‘Fading dream’: Utah’s housing shortage expected to worsen

Author: Katie McKellar

McKellar, Katie. “‘Fading Dream’: Utah’s Housing Shortage Expected to Worsen.” Deseret News, Deseret News, 13 Sept. 2023, www.deseret.com/utah/2023/9/13/23826200/housing-market-prediction-forecast-utah-shortage-home-prices/.

After the COVID-19 pandemic stirred “unmatched volatility” in the Utah housing market — joining the Great Recession “as one of those unique moments” in the state’s history — the aftereffects are spelling trouble for its real estate market and home affordability.

“The Great Recession produced 16 consecutive quarters of declining housing prices, while the pandemic produced the shortest and steepest homebuilding expansion and contraction on record.”

That’s what Utah’s leading housing experts wrote in a new report titled the “State of the State’s Housing Market.” Jim Wood and Dejan Eskic, researchers at the University of Utah’s Kem C. Gardner Policy Institute, published the report Wednesday. They looked back on the wild pandemic years, while also looking ahead to what’s next.

One of the report’s biggest takeaways is the state’s housing shortage is about to get worse. The national housing market correction underway now is likely to have lasting impacts on the Utah housing market by erasing recent years’ progress on closing the gap between the state’s growth and the number of new residential units being built.

That means the housing shortage is likely to persist for “the remainder of the decade,” Eskic said Wednesday at a panel hosted by the Kem C. Gardner Institute to discuss the report’s findings.

It will have continuing consequences for Utah’s affordable housing problems, which have risen to unprecedented heights amid high mortgage interest rates that are now hovering over 7%.

“Utah faces the most unaffordable market in its history,” Eskic said. And that goes for the rest of the country, too. “August will likely go down as the most unaffordable housing market in our nation’s history.”

Finalizing this year’s report was no easy task for Wood and Eskic, especially because of the difficulty in making predictions amid today’s volatile mortgage rate environment.

Eskic put it this way in a recent interview with the Deseret News: “It’s a really uncomfortable year.” He turned to Wood, who was also on the Zoom call, and asked, “How many times did we change our forecast within like a three- or four-week period? Like almost every other day.”

Wood chuckled. “The forecast is so subject to change,” he said.

“It’s been such a volatile market,” Eskic said. “And I feel like everybody feels this way nationally.”

Although Utah’s housing market fundamentals remain generally “strong,” the researchers prediction that its stubborn housing shortage is likely to increase heading into 2024 will strain aspiring homebuyers. High interest rates did spur a market contraction and a price correction, but not enough to make homes more affordable for many priced-out Utahns. Mortgage rates are expected to taper slightly in 2024 but remain relatively high. Meanwhile, home prices are also expected to increase next year.

The word “crash” did not appear in this year’s report, signaling what Utah housing experts have been saying all along. While the pandemic housing rush did bring an unseen level of volatility and “whiplash” to homebuilders, they’re still not predicting a 2008-like crash due to the state’s generally strong economy, its continued growth and a housing shortage that’s now poised to grow.

However, “demographic and economic growth are forecast to slow slightly in 2023 and 2024,” the researchers wrote. “Net in-migration will likely edge lower due to high housing costs, fewer remote workers, and slower job growth. Employment growth will fall around 2%, the lowest level since the Great Recession (except for the pandemic year of 2020).”

Overall, “A weaker economic environment will add to Utah’s homebuilding and real estate challenges.”

Top takeaways from the report

Utah’s 10-year homebuilding and real estate boom came to an abrupt end in 2022. After mortgage rates began to rise rapidly near the end of 2022, undercutting buyer demand, the year-over-year number of residential units receiving building permits plummeted by 35% from April to December, sales of existing homes fell 23%, and the median price of a home fell by 10%.

Interest rates are giving homebuilders whiplash. The Federal Reserve’s monetary policy affected all types of residential construction, though single-family home construction was hardest hit with a 32% drop in building permits in 2022. Apartments declined by 27%, and condominiums, townhomes and twin home permits dropped 9.5%. That contraction continued through the second quarter of 2023. Through June, the year-over-year number of residential units receiving building permits in Utah fell 37%, existing homes sales fell 20%, and the median sales price fell by 7.5%.

Only four states — Montana, New York, Wyoming and Alaska — saw sharper declines.

Utah’s housing shortage is likely to increase by 2024. During a building boom, Utah made up significant ground on its housing shortage, shrinking the gap from 56,800 units in 2017 to 28,400 units in 2022. However now as homebuilding activity is expected to contract, “new households will outnumber new housing units. Consequently, the housing shortage will likely increase to over 37,000 units by 2024.

Housing price increases peaked in 2022, then slowed and declined in 2023. Utah’s year-over-year median sales price of a home peaked in February 2022 with a record 28.2% increase. But over the next 10 months, price increases slowed, and eventually fell to 1.1% by December before turning negative in January with a decline of 5.3%. Declines continued through the first four months of 2023, reaching 10.3% in April. By July, however, the year-over-year decline narrowed to 2%.

The price correction was inevitable, but modest. The median sale price of a home in Utah went from $336,300 in February 2020 to $500,000 in February 2022. “A price increase of this magnitude (49% in 24 months — the largest two-year increase on record), requires a future price correction.” That correction came in March 2022 and continued through July 2023. “The correction, however, looks to be modest with less than a 5% decline in year-over price.” As a result, 2023 brought what appeared to be a “pause” on price increases, “likely followed by a price increase in 2024.”

DMU Timestamp: March 13, 2024 02:38

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