Utah’s Housing Shortage: How Did We Get Here?

 

When the pandemic first began there was a sense of concern for the real estate market as fears of another market crash arose. Earlier in the year, we did see a dip in the market locally and nationwide. We are now seeing a surge. Why is this happening? Well, it is a combination of a few different factors, supply, mortgage rates, and location.

 

The Utah market has seen a massive surge this year. The demand for homes was already high pre-pandemic. As the year goes on, we are only seeing an increase in that demand. We are only seeing houses stay on the market for a median of 12 days. It takes half the time to sell a house today than it did last year. In the month of August 2020, 5,201 total homes were sold with a median price of $362,000.

 

The only downside we are seeing to this massive surge is the lack of inventory. While we have seen in the past that Utah has had a problem with inventory, and that problem has been heightened during this current time. When we compare the data from this August compared to last year, we can clearly see this shift. The market now has more pending sales than it has houses on the market, while last year it was the reverse scenario.

 

Utah has seen an increase in the number of people wanting to move here for various reasons, this increase in population, and the fact people are staying in their homes longer has led to a market where there are more buyers out in the market then there are sellers.

 

It’s not only Utah. We see similar trends across the country. The demand for real estate in the Utah market is increasing, but the inventory is starting to dwindle. To put it simply, homes are selling too quickly for the market to keep up. Specifically for Utah, there are 5,184 active listings and 9,995 pending sales. There is a 3 month supply at the current sales pace, which is well below the 6-month pace needed to keep a balanced real estate market. The national housing inventory has seen a decline including decreases in the inventory of newly listed properties. Due to this shortage, homes are selling up to 18 days faster than the year prior. There has also been an increase in the average price of a sale; 8.5% more than last year.

 

Even though we see a limited supply in the housing market, there is still a strong demand for the buyer’s side.

 

The biggest reason that people are so willing to buy homes at this time is because of the interest rates. According to Windermere Chief Economist Matthew Gardner, In the August reports, for a 30-year fixed-rate mortgage, the interest rate is at a shockingly low rate of 2.9%, last year the rate was sitting at 3.73%. These are historically low numbers.

 

With the housing prices rising and the interest rates being so low, you have to look at the difference between the price and the actual cost of the houses you are buying. Even though the house price is higher, with lower interest rates, the monthly mortgage payments are still comparable. With lower rates, it costs less to borrow money from lenders to get the money for your house. This means that buyers may be able to afford more houses than initially expected, and is pulling buyers onto the market.

 

This high demand for homes is predicted to continue on throughout the year, and possibly carry over into 2021. On the buyer’s side, we see historically low interest rates, which can help counteract the rising price of houses. On the other side, sellers are getting more for their listings than before with the increasing price of houses, and heavy demand will decrease the time needed for your home to sell. The main issue on hand is the housing shortage, and only time will tell how that will affect the market in the long term.

 

For weekly updates on the housing market, keep an eye on the Windermere Utah Facebook page, as every Monday we post “Mondays with Matthew,” a video update from our Chief Economist about the market.