Housing Affordability Reaches Record Low in Utah

Utah’s housing market has experienced considerable fluctuations over the past two years, largely due to the pandemic. The years 2021 and 2022 witnessed unprecedented volatility in both home sales and rentals throughout the state. Prices and rents fluctuated significantly, reminiscent of the Great Recession. This period also saw a shift towards higher-density housing, with more apartments and condos and fewer single-family homes. However, the 10-year period of robust homebuilding and real estate growth came to an abrupt end last year, exacerbating a worsening housing shortage and rising mortgage rates.

According to a detailed analysis by the University of Utah’s Kem C. Gardner Policy Institute, housing in Utah is now deemed “severely unaffordable.” Homes and rentals are increasingly inaccessible for the average wage earner, reaching the lowest levels in the state’s history. Unfortunately, relief from these challenges is unlikely in the coming years.

The report highlights that the housing boom caused by the initial reaction to COVID-19, including plummeting borrowing costs, was followed by a painful aftermath due to the Federal Reserve’s nine-month spree of interest rate hikes, driving mortgage rates up to 6.5% or higher.

The researchers at the Salt Lake City-based institute noted that these years shaped Utah’s housing market in a manner comparable to the Great Recession. Furthermore, the current housing market presents historically low home sales figures and further financial burdens on renters. Bleak prospects arise for the younger generations, as they face the risk of being priced out of homeownership.

The impact of these trends is far-reaching, exacerbating inequality within the state. With escalating home prices, mortgage rates, and monthly rents, the majority of homeowners and nine out of ten renters in Utah are unable to afford the current offerings in the market, as highlighted by the sobering findings of the study conducted by the think tank.

Dejan Eskic, a senior research fellow at Gardner, cautions that the state finds itself in uncharted territory. The median home sales price currently stands at approximately 6.26 times the median household income.

Utah’s housing market has undergone significant challenges and transformations, driven by the unique circumstances of the COVID-19 pandemic. These circumstances have had a profound impact on affordability and access for residents, leaving many facing serious difficulties in securing adequate housing options.

Utah’s housing market has experienced significant fluctuations in recent years. After a drop from a peak of 56,230 housing units in 2017 to 28,415 in 2022, the state now faces a forecasted increase in housing shortage by 2023 and 2024.

The impact of the Great Recession, which lasted from 2007 to 2010, brought about a decline in home prices and an increase in underwater mortgages. However, in 2021, residential building permits in Utah saw a notable increase of 26%, only to be followed by a 26% decline in the subsequent year. These volatile fluctuations have posed challenges for the market.

According to the Gardner study, the contraction in building caused a 37% decrease in construction activity from April to December 2022, with further estimated declines of 35% in the current year. Similar effects are being observed nationwide, creating additional difficulties for the housing industry.

One concerning aspect is the worsening affordability despite declining prices—a unique situation that is expected to make August the most unaffordable housing market in Utah’s history, as stated by Eskic. Homeowners, although their equity has grown with rising prices, are now hesitant to sell due to high costs of replacement homes and increased mortgage rates. This reluctance to sell contributes to the decrease in active home listings and widens the state’s housing gap.

Although home prices in the state peaked in February 2022 after a remarkable 28.2% increase in the previous year, median prices have since slowed and even turned negative in January. However, by July, the gap had closed to just 2%. Despite this, it is projected that home sales for the year will reach a nine-year low, with a decline from 53,806 units sold statewide in 2020 to 40,686 in 2022.

While prices have decreased in several counties, there has been an increase in four, including Summit and Wasatch, which are considered the state’s most expensive counties for housing, with median prices exceeding $1 million. Experts from Gardner suggest that these temporary price dips are part of an overall upward trend, and home prices in Utah are expected to resume their steady climb in 2024 and continue the decades-long trajectory.

Utah’s housing affordability crisis is causing concerns for many residents. Despite a recent drop in housing prices, it is unlikely to have a significant impact on those already struggling to find affordable housing. In fact, the median household income in the Salt Lake City metropolitan area, which is just over $65,880, means that four out of every five homes on the market are out of reach for many individuals.

When compared to 241 other metropolitan areas across the United States, Utah’s primary urban area is considered less affordable than 203 of them. This affordability issue extends to renters as well. Only 15% of renters in Utah can afford homes priced between $300,000 and $400,000. Additionally, the average rental rates along the Wasatch Front have increased by 6.5% to 7.0% annually for the past 12 years, which is nearly double the rate of income growth.

Experts predict that these high interest rates and rising housing prices will continue to exclude many renters from achieving homeownership. This will result in a rental market with escalating rents and limited availability. The impact on new apartment construction is also apparent, as rising interest rates have slowed down development. Suburban areas along the Wasatch Front are experiencing a surge in demand for rentals due to affordability concerns. However, downtown Salt Lake City is facing a surplus of apartments, leading to lower rents and concessions by landlords.

With these challenges across the board, Utah’s housing market remains a topic of concern for residents and experts alike.