah. The publication will examine the most pertinent purpose of the State of the State report is to go beyond and national housing market issues over the past year and provide a construction and real estate forecast for the coming year.financial conditions are much improved aHousing simple description and trends by providing prices and affordabilityof willdata likely be persistent themes, but other issuesan are sure to arise, oversome the 2008–2011 period, when Utah experienced its unexpectedly like a global health crisis. The purpose of the State of the State report is to go beyond a simple only housing bubble with 15 consecutive quarters of description of data and trends by providing an analytical approach to the most current issues and the Annual Percent Change in Housing Prices in Utah, implications for homeowners, renters, homebuilders, developers, and the Utah economy. declining housing prices. 1976–2021 Annual Percent Change in Housing Prices in Utah, 1976–2021 • The Utah housingCommented market[JD1]: hasPaul, a history of extreme 25% could you please add “2021 Jan-June” to thein right end ofhave the horizontal axis, afterof price spikes—Home prices Utah a history 20% 2020? rapid acceleration. In the second quarter of 1994, the 15% state led the country with an 18.3% increase in prices, 10% and led again in the second quarter of 2006 with a 5% 17.2% increase. But both these price spikes pale in 0% comparison with the 2021 second-quarter increase -5% of 28.3%, which ranks second among all states. Price -10% spikes have contributed to Utah’s nation-leading long-15% term growth rate in housing prices. From 1991 to 2021, housing prices in Utah increased nearly fourfold, more Source: Federal Housing Finance Agency Housing Price Index Source: Federal Housing Finance Agency, Housing Price Index than any other state and three times the national rate.

Key Findings • Despite record increases in prices, a housing bubble looks unlikely—In Utah, both brief and prolonged price declines have always been associated with job losses and recessions. Neither appears likely in the next two 10 | Salt Lake Realtor ® | November 2021 to three years. Furthermore, global and national financial conditions are much improved over the 2008–2011 period, when Utah experienced its only housing bubble with 15 consecutive quarters of declining housing

andreykr©/ Adobe Stock

• Market conditions confirm Utah’s housing shortage—Market indicators confirm Utah’s housing shortage continues, whether measured by the gap between housing units and households or “on the ground” data, such as days on market, inventory of vacant unsold new homes, and rental vacancy rates. • COVID-19 created unprecedented conditions in the housing market—COVID-19 disrupted the supply chain for building materials—30% of construction materials are imported from China—and disrupted the availability of labor. On the demand side, the Federal Reserve distorted demand through lower interest rates and an extraordinary increase in liquidity via quantitative easing. These policies triggered high rates of demand, which in turn pushed up housing prices to recordbreaking levels. • More than half of Utah’s households unable to afford the median-priced home—The acceleration of housing prices throughout the COVID-19 pandemic continued to exacerbate existing affordability challenges. By the end of 2020, the median price reached $380,000, pricing out approximately 48.5% of Utah households. As prices accelerated in 2021, more than half of Utah households are unable to afford the median-priced home. For renters, the path to ownership narrowed further. In 2019, approximately 63.1% of

renter households were priced out of the median home price. In 2020, the share of renters priced out increased to 72.8%. • Price acceleration and production are expected to remain positive in 2022—After a record year of price acceleration and construction activity, 2022 will be dictated by mortgage rates, while demographic tailwinds are expected to keep housing demand robust for the rest of the decade. An average of eight different forecasts shows the 30-year mortgage rate at 3.1% in 2021 and climbing 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.

Does Utah Have a Housing Bubble? Historical Perspective Home prices in Utah have a history of rapid acceleration. In 1994, the state led the country with an 18.3% increase in prices, and led again in 2006 with a 17.2% increase. These nation-leading price spikes pale in comparison with the 2021 second-quarter increase of 28.3% (see Figure 1 on page 12). However, in 2021, Utah didn’t lead the country but ranked second to Idaho’s extraordinary November 2021 | Salt Lake Realtor ® | 11

increase of 37.3% (see Map 1 on page 12). As the map shows, the most rapid increases in housing prices are in western states. Of the 11 western states, eight have price increases of more than 20% in the past year.

of 2011. Once the economic recovery took hold, price increases accelerated from 2011–2021, averaging nearly 10% annually. This has culminated in the second quarter of 2021 with the unexpected and unprecedented 29.0% surge in prices, despite a global pandemic and recession.

The quarterly Utah data from the Federal Housing Finance Agency’s Housing Price Index illustrate a strong Does Utah Have a Housing Bubble? Figure 2: Median Sales Price of Single-Family Homes pattern of price acceleration, culminating in a price spike Historical Perspective in Utah, 2000–2021 followed byhave price deceleration. historical data show Home prices in Utah a history of rapid acceleration.The In 1994, the state led the country with an 18.3% increase Figure 2: Median Sales Price of Single-Family Homes in Utah, 2000–2021 in prices, and led again in 2006 with a 17.2% increase. These nation-leading price spikes pale in comparison with $500,000 that Utah’s current price cycle is distinguished by its the 2021 second-quarter increase of 28.3% (see Figure 1). However, in 2021, Utah didn’t lead the country but $460,000 ranked secondand to Idaho’s extraordinary increase of of 37.3% (see Map 1).increase As the map shows, the most rapid increases $450,000 length the magnitude the price in 2021. in housing prices are in western states. Of the 11 western states, eight have price increases of more than 20% in

$400,000 Figure 2: Median Sales Price of Single-Family Homes in Utah, 2000–2021 $350,000 The quarterly Utah data from the Federal Housing Finance Agency’s Housing Price Index illustrate a strong pattern $500,000 1: Year-Over Percent Change $460,000 of Figure price acceleration, culminating in aQuarterly price spike followed by price deceleration. The in historical data show $300,000 that $221,775 $450,000 Utah’s current price cycle is distinguished by its length and the magnitude of the price increase in 2021. $250,000 the past year.

25.0% 20.0%

20.1%

$400,000 $200,000 $350,000 $150,000 $300,000 $100,000 $250,000 $200,000

18.3%

17.2%

15.0% 10.0%

$150,000

$182,700 $221,775 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 Jan-June2021 Jan-June

Utah’s Housing Price Index, 1Q 1977–2Q 2021 (single-family homes)

Figure 1: Year-Over Quarterly Percent Change in Utah’s Housing Price Index, 1Q 1977–2Q 2021 (single-family homes) 35.0% 28.3% 30.0%

Current Prices $100,000 Source: UtahRealEstate.com

$182,700 Constant Prices (2021 Dollars)

Source: UtahRealEstate.com

5.0%

Figure 3: Median Sales Price of Multifamily Homes in Utah, 2000–2021 Current Prices Constant Prices (2021 Dollars) (condominiums, townhomes, Sales twin homes) Figure 3: Median Price of Multifamily Homes $400,000

0.0% -5.0% -10.0%

Utah, 2000–2021 $350,000 (condominiums, townhomes, twininhomes) Figure 3: Median Sales Price of Multifamily Homes Utah, 2000–2021

Source: UtahRealEstate.com

-12.1% 1977 1978 1980 1981 1983 1984 1986 1987 1989 1990 1992 1993 1995 1996 1998 1999 2001 2002 2004 2005 2007 2008 2010 2011 2013 2014 2016 2017 2019 2020

-15.0%

Source: Federal Housing Finance Agency, Housing Price Index

$164,085

$350,000 $200,000

Map 1: Year-Over Quarterly Increase in 2020–2021 Housing Map 1: Year-Over Quarterly Increase in Housing Price Index, Second Quarter Price Index, Second Quarter 2020–2021

$335,620

$300,000 (condominiums, townhomes, twin homes) $400,000 $250,000

$335,620

$300,000 $150,000 $250,000 $100,000 $200,000 $50,000

$138,000

Commented [JD2]: Paul, I’ve attached an emf of this. The $164,085 legend will definitely need to be resized.

$100,000 $50,000 $0

2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 Jan-Jun 2021 Jan-Jun

$150,000 $0 $138,000

Current Prices

Constant Prices (2021 Dollars)

Source: UtahRealEstate.com

Record Housing Price Increases Include Nearly All Counties Current Constant Prices (2021 Dollars) prices in the past year. This w Almost all Utah counties havePrices experienced substantial increases in housing growth is a distinctive characteristic of the past 12 months. Generally, past price upswings have been con Source: UtahRealEstate.com Source: UtahRealEstate.com in the metropolitan areas, but over the past year prices increased by at least 20% in 21 of Utah’s 29 co Table 2). (Some of the smaller counties have a limited number of sales transactions. Therefore, the perce Record Housing Price Increases Include Nearly All Counties may not be a reliable measure of change.) In twelve counties, the change was greater than 30%. Two Almost all Utah counties have experienced substantial increases in housing prices in the past year. This w Record Housing Increases Nearly All40%—Sevier Counties with more than 100 salesPrice transactions, had priceInclude increases greater than and Summit cou growth is a distinctive characteristic of the past 12 months. Generally, past price upswings have been con two counties saw declines, Uintah and Wayne. The 2.1% decline in Uintah reflects the county’s strugglin in the metropolitan areas, but over the past year prices increased by at least 20% in 21 of Utah’s 29 cou Almost all Utah have experienced substantial based economy. With thecounties drop in oil prices in 2020, exploration and drilling activity fell by 600 jobs, r Table 2). (Some of the smaller counties have a limited number of sales transactions. Therefore, the perce an 8% decline in employment (Utah Department of Workforce Services.) Wayne County’s decline is like may not be a reliable measure ofprices change.)in In the twelvepast counties, the This change was greater than 30%. Two increases in housing year. with more than 100 sales transactions, had price increases greater than 40%—Sevier and Summit coun widespread growth is and a distinctive characteristic of the two counties saw declines, Uintah Wayne. The 2.1% decline in Uintah reflects the county’s strugglin based economy. With the drop in oil prices in 2020, exploration and drilling activity fell by 600 jobs, re past 12 months. Generally, past price upswings have an 8% decline in employment (Utah Department of Workforce Services.) Wayne County’s decline is like

been concentrated in the metropolitan areas, but over the past year prices increased by at least 20% in 21 Source: Federal Housing Finance Agency, Housing Price Index of Utah’s 29 counties. (Some of the smaller counties Price Acceleration Post–Great Recession Price Acceleration Post–Great Recession have a limited number of sales transactions. Therefore, Since 2000, the median salesSince price in Utah the for homes andsales condominiums averaged over 5% growth annually 2000, median price in has Utah for homes and the percent change may not be a reliable measure of (see Table 1 and Figures 2–3). At this rate, the price of the typical home doubles every 13 years. Even when adjusted condominiums has averaged over 5% growth annually In twelve counties, the change was greater for inflation (constant dollars), housing prices in Utah have averaged increases of over 3% annually. Thesechange.) long(see 2–3). At this the price of the thesecond typicalquarter homeof 2008 than term growth rates include the 15Figures consecutive quarters of rate, price declines from to the 30%. Two counties, with more than 100 sales fourth quarter of 2011. Once the economic hold, priceadjusted increases accelerated from 2011–2021, doubles every recovery 13 years.took Even when for inflation transactions, had price increases greater than 40%— averaging nearly 10% annually. This has culminated in the second quarter of 2021 with the unexpected and dollars), housing prices Utah have averaged Sevier and Summit counties. Only two counties saw unprecedented 29.0% surge(constant in prices, despite a global pandemic andin recession. increases of over 3% annually. These long-term growth declines, Uintah and Wayne. The 2.1% decline in Uintah Table 1: Average Annual Change in Median Sales in Utah quarters of price declines rates include the 15 Price consecutive reflects the county’s struggling energy-based economy. Year-Over from the second quarter of 2008 to2nd theQtr. fourth quarter With the drop in oil prices in 2020, exploration and Long-Term Source: Federal Housing Finance Agency, Housing Price Index

Current Prices

2000–2021 2011–2021 2020–2021 Single-Family 12 | Salt Lake Realtor ® | November 2021 5.7% 9.7% 29.0%

andreykr©/ Adobe Stock

drilling activity fell by 600 jobs, resulting in an 8% decline in employment (Utah Department of Workforce Services.) Wayne County’s decline is likely a result of the changing price mix of homes sold rather than an overall decline in housing prices. In Summit County, the median sales price increased by nearly $350,000 to $1.15 million. A neighboring county, Wasatch, had a median sales price of nearly $758,500, the second highest priced housing market. Keep in mind, the data includes all types of housing—single-family, condominiums, townhomes, and twin homes. Large Cities See Substantial Price Increases Of Utah’s 15 cities with more than 50,000 population, 11 experienced price increases greater than 30%. Certainly for most, if not all of these cities, the gains were recordbreaking. Thirty percent price increases were unheard of in Utah before 2020–2021. Layton led all major cities with an increase of 41.7%, followed by Herriman’s 38.1% gain. Nine other major cities saw increases of more than 30%. Interestingly, Herriman was the only city in Salt Lake County to rank in the top half of the 15 large cities. Lehi, Logan, St. George, Ogden, Provo, and Orem

registered larger increases than most major cities in Salt Lake County. Double-Digit Price Increase for New Homes While the median sales price of new homes is up 13% in the Greater Salt Lake market area, this increase is well below the price run-up prior to the Great Recession. From 2005 to 2007, the median sales price of a new single-family home in Salt Lake County jumped from $240,384 to $434,726, a clearly unsustainable 80% increase. With the onset of the Great Recession, the housing bubble burst as the median sales price fell to $352,077 and did not regain the 2007 price level for 11 more years. The 2005–2007 housing bubble proved disastrous for the single-family home building industry, much more so than for the existing residential real estate market. But in the last few years, single-family home building has rallied. The number of permits issued for single-family homes will likely exceed 20,000 units in 2021, a level topped only by the all-time record of 20,950 units in 2006. As demand has picked up, the price of a new home has

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November 2021 | Salt Lake Realtor ® | 13

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Housing Prices and the Impact on Household Wealth and Debt The wealth of Utah’s homeowners grew by as much as $70 billion over the past year. Utah has 700,000 homeowners. Assuming an average home value of $400,000 (a conservative estimate), the total value of owner-occupied units would be $280 billion. A 25% price increase in housing values yields a homeowner equity gain of $70 billion. Price appreciation is making home ownership an attractive investment and buyers are taking on more household debt. Fourth-quarter 2020 per capita (18 and older) mortgage debt in Utah was $49,530, up 7.9% over 2019, the second-largest increase of any state. Utah ranks eighth among all states and the District of Columbia in the level of mortgage debt, partly because of the state’s young population. But a more important factor is the high price of homes in Utah. Those states ahead of Utah are states with higher household incomes. To participate in the housing boom and the benefits of homeownership, most new buyers in Utah must take on relatively high levels of mortgage debt. What Does Utah’s Housing Past Tell Us About Housing Bubbles? Housing price acceleration and deceleration/decline define price cycles. Utah is now in the fourth price cycle since the 1970s. These price cycles consist of the following: Cycle One: 1976–1990 Cycle Two: 1991–2003 Cycle Three: 2004–2011 Cycle Four: 2012–present The two recent cycles stand out as remarkable but in different ways. First, the third cycle that included the 14 | Salt Lake Realtor ® | November 2021

Figure 4: Annual Percent Change in Housing Prices in Utah, 1976–2021 Figure 4: Annual Percent Change in Housing Prices in Utah, 1976–2021 25.00% 20.00%

Period of price decline (red) Above-average price growth (green)

15.00% 10.00% 5.00% 0.00% -5.00% -10.00%

Below-average price growth (yellow)

-15.00% 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

increased. Year-over second-quarter data show the median sales price of new homes in Salt Lake County is up 16.7% and in Utah County up 15.9%. With increased land, labor, and material costs, plus rising demand, the recent price hikes for new homes are modest compared with the recent price increases for existing homes. The median price of new single-family homes is now below the median sales price of existing homes in Salt Lake and Utah counties. In Salt Lake County, the typical new home sells for $507,441 compared with $535,000 for an existing home, while in Utah County, the typical new home sells for $461,566 compared with $509,674 for an existing home. This price differential is likely explained by the premium paid for location. Existing homes are generally closer to employment, cultural, and commercial opportunities, thereby commanding higher prices.

Note: Green segments indicate periodsperiods of above-average price growth, yellow segments indicate periods of below-averag Note: Green segments indicate of above-average price growth, yellow segments and red segments indicate periods of priceprice decline. indicate periods of below-average growth, and red segments indicate periods of Source: Housing Finance Agency Housing Price Index price Federal decline. Source: Federal Housing Finance Agency Housing Price Index

Inperiod the aftermath of the Great Recession, housing prices fell by 15.6%. This is the only instance in th of declining housing prices from 2008–2011 and of housing history when price declines lasted more than a few consecutive quarters. There were second, the subsequent cycle’s prolonged period of declines during the 1950s, a single-year decline in the 1960s, and a few consecutive quarters in 1 1988. But the rare occurrence an extended period (2008–2011), the burstin acceleration, which of is falling nowprices in itsover ninth year (2013–2021). housing bubble, set the stage for a long period of price acceleration. The first few years of the curr were a recouping of fallingof prices theRecession, Great Recessionhousing and its aftermath. In the aftermath theduring Great prices

fellthe bynine 15.6%. thecreated only the instance pastbubble? 75 Utah’s housing pa Have years ofThis risingis prices potential in for the a housing toyears World War confirms the market has experienced one housing bubble, despite nation-lead of II,housing history when priceonly declines lasted in 1994 and 2006. Every period of price decline, whether brief or prolonged, from the 1950s to more than with a few consecutive There were two data, it appears been associated a weak or contractingquarters. labor market. From the historical bubble, with its extended price during decline, must associated a substantial loss in jobs. For Uta single-year declines thebe1950s, a with single-year a housing bubble in the near term it would require a loss of jobs, an unlikely prospect in the next

decline in the 1960s, and a few consecutive quarters in 1983 and Butoccurred the rare occurrence of crisis since the Gr Furthermore, Utah’s1987–1988. only housing bubble during the first U.S. financial Financial are much more serious,period and destructive than recessions. fallingcrises prices overrarer, an extended (2008–2011), the The 2008 fina precipitated, in large part, by loosened banking regulations, reckless lending practices (subprime bursting of Utah’s only housing bubble, set the stage for financial innovations (mortgage-backed securities and collateralized debt obligations), all of dangerously leveragedof global financial market. TheseThe conditions notyears present in 2021. a long period price acceleration. first are few of the current acceleration were a recouping of falling The most likely outcome for housing prices in Utah over the next two to three years is the beginn duringAthe Great Recession and created its aftermath. ofprices price moderation. period of extended price declines by a bursting bubble is extreme Have the nine years of rising prices created the potential for a housing bubble? Utah’s housing past, at least back to World War II, confirms the market has experienced only one housing bubble, despite nation-leading price spikes in 1994 and 2006. Every period of price decline, whether brief or prolonged, from the 1950s to 2008– 2011 has been associated with a weak or contracting labor market. From the historical data, it appears that a housing bubble, with its extended price decline, must be associated with a substantial loss in jobs. For Utah to experience a housing bubble in the near term it would require a loss of jobs, an unlikely prospect in the next few years.1 Furthermore, Utah’s only housing bubble occurred during the first U.S. financial crisis since the Great Depression. Financial crises are much rarer, more serious, and destructive than recessions. The 2008 financial crisis was precipitated, in large part, by loosened banking regulations, reckless lending practices (subprime loans), and risky financial innovations (mortgage-backed securities and (continued on page 18)

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With Record Levels of Residential Construction, Does Utah Still Have a Housing Shortage? Housing Shortage as Measured by Households and Housing Units

Figure 6: Residential Building Permits Issued for Dwelling Units in Utah, 2000–2021 40,000 35,000 35,000 Figure 6: Residential Building Permits Issued for Dwelling Units in Utah, 2000–2021 28,325 30,000 40,000 35,000 25,000 35,000 28,325

20,000 30,000 15,000 25,000 10,000 20,000 5,000 15,000 0 10,000 5,000 0

The most likely outcome for housing prices in Utah over the next two to three years is the beginning of a period of price moderation. A period of extended price declines created by a bursting bubble is extremely unlikely.

Figure 6: Residential Building Permits Issued for Dwelling Units in Utah, 2000–2021

Dwelling Units Dwelling Units

collateralized debt obligations), all of which led to a dangerously leveraged global financial market. These conditions are not present in 2021.

Source: Kem C. Gardner Policy Policy Institute, UniversityUniversity of Utah Source: Kem C. Gardner Institute, of Utah

The commonly used housing shortage measure compares the increase in households to the increase in housing units. This method assumes that an additional household requires an additional housing unit. This assumption is consistent with the U.S. Census Bureau’s methodology, which reports occupied housing units and households as equal and interchangeable estimates.

Figure 7: Permitted New Residential Units per 1,000 Population, 2000–2020

Figure 7:Gardner Permitted Units per 1,000 Source: Kem C. Policy Institute,New UniversityResidential of Utah 12.0 Population, 2000–2020 10.0 Figure 7: Permitted New Residential Units per 1,000 Population, 2000–2020 12.0 8.0 10.0 6.0 8.0 4.0 6.0 2.0 4.0

20 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 20

0.0 A housing shortage occurs when the growth in households exceeds the growth in housing units, 0.0 Housing Shortage as uncommon Measured by Households and Housing Units Permitted Units/1,000 Population historically an condition in Utah. A review The commonly used housing shortage measure compares the increase in households to the increase in housing Average 7.1 Permitted Units/1,000 Population of changes in households and housing units shows units. This method assumes that an additional household requires an additional housing unit. This assumption is Source: Kem C. Gardner Policy University of Utah consistent with the U.S. Census Bureau’s methodology, which reports occupied housing units and households as Institute, Permitted Units/1,000 Population that from the 1970s through the 2000s, the decadal equal and interchangeable estimates. Average 7.1 Permitted Population Source: Kem C. Gardner Policy Institute, UniversityUnits/1,000 of Utah growth in housing units exceeded the growth in A housing shortage occurs when the growth in households exceeds the growth in housingSource: units,Kem historically C. Gardneran Policy Institute, University of Utah households by nearly 15%. The surplus is explained, in uncommon condition in Utah. A review of changes in households and housing units showsand that from the 1970s through 2020, the number of new housing units through the 2000s, the decadal growth in housing units not exceeded the growth part, by the addition of units that are occupied byin ahouseholds by nearly 15% (see finally outpaced Table 8). The surplus is explained, in part, by the addition of units that are not occupied by a full-time resident new households (see Figure 5). full-timesuch resident such as second homes, (household), as second(household), homes, recreational condominiums (timeshare units), and cabins. The cumulative shortage from 2010 to 2020 totals recreational condominiums (timeshare units), and Since 2010, however, the housing-units-to-households relationship has flipped, with additional households 44,500 cabins. outnumbering additional housing units, thus creating Utah’s first prolonged housing shortage. Each housing year, from units. This should not be interpreted 2010 to 2017, the growth in households was greater than the growth in housing units, although gap gradually as the leading to 44,000 homeless households. Rather, the declined the seven-year period. 2018 and through 2020, the number of new housing units finally outpaced Sinceover 2010, however, theByhousing-units-to-households shortage has created record low rental vacancy rates, new households (see Figure 5). relationship has flipped, with additional households the smallest supply of unsold vacant new homes, and Table 8: Change in Utah Households and Housingunits, Units bythus Decade, 1970–2009 outnumbering additional housing creating the smallest supply of vacant for-sale existing homes. Increase in Housing Utah’s first prolonged housing shortage. Eachtoyear, from IncreaIse in Increase in Units Compared In other words, the shortage has removed vacant units DecadetoHouseholds Housing Units Increase in Households 2010 2017, the growth in households was greater from the housing market, an unhealthy condition 1970s 150,669 174,241 Higher by 15.6% than in housing although the gap 1980s the growth 88,670 108,382 units, Higher by 22.2% leading to higher housing prices and rental rates. Given 1990s 164,008 170,206 Higher by 3.8% By 2018 gradually declined over the seven-year period. the sizeable gap between household growth and 2000s 176,411 213,227 Higher by 20.9% Total 579,758 666,056 Higher by 14.9% housing units, it will take several years for the housing Figure 5: Annual Increase in Housing Units and Source: U.S. Census Bureau market to return to a healthy condition. Households in Utah, 2010–2020 20 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 20

2.0 With Record Levels of Residential Construction, Does Utah Still Have a Housing Shortage?

Figure 5: Annual Increase in Housing Units and Households in Utah, 2010–2020 31,797 24,312

2016

27,610 24,461

2015

24,245 23,139

2014

23,002 26,000

20,998

20,064 24,426

2011

17,294 24,151

2010

18,810 20,210

10,000

9,085

15,000

9,079

20,000

15,009 17,631

25,000

11,919

30,000

22,615

35,000

24,460

40,000

2017

2018

2019

2020

5,000 0

2012

2013

Increase in Housing Units

Increase in Households

Source: Kem C. Gardner Policy Institute, University of Utah

Market Conditions Confirm Utah’s Housing Shortage Another measure of a housing shortage looks at conditions “on the ground.” The housing market has three entry points: buying a new home, buying an existing home, or renting a unit. All three points of entry show stress from demand outstripping supply. New Home Market – Homebuilding is booming as builders respond to the housing shortage. In 2020,

The cumulative shortage from 2010 to 2020 totals 44,500 housing units. This should not be interpreted as leading ® 1844,000 | Salthomeless Lake Realtor | November to households. Rather, the 2021 shortage has created record low rental vacancy rates, the smallest supply of unsold vacant new homes, and the smallest supply of vacant for-sale existing homes. In other words, the

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andreykr©/ Adobe Stock

Existing Home Market – Even the wildest days of the 2005–2007 real estate boom can’t match the past 12 months, with the bidding wars, lack of inventory, offers above listing prices, and plummeting days on market. By the summer of 2021, the median days on market was only six—that’s six days from the time a home was listed until an offer was accepted (see Figure 10). In 2006, the median days on market was 16, and in the summer of 2020, 14 days. No other statistic is a better measure of the growing imbalance between housing supply and demand than the median days on market. Six days on the market sends a strong signal of a severe housing shortage. In markets past, selling a home above the list price was a rarity. But the housing shortage has turned rarities into common practice. Since September 2020, homes have typically sold above the list price. For homes sold in April, May, and June of 2021, the average sales price

Figure 11: Sales Prices as Percent of List Prices for Residential Real Estate in Utah, January 2017–July 2021

Source: UtahRealEstate.com

Figure 11: Sales Prices as Percent of List Prices for Residential Real Estate in Utah, January 2017–July 2021 106.0%

105.0%

104.0% 102.0% 100.0% 98.0% 96.0%

97.0%

94.0% 92.0% January (2017) March May July September November January (2018) March May July September November January (2019) March May July September November January (2020) March May July September November January (2021) March May July

residential construction set an all-time record with building permits issued for 31,797 new dwelling units, and through July of 2021 the industry is on pace for 35,000 permitted units (see Figure 6). While 2020 and 2021 will be record-setting years in sheer numbers, adjusting for Utah’s population growth gives a slightly different result. The peak production years were 2004–2006, measured by the number of permitted units per 1,000 population. In each of those years, 10 to 11 housing units were permitted per 1,000 population, slightly higher than the 9.8 units in 2020 (see Figure 7). Nevertheless, whether measured in raw or per capita numbers, the data make clear that the Utah homebuilding industry is booming. But despite the high level of construction activity, signs of a shortage persist. The number of “finished vacant unsold homes” is at the lowest level on record, down to only 700 units. Typically, this cushion of supply runs at about 1,500 units, but the housing shortage has compressed availability. A corollary to the number of vacant new homes is the months of available supply. The months of supply typically is two months. Currently, supply is down to two weeks, the lowest in 15 years.

Source: UtahRealEstate.com Source: UtahRealEstate.com

was 5% above the list price (see Figure 11). While the

Rental Market – Renters have not escaped the effects of the housing shortage. Vacant units are nearly nonexistent. data arelooking limited, anecdotal by longtime Households to rent likely face a comments waiting period—sometimes severalreal weeks—before a vacant unit is available their desired community. For existing the“hot” housingmarkets, shortage most likely means a rent hike. estatein agents suggest that even renters, in past

“offers above list” played, at best, a minor role; never were they the typical transaction. Again, current market conditions confirm the housing shortage. Rental Market – Renters have not escaped the effects of the housing shortage. Vacant units are nearly nonexistent. Households looking to rent likely face a waiting period—sometimes several weeks—before a vacant unit is available in their desired community. For existing renters, the housing shortage most likely means a rent hike. In the 16-year historical record, vacancy rates have never been lower in the Wasatch Front counties. The mid-year 2021 vacancy rate in Davis County is 1.9%, Salt Lake County less than 2%, Utah County 2.2%, and Weber County 2.1%. Shockingly low vacancy rates limit rental opportunities for those who often have no other housing alternative. And of course, the shortage has produced rent increases, the first double-digit increases for the Wasatch Front counties since pre–Great Recession years.

Whether measured by the gap in housing units and households or “on the ground” market conditions, all indicators point to a continued serious shortage of limited, anecdotal comments by longtime real estate agents suggest that even in past “hot” markets, “offers above housing in Utah, despite the boom in new residential Figure 10: Median Days on Market for Residential list” played, at best, a minor role; never were they the typical transaction. Again, current market conditions confirm the housing shortage. construction. Units in Utah, 2000–2021 Figure 10: Median Days on Market for Residential Units in Utah, 2000–2021 (single-family, twin home, townhomes, and condominiums)

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Commented [JD3]: Change “2021 thru July” to “2021 Silicon Slopes—The Epicenter of Utah’s Growth Jan-July” for consistency with other charts. Utah has experienced record population growth of nearly 1 million people over the last two decades. Approximately 25.6% of that growth is concentrated in seven cities clustered near the border of Salt Lake and Utah counties, often referred to as Silicon Slopes. These include South Jordan, Draper, Bluffdale, Herriman, Saratoga Springs, Lehi, and Eagle Mountain. Between 2001 and 2019, Utah’s population increased by 936,456

Source: UtahRealEstate.com

Figure 11: Sales Prices as Percent of List Prices for Residential Real Estate in Utah, January 2017–July 2021 106.0%

105.0%

November 2021 | Salt Lake Realtor ® | 19

Saratoga Springs, Lehi, and Eagle Mountain. Between 2001 and 2019, Utah’s population increased by 936,456 people, from 2,283,715 to 3,220,171, growing 41% in total and 2.3% on average annually. The Silicon Slopes area grew at a much higher rate of 239% during this time. The population increased by 239,932 people, from 100,286 in 2001 to 339,678 in 2019. In 2000, Silicon Slopes accounted for 13.4% of total Utah permitted dwelling units. By 2018, Silicon Slopes accounted for 31.9% of Utah’s total permitted units, dipping to 24.1% in 2020 (see Figure 12). Permitted units in Silicon Slopes reached 5,596 in 2006, a pre-recession record. Single-family homes accounted for 92% of total units. After a decline through the Great Recession, the pre-recession record wasn’t exceeded until 2018, with permitted units reaching 7,553. However, only 48% of those units were single-family permits, with 35% condos and townhomes and 18% apartments. – Carolyn Love

Figure 12: Silicon Slopes Residential Permits by Type, 2000–2020 8,000

35%

7,000

30%

Permitted Units

6,000

25%

5,000

20%

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15%

Share of State Total

Figure 12: Silicon Slopes Residential Permits by Type, 2000–2020

Commented [JD4]: Paul, our former intern wrote this

Supply disruption also affected section and we’d like to give her credit forprices it. Feel freefor to dosteel, this some other way if it looks better. plastic pipe, and wood engineered products. Building materials prices have always been prone to volatility, but COVID amplified this volatility and contributed to the double-digit increase in new home prices.

Demand Distortion—Outside wartime, the federal response to the pandemic was the 5% 1,000 most comprehensive 12-month mobilization 0% 0 of policies and funding ever marshaled by the government. Many programs either Single Family Apartments Condos and Townhomes Share of State directly or indirectly assisted homeowners Source: Kem Kem C. Institute Source: C. Gardner GardnerPolicy Policy Institute, University of Utah and renters; for example, forbearance for homeowners and eviction moratoriums and $200 million people, from 2,283,715 to 3,220,171, growing 41% in in assistance for renters. And beyond the direct housing total and 2.3% on average annually. The Silicon Slopes assistance programs, an array of policies and programs area grew at a much higher rate of 239% during this provided indirect benefits to the housing market by time. The population increased by 239,932 people, from augmenting household incomes, including expanded 100,286 in 2001 to 339,678 in 2019. and extended unemployment insurance, stimulus payments, and advanced child tax credit payments. In 2000, Silicon Slopes accounted for 13.4% of total Again, the Congressional and executive responses have Utah permitted dwelling units. By 2018, Silicon Slopes been unprecedented. Still, it’s the policies of the Federal accounted for 31.9% of Utah’s total permitted units, Reserve, an independent agency, that have had the dipping to 24.1% in 2020 (see Figure 12). Permitted units greatest impact on the housing market and the economy. in Silicon Slopes reached 5,596 in 2006, a pre-recession record. Single-family homes accounted for 92% of total In March 2020, the U.S. economy faced the threat of a units. After a decline through the Great Recession, the severe recession as the coronavirus crisis emerged with pre-recession record wasn’t exceeded until 2018, with associated employment layoffs, business closures, stay permitted units reaching 7,553. However, only 48% of safe–stay home policies, and the huge 19% drop in those units were single-family permits, with 35% condos consumer confidence. These developments triggered and townhomes and 18% apartments. the Federal Reserve’s massive intervention aimed at 3,000

10%

What Hath COVID-19 Wrought for the Housing Market? Supply Disruption—The construction industry depends on a global supply chain. For example, Spain, Italy, and Lithuania are significant sources of glass and aluminum materials. Germany supplies plumbing materials and South Korea heating and air conditioning systems. But by far, the most important global source of building materials is China. According to FW Dodge Data, 30% of all building material imports to the U.S. come from China, including flooring, electrical, hardware, and plumbing materials. With the outbreak of COVID, many Chinese manufacturing plants supplying building materials locked down, disrupting the supply chain and causing building delays and higher construction costs. COVID also affected the national supply chain. Stay-athome orders in Northwest lumber mills cut production at a time when, unexpectedly, the demand for housing and DIY home improvements accelerated. It was widely expected that COVID would subdue demand for housing, but the opposite occurred. Consequently, lumber prices soared for several months before recently retreating to levels still well above pre-pandemic prices. 20 | Salt Lake Realtor ® | November 2021

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limiting the economic damage. Their actions included $2.3 trillion in lending support to businesses and households, lowering the federal funds rate, lending to money market funds, lending to major corporations, supporting loans to small and mid-size businesses, and a number of other actions. But most consequential, at least for the housing market, was providing liquidity to financial markets through the purchase of trillions of dollars of securities. This practice, known as quantitative easing, includes purchases of securities (e.g., U.S. Treasuries) from banks, thus adding assets to the Federal Reserve balance sheet and, at the same time, providing banks with an increase in cash and liquidity. In 12 weeks from March 11, 2020, to June 3, 2020, the Federal Reserve purchased nearly $3 trillion in securities from financial institutions. Over that short period, the Federal Reserve’s balance sheet grew from $4.3 trillion to $7.2 trillion, a 67% increase in three months. From January of 2021 to June of 2021, the Federal Reserve’s balance sheet grew by another $800 billion. A capital market, flush with nearly $4 trillion in additional liquidity, will inevitably see lower interest rates as the holders of cash “chase yields.” One trillion of the $4 trillion in Fed purchases has been for mortgage-backed

securities (MBS). MBSes are bonds secured by real estate loans. The purchase of MBSes pumps liquidity directly into the real estate market rather than the broader capital market. The Fed’s MBS holdings have increased from $1.4 trillion to $2.4 trillion since March 2020.

$1,968 to $2,120 and averaging $2,030. During this period the median sold price increased from $303,000 to $380,000. While prices rose, the median payment declined through parts of 2019 and 2020 as mortgage rates fell from decadal highs to historic lows (see Figure 16).

In summary, the Federal Reserve’s intervention, whether through lowering the federal funds rate or the purchase of U.S. Treasuries and mortgagebacked securities, pumped an extraordinary level of liquidity into capital markets, which in turn lowered interest rates and produced a housing boom with the largest single-year price increase in housing history. Housing price increases of 20%, 30%, and even 40% are the consequence of avoiding a severely damaging recession, a consequence that will likely have lingering effects on future housing prices.2

Interest rates, arguably, have the strongest impact on prices short-term. In the last decade, 2018 experienced the highest rates, with the 30-year rate topping 4.9%. Since March 2012, Utah’s housing prices have experienced positive growth. However, while rates increased in 2018, the monthly median sold price declined during the latter half of the year from $310,000 to $301,000.

Affordability According to the 2019 Survey of Consumer Finances, the median homeowner net worth was $255,000, while renter net worth was $6,300.3 For the majority of homeowners, the survey shows housing to be the major source of wealth. Across all income groups, housing wealth accounted for 32% of the wealth created between 2016 and 2019, the largest of any category. Additionally, 92% of the wealth of owners who are in the lowest income bracket is attributed to the value of the residence. Although the price acceleration experienced through the COVID pandemic increased the wealth of current homeowners, it added further challenges on the path to ownership for renters and is likely to impact future wealth generation.

The 30-year mortgage rate reached historic lows throughout 2020, allowing buyers to qualify for a higher sale price while keeping the monthly payment somewhat reasonable. For example, a $1,500 monthly mortgage payment (excluding down payment, taxes and insurance) with a 2.5% 30-year fixed interest rate qualifies for a principal of $324,194. When the interest rate is at 3.5%, the principal decreases to $285,263. Combining incomes and rates shows that households with incomes between $35,000 and $49,999 can afford a monthly mortgage payment that is between $875 and $1,250. Adding a down payment of 3.5%, and a 3.11% 30year fixed interest rate (the average rate in 2020), allows for this group to qualify for a home that is priced between $211,800 and $302,600. In 2020, these households could afford 31.3% of the homes for sale in Utah.

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Utah’s median household income increased from $62,912 in 2015 to $75,780 in 2019, growing 20.5%. Regardless of the growth in household income, affordability decreased in every income bracket. The For homeowners, housing affordability is generally availability of affordable/entry-priced housing has dictated by household income and interest rates. From decreased over the last five years. Households with May 2018 through January 2021, the median monthly incomes less than $50,000 in 2015 could afford 70.6% mortgage payment stayed relatively flat, ranging from of homes on the market that year. In 2020, their share of affordable homes had decreased to 31.3%. Figure 16: Year-Over Percent Change in Median Sales Price and The acceleration of housing prices throughout Figure 16: Year-Over Percent Change inin Median Sales Price and Median Monthly Payment in Utah, 2015– Median Monthly Payment Utah, 2015–2021 2021 the COVID-19 pandemic continued to exacerbate 5.5% 35% YoY Median Sold Price (L-axis) existing affordability challenges. In 2019, the YoY Mthly. Mortgage Pmt. (L-axis) 30% median sales price in Utah was $320,000 and 5.0% 30-yr Mortgage Rate (R-axis) 25% approximately 40% of households were priced 4.5% 20% out. By the end of 2020, the median price reached 4.0% 15% $380,000, pricing out approximately 48.5% of 10% Utah households. As prices have accelerated in 3.5% 5% 2021, more than half of Utah households are 3.0% 0% unable to afford the median. For renters, the 2.5% -5% path to ownership narrowed further. In 2019, approximately 63.1% of renter households were 2.0% -10% priced out of the median home price. In 2020, the Note:Assumes Assumes 30% debt-to-income, PMI, annual 30-yr mortgage rate,mortgage and propertyrate, taxes.and property taxes. share of renters priced out increased to 72.8%. Note: 30% debt-to-income, PMI,avg. annual avg. 30-yr Source: Calculated by Kem C. Gardner Policy Institute from data provided by UtahRealEstate.com Source: Calculated by Kem C. Gardner Policy Institute from data provided by UtahRealEstate.com

November 2021 | Salt Lake Realtor ® | 21

Figure 21: Annual Median Home Price and Year-Over Percent Change in Utah, 2015–2022

Share of Loan Applications

23.4%

32.3%

During 2020, Utah experienced an increase in younger buyers. According to mortgage Figure 21: Annual Median Home Price and Year-Over Percent Change in Utah, 2015–2022 application records, 32.3% of applicants were 30% between 25 to 34 years old; additionally, 41.2% were below the age of 34. Nationally, the median 24.0% 25% age of first-time homebuyers was 32 years in 20% 2018.4 Both the U.S. and Utah have a significant share of the population reaching peak first-time 15% home-buying age over the next several years 10% (see Figure 23). Individuals between the age 7.2% of 26 and 32 account for 9.9% (32.5 million) 5% Figure 22: Utah Home5.1% Purchaseof Loan Applications Share by Age, 2018–2020 the U.S. population and 10.4% (332,000) of 3.5% 35% Utah’s population. This age cohort is expected 0% 2018 2019 2015 2016 2017 2018 2019 2020 2021 (f)2022 to provide a wave of first-time homebuyers, 30% YoY % Change Upper Lower 2020 keeping the demand for housing strong for the Source: Policy Institute analysis of UtahRealEstate.com data Source:Kem KemC.C.Gardner Gardner Policy Institute, University of Utah 25% rest of the decade.

1.2%

4.0%

ahead for prices and demand after a record year of price

Housing construction is expected to reach 35,000 units in 2021, an increase of 10.3% over 2020. Another 36,000 increases and purchases. Demographic tailwinds are units are projected in 2022, a growing 2.9% over 2021 and the lowest growth rate since 2015 (see Figure 24).

8.3%

8.9%

13.3%

During 2020, Utah experienced an increase in younger buyers. According to mortgage application records, 20% below the age of 32.3% of applicants were between 25 to 34 years old; additionally, 41.2% were 34 (see Figure Housing construction is expected to reach 35,000 units What’s in Store for Housing Prices, Demand, and 22). Nationally, the median age of first-time homebuyers was 32 years in 2018.4 Both the U.S. and Utah have a in 2021, an increase of 10.3% over 2020. Another 36,000 15%over the next several years (see significant share of the population reaching peak first-time home-buying age Construction? Figure 23). Individuals between the age of 26 and 32 account for 9.9% (32.5 million) of the U.S.units population areand projected in 2022, a growing 2.9% over 2021 10.4% (332,000) rates of Utah’sand population. This age cohort iswill expected to provide a wave homebuyers, Mortgage demographics dictate what liesof first-time 10% and the lowest growth rate since 2015. keeping the demand for housing strong for the rest of the decade.

0%of favorable for strong housing demand, but the lack <25 25-34 35-44 45-54 55-64 65-74 >74 affordable housing and low inventory Age Range of Applicant are expected to continue to be major Source: Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act Figure 23: Age Distribution of the U.S. and Utah Populations, 2019 challenges.

Figure 23: Age Distribution of the U.S. and Utah Populations, 2019 1.90% 1.70%

Share of Population

In the near term, rates are expected to rise after historic lows. An average of eight different forecasts shows the 30year mortgage rate at 3.1% in 2021 and climbing to 3.6% in 2022. While this isn’t a dramatic rise in rates, it is expected to have an impact on affordability and bring price acceleration in Utah to single-digit growth. After a record year of both absolute and percent growth, price acceleration is expected to stay positive, albeit at a much slower pace (see Figure 21). Median sales price growth in Utah is expected to range from 3.5% to 7.2% in 2022.

1st Time Homebuyer Wave Utah US

1.50% 1.30% 1.10% 0.90% 0.70% 0.50%

20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 Age

Source: CensusBureau Bureau Annual Estimates of theof Resident Population by Single Year Age Year of Age Source: US US Census Annual Estimates the Resident Population byofSingle

Endnotes 1 A bubble is confirmed when housing prices decline after the bubble bursts. Otherwise, every run-up in housing prices would qualify as a bubble. Bubbles occur with overinvestment, overbuilding, and irrational exuberance that drive prices higher than the assets fundamentally justify. Alan Greenspan commented, in his 1996 speech “The Challenge of Central Banking in a Democratic Society,” on the difficulty of defining a bubble as prices rise: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?” Only after the fact. We know there was a bubble when the asset price has a prolonged contraction, as occurred with housing prices in Utah from 2008 to 2011, rather than a deceleration or moderation of housing price increases. 2 In hindsight, the extent of the Federal Reserve’s response has been second-guessed, but consider the uncertain economic and public health conditions in the spring of 2020. “In the historic record of modern capitalism, there has never been a moment in which close to 95 percent of the world’s economies suffered a simultaneous contraction in per capita GDP, as they did in the first half of 2020. Over 3 billion adults were furloughed from their jobs or struggled to work from home. The fact that the world collectively willed the shutdown makes this utterly unlike any previous recession.” Tooze, Adam, Shutdown: How Covid Shook the World’s Economy, New York City, Viking, 2021. 3 https://www.federalreserve.gov/publications/files/scf20.pdf 4 https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-first-time-homebuyers_report.pdf 22 | Salt Lake Realtor ® | November 2021

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Marble is Becoming a Favorite From the Flooring to the Walls By Melissa Dittmann Tracey

Marble is being used by renovating homeowners this year more often than before. It’s adding a luxurious touch all throughout a bathroom—from the countertops to surrounding bath and shower walls and the flooring.

during the pandemic, particularly to outfit with more spa-like features, according to the 2021 Houzz Bathroom Trends Study, a survey of nearly 3,000 homeowners planning or who have recently completed a bathroom renovation.

Marble in whites with gray or beige veining tend to be the most popular. This look has been trending in kitchen countertops too, but quartz is more commonly used to resemble marble there.

Other bathroom remodeling trends uncovered in the report:

Bathrooms have become popular spots to renovate 24 | Salt Lake Realtor ® | November 2021

Bathtub upgrades: The percentage of homeowners who relax in their renovated bathroom by soaking in the bathtub is up by six percentage points this year,

reaching 61%, the survey finds. That outpaces the 54% share who unwind with long showers. Popular bathtub upgrades include added space for two or silent whirlpool baths. The most common shower upgrades are rainfall showerheads, dual showers, body sprayers, and thermostatic mixers, which maintain a steady temperature. More greenery: Nearly one-third of homeowners added plants to their bathroom after a renovation for the aesthetics as well as plants role in creating a calming environment and help in purifying the air. Colorful vanities: White continues to be the most popular choice, but it is getting more colorful competition. Blue and wood vanities are gaining in popularity. The share of homeowners opting for blue vanities has doubled compared with last year (8% in 2021, from 4% in 2020), while medium and light wood tones are becoming more common (14% and 8%, respectively in 2021). Lighting priorities: More owners are adding lights to

their bathroom upgrades. Wall lights and recessed lights remain the two most popular upgrades. Also gaining popularity this year are lighted mirrors, such as those with LED lighting and anti-fogging systems, pendant lights, and chandeliers. Dimmable lighting is also contributing to a more spa-like atmosphere. Commode upgrades: More than a third of homeowners who upgraded their toilets during renovations added technology. Bidets remain the most popular tech feature added by one in five homeowners, followed by self cleaning mechanisms, heated seats, overflow protection, and built-in nightlights. Custom medicine cabinets: Nearly one-third of renovating homeowners installed custom or semicustom medicine cabinets. Many of these cabinets also included features like hidden plugs and lighting on the inside. Melissa Dittmann Tracey is a contributing editor for Realtor® Magazine.

November 2021 | Salt Lake Realtor ® | 25

26 | Salt Lake Realtor | November 2021 ®

Rising Mortgage Rates Will Make Homebuying More Expensive The U.S. Federal Reserve’s announcement that it will taper its purchases of bonds and mortgage-backed securities is expected to keep pushing mortgage rates higher. By Sharon Lurye It could become a lot more challenging to buy a home in the coming months—or it may have just gotten a whole lot easier. The reason: After hitting historic lows, mortgage interest rates are creeping up. The U.S. Federal Reserve’s announcement that it will taper its purchases of bonds and mortgage-backed securities is expected to keep pushing mortgage rates higher. Those higher rates could indeed make homebuying more expensive for many as their monthly mortgage payments get bigger. But in this paradigm-breaking market, higher rates could also prove to be a boon for buyers in some markets by keeping prices in check and lessening competition. That could make homebuying less expensive if buyers aren’t spending as much on their homes and engaging in crazy bidding wars—possibly a welcome lifeline for many first-time buyers who’ve been barred from homeownership by record-high prices. Confused? Well, today’s COVID-19-fueled housing market is like nothing the U.S. has seen before. There is a dire housing shortage, builders haven’t been able to ramp up, and a massive generation of millennials is champing at the bit to become homeowners. And so depending on a variety of factors, these rising rates could be either a blessing or a curse for prospective homebuyers. How can you tell which side of the equation you’ll wind up on?

Higher mortgage rates could hurt buyers struggling with high home prices For some, higher interest rates are a double whammy of bad news. Home prices in most competitive housing markets will still remain high. And after buyers purchase homes, they will be paying more in interest. So buying a home will be more expensive all around. “It’s going to be less affordable a year from now than where we are today,” warns Leonard Kiefer. He is the deputy chief economist at Freddie Mac, the government-backed organization that helps support the U.S. housing market. His team forecasts that mortgage rates will reach 3.2% by the end of the year, and go up to 3.7% by the end of 2022 for 30-year fixed-rate loans. At the same time, housing prices will go up 7% in 2022, according to Freddie Mac’s price index—although that’s still better

than the explosive 16.9% growth of 2021. Low rates, which bottomed out at just 2.65% in the first week of January for 30-year fixed-rate loans, helped to fuel the explosion in home prices in the early days of the coronavirus pandemic. Homes could cost more, while monthly mortgage payments stay the same as they were a few years ago when rates were higher. For example, the monthly mortgage payment on a median-priced home of $380,000 with a 2.65% mortgage rate would be $1,225 a month on a 30-year loan. That payment goes up about $80 a month with a 3.14% rate. Over 30 years, that can equal nearly $29,000. (This is for buyers who have a 20% down payment. It does not include property taxes, home insurance, or homeowners association fees.) Rates averaged 3.14% in the week ending Oct. 28, according to Freddie Mac data. But, historically speaking, rates even in the 3% range are still very low. It’s less than the current rate of inflation (5.4% in September, according to the Consumer Price Index). This means that banks aren’t even charging enough in interest to make up for the value that money loses over time due to inflation. With such low rates, there will still be plenty of buyers who want to jump in on a mortgage. Plus, the majority of millennials are now in their 30s, the prime age to buy a first home. And they are the largest demographic group in the country. But instead of more housing going up to accommodate them, the number of available homes has shrunk with construction declining and investors turning single-family homes into rentals. That will keep competition high as will the dearth of homes for sale. “We are living in an unprecedented housing market,” said Jodi Hall, president of Nationwide Mortgage Bankers, a lender. “Housing prices will continue to rise because of the shortage of housing, specifically homes for first-time homebuyers.”

Higher mortgage rates could keep rising home prices in check Other experts take a sunnier view. They argue that higher mortgage rates will finally cool down some of the cutthroat competition over housing and— eventually—help push down sale prices. (continued on page 31) November 2021 | Salt Lake Realtor ® | 27

SEPTEMBER

HOUSING WATCH Home Buyers in This Year’s Third Quarter Paid $120K More Than a Year Ago Sales plummeted by double-digit percentages in this year’s third quarter as house prices climbed to record levels, according to UtahRealEstate.com. In Salt Lake County, the median single-family home price increased to $550,000, a new quarterly high and a 28% rise over the $430,000 median price in the third quarter of 2020. Home buyers in this year’s third quarter paid $120,000 more than a year ago. In September, the median sales price in Salt Lake County of all housing types sold was $490,000, up 27% from September 2020. “A recent report by the University of Utah shows that more than half of Utah’s households are now unable to afford the median single-family home,” said Matt Ulrich, president of the Salt Lake Board of Realtors®. “The report confirms that Utah is in the midst of a housing shortage that will take years to put in balance.” The median single-family home prices in Utah, Davis, Tooele, and Weber counties also set new quarterly record highs. For the first time, Utah County’s median single-family home price surpassed the half-million-dollar mark. Davis County was close behind with a median price of $497,000. Tooele County ended the quarter with a median of $440,000, while Weber County, the most affordable county in the Wasatch Front, saw its median single-family home price rise to $400,000. As home prices soared, sales dived. In Salt Lake County, single-family home sales in the third quarter fell to 3,469 units sold, down 20% from a year earlier. Davis, Utah and Weber counties also witnessed double-digit declines in sales. Despite declining sales, this year is on track to being the second-best year in overall home sales. From January through September, there were 13,294 housing units sold in Salt Lake County (all housing types included), down 5% from 13,975 units sold during the same nine-month period in 2020. Last year more than 19,200 homes were sold in Salt Lake County, an all-time record. New listings in Salt Lake County in the third quarter fell to 5,667 units, down 7% compared to the same period in 2020.

28 | Salt Lake Realtor ® | November 2021

November 2021 | Salt Lake Realtor ® | 29

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Mortgage Rates (continued from page 27) “Prospective homebuyers should actually be praying for rates to start creeping up,” said Katie Gatti, a personal finance consultant and founder of the Money with Katie blog. The big picture suggests price increases will at least have to slow down. Median incomes have barely grown since 2000—while housing prices have skyrocketed. That means “price growth will almost certainly have to slow,” said Gatti. There just aren’t enough people who can afford current prices. “As the prices get higher, that potential buyer pool shrinks,” said Gatti. “Simply put, our economy—and the average income— can’t support the cost of a home in most cities.” Ultimately, homebuyers may still be out of luck if they want to see home prices actually go down. “With how hot the market is, the rising rates will only slightly affect housing prices,” said Khari Washington, owner of 1st United Realty and Mortgage in Riverside, CA. Price growth may slow down, meaning prices are still increasing, but at a more gradual, manageable pace. Offers over asking could also decrease, which would help buyers’ bottom lines.

Why mortgage rates matter to homebuyers Mortgage rates aren’t just an esoteric statistic about the real estate industry. For most Americans, they determine how much it costs to own a home. Rates have been falling in the U.S. since the1980s. But when the pandemic hit, they became almost absurdly low thanks, in part, to the Federal Reserve’s purchases of mortgage-backed securities. When lenders make mortgages, they typically bundle 30 | Salt Lake Realtor ® | November 2021

up the loans into these securities, otherwise known as mortgage bonds, and sell them on the secondary market to investors. This frees up money to make new loans. When the pandemic struck the nation in March 2020, the Fed announced it would buy bonds to help stabilize the economy and the housing market. That led to a surge in demand, which pushed mortgage interest rates down to record lows. When the bond market is strong, mortgage rates fall. As a result of these early pandemic moves, the average interest rate for a 30-year fixed-rate mortgage fell below 3% for the first time in July 2020. Now that the economy has rebounded and unemployment has dropped, the Fed is diminishing its bond purchases. This weakening bond market should lead to rising mortgage rates. Mortgage rates aren’t the only big factor driving the housing market. The main problem is a lack of homes for sale. Historically low rates encouraged more people to go out and buy a house. But the number of homes for sale, already well below what was needed, dried up even further. And the residential construction industry hasn’t caught up. Freddie Mac estimates the U.S. needs 3.8 million more homes to fix this shortage. While an average of 418,000 new starter homes a year went up in the 1970s, that number plummeted to just 65,000 in 2020. “Is there going to be relief? Probably not for some time,” said Freddie Mac’s Kiefer. “Fundamentally, the issue for the housing market is lack of supply. We just haven’t built a lot.” Reprinted from Realtor® Magazine Online, November 2021, with permission of the National Association of Realtors®. Copyright 2021. All rights reserved.

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