Utah housing markets are the least affordable in state history

Pandemic produces unprecedented swings on prices, rents and new construction, says new report.

(Bethany Baker | The Salt Lake Tribune) A sign directs traffic towards an open house in a subdivision in Tooele on Saturday, Sept. 2, 2023. New data suggests the COVID pandemic years were the wildest ever for Utah's housing market.

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If Utah’s gyrating housing market over the last two years felt like the Earth shifting underfoot, you can blame the pandemic.

Years 2021 and 2022 delivered unprecedented volatility in homes for sale and for rent across the Beehive State, with historic swings rivaling those of the Great Recession for prices and rents, new housing construction and a hard turn toward higher density with more apartments and condos and fewer single-family homes.

A 10-year homebuilding spree and real estate boom that in many ways shaped Utah’s national image came to a crashing end last year, according to a new in-depth analysis as residents endure a worsening housing shortage combined with rising mortgage rates.

Senior analysts at the University of Utah’s Kem C. Gardner Policy Institute now say housing is “severely unaffordable” and that homes and rentals are the least accessible for average wage earners in state history, with the next several years likely to offer little relief.

With such stark data points, the latest “State of the State’s Housing Market, 2022-2024″ portrays an historic run-up in housing demand as borrowing costs initially plunged in reaction to COVID-19, followed by a painful aftermath of the Federal Reserve’s nine-month spate of interest hikes that pushed mortgage rates to as high as 6.5% or above.

“These COVID-19 pandemic years,” researchers at the Salt Lake City-based institute wrote, “now join the Great Recession as one of those unique moments in Utah’s housing market.”

‘Uncharted waters’ as affordability all but vanishes

Those latest moments, they noted Wednesday, include historically low home sales this year and further tightening of the squeeze on cost-burdened renters — along with bleak scenarios for upcoming generations at risk of being priced out of home ownership.

“It just ripples through,” said Jim Wood, senior economist and housing researcher at Gardner Policy Institute, “leading to more and more inequality.”

As home prices, mortgage rates and monthly rents have all climbed, the trends have conspired to leave most homeowners and nine of 10 renters in Utah unable to afford what is currently available on the market, the think tank’s sobering study finds.

The state’s median home sales price is now about 6.26 times larger than its median household income, warned Dejan Eskic, a senior research fellow at Gardner.

“We’re in uncharted waters as a state,” he said.

The state’s shortage of homes, after dropping steadily from a peak of 56,230 housing units in 2017 to 28,415 last year, is now forecast to start climbing again in 2023 and 2024.

Historic ‘whiplash’ in homebuilding

While the Great Recession starting in 2007 brought four years of bloodletting with sinking home prices and underwater mortgages, the single year of 2021 saw residential building permits in Utah shoot up by 26% — only to have that erased the following year with a 26% decline.

How’s that for gyrations?

The building contraction, the Gardner study finds, pulled construction down by 37% from April to December of last year and analysts predict that’ll drop another 35% this year. Similar effects, he said, are being felt across the country.

“That’s going to create some challenges,” said Eskic. “We haven’t had one of those weird markets where prices declined but affordability worsens.” August, he added, “will likely go down as the most unaffordable housing market in our history.”

At the same time, many homeowners who’ve seen their equity grow as prices rocketed are now frightened of selling, Gardner’s study says — put off by steep price tags for a replacement home and elevated mortgage rates.

That continues to push active listings for homes down and widen the state’s housing gap.

Outlook on prices: Longterm relief or ‘one-year’ pause

Home prices in the state, meanwhile, look to have peaked in February 2022 after ramping up a staggering 28.2% the prior twelve months — the steepest rise in state history.

Median prices then slowed and turned negative in January compared to the year before, but by July that gap had closed to just 2% — although home sales for the year are now expected to hit a nine-year low.

After hitting 53,806 units sold statewide in 2020, that volume dropped to 40,686 in 2022 and will probably fall more this year, analysts predict.

Prices have dropped in at least 10 of Utah’s 29 counties but increased in four, including the state’s two most expensive counties for housing, Summit and Wasatch, where the median is above $1 million.

Gardner’s experts say the price dips only appear to be a one-year stutter in an otherwise upward trajectory and that 2024 will see Utah home prices resume the steady climb they’d been on for decades.

Mixed picture for Utah’s renters

For those already coping with Utah’s housing affordability pinch, this latest price dip is unlikely to make much difference. As of June, those earning the median household income in the Salt Lake City metropolitan area — just above $65,880 — couldn’t afford four of every five homes now on the market.

And comparing Utah’s primary urban area with 241 other metros across the U.S., 203 were considered more affordable.

Only 15% of Utah households that currently rent could afford a home price between $300,000 and $400,000, the analysis found. At the same time, the average rental rate across the Wasatch Front has inched up between 6.5% and 7.0% yearly for the last 12 years — nearly double the rate of annual income rises.

“High interest rates and housing prices will continue to exclude a growing share of renters from home ownership,” Gardner’s study concludes. “These long-term renters will face a rental market with rising rents and low vacancy rates.”

Darlene Carter, CEO of Centerville-based real estate developer C.W. Group, said rising interest rates have slowed new apartment construction significantly, leaving a mixed picture right now for renters.

Suburban areas along the Wasatch Front “are going crazy,” she said, “because it’s so much more affordable to rent than to buy.”

Downtown Salt Lake City, on the flip side, is tilting toward an oversupply of apartments, Carter said, putting downward pressure on rents and enticing landlords to offer price concessions.

“It really is challenging,” she said, “across the board.”