How high interest rates are hitting St. George housing sales

Home sales in Washington County through the first six months of 2022 are down 12.5%.

(Rick Egan | The Salt Lake Tribune) Dennis Frei bales hay on one of his fields in Santa Clara in 2015.

St. George • Rising interest rates and high prices have dramatically slowed but not altogether stalled home sales in southwest Utah’s Washington County, which includes the St. George metro area, the nation’s fastest-growing metro area by percentage between July 2020 and July 2021.

In its attempt to rein in inflation, the Federal Reserve last week raised interest rates for the fourth time this year. The latest increase dismayed prospective buyers Mike and Cheryl Taylor of Kansas City, Mo., who say the higher rates have put their dream of relocating to St. George out of reach.

“We simply don’t make enough money to qualify for a loan,” Cheryl said. “It’s heartbreaking because we’ve been wanting to move here ever since we visited Zion National Park a decade ago.”

The Taylors are not alone.

A year ago, buyers in Washington County were locking in on home loans with interest rates between 2.5 and 3%. But with rates now more than double what they were four months ago, buyers who need a loan often can’t get one.

“They are not able to qualify because it is putting their payment over their debt-to-income ratio,” said Allen Holland, principal broker at Red Rock Real Estate. “Before the interest rate hikes, the payment on a $500,000 home was right around $1,300 to $1,400 a month. Now, the payment on that same home is around $2,000.”

Joe Langston, part-owner of Keller Williams Realty in St. George, explains real estate agents have a rule of thumb — when interest rates go up by one point, it negatively impacts people’s buying power by 10%. For the 40 % of buyers in this market who pay cash, interest rate hikes don’t have much impact.

“They either want the house and have the cash to buy it or they don’t,” he said. “But for people who don’t have enough to pay cash to purchase a property and need a loan, their buying power and affordability have been diminished.”

Further exacerbating matters are supply shortages, high fuel costs and inflation in general.

“All these factors, combined with higher interest rates, are causing a bit of a slowdown in our market,” said Brandon Welch, area manager of Citywide Home Loans, who has seen his business drop by about 50% over the past few months.

Home sales in Washington County through the first six months of 2022 are down 12.5% — from 2,751 over the same period in 2021 to 2,406 this year, according to Dejan Eskic, a senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute.

The decline is not only putting a pinch on buyers but also on builders and real estate agents. Stacy Young, government affairs director for the Southern Utah Home Builders Association said the evidence — largely anecdotal at this point — indicates business in the area is down for builders and cancellations are up.

“[Builders] are looking for ways to keep deals together, whether that is buying down interest rates or offering discounts or what have you,” Young said.

Holland says some real estate agents are getting squeezed out. Seasoned agents who sold 20 homes by this point last year have only sold six in 2022, Holland says. And homes that sold in one to two days during the height of the real estate craze during the pandemic are now sitting on the market for 60 days.

To help make ends meet, he tells his agents to get back to old-school methods — knocking on doors and making calls. He also has told agents that if a home on the market is unsold for two weeks, to instruct the sellers to drop the price by 5%.

Despite such advice, he believes there are some agents, especially the newer ones, who will opt out of the profession.

“I think we’ll see about a 10% decrease in the number of real estate agents renewing their license,” Holland said.

Still, while home sales have dropped, the price of homes in Washington County remains high. The median price of a home last month was just under $577,000, up more than 25% from nearly $460,00 a year ago, according to the Utah Association of Realtors.

Prices are beginning to stabilize or drop slightly — between 5% and 7%, by Holland’s reckoning — but housing experts say the decrease won’t be anything like what the market saw during the Great Recession of 2008. The market and the demand for homes are too strong.

Red Rock Realty has a “hot sheet” that comes out every Friday to attract buyers. Typically, the sheet lists about 20 price reductions. But last Friday there were 42, which Holland said is extremely high.

One bright spot for buyers is inventory. Washington County’s inventory as of July 29 was 1,441 homes, compared to a low of 219 a year ago, according to Holland. That means buyers have more homes from which to choose.

A little history also lends some needed perspective to interest rates after the recent hikes, which Langston noted have hovered at about 5% over the past two decades.

“To have the rate we do now is actually historically healthy and appropriate,” he said.

In other words, Langston and other longtime real estate professionals say the market is returning from the irrational exuberance of last year to a pre-pandemic normal.

Welch, who has been in the business for more than 20 years, has a tip for buyers fixated on interest rates.

“My advice to people is to fall in love with the house, not the rate,” he said. “Because rates will always fluctuate, and they will have an opportunity down the road to refinance and get out of those higher rates.”