The following analysis of select counties of the Utah real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

Regional Economic Overview

Utah’s economy continues to add jobs. The 53,600 jobs created statewide over the past year represent a growth rate of 3.3%. The counties covered by this report added more than 40,000 new jobs over the past year, which is a growth rate of 3%. The state’s unemployment rate in August was 2%, which is marginally above the all-time low of 1.9% reported in April of this year. The labor force continues to expand, suggesting that the region expects economic growth to remain strong. Even though the state has seen a modest decline in the pace of job growth, the numbers are still very impressive.

Utah Home Sales

❱ In the third quarter, 7,134 homes sold. This was 31.6% fewer sales than a year ago and down 16.1% compared to the second quarter of this year.

❱ Year over year, sales fell across the board. Sales in all markets covered by this report were lower than in the second quarter of 2022 as well.

❱ Inventory levels continue to grow, with the average number of homes for sale in the quarter 149% higher than a year ago and up 79% from the second quarter of this year.

❱ Buyers, who seemed to ignore rising mortgage rates in the second quarter, are now feeling the impact of higher financing costs and have taken a pause.

Utah Home Prices

❱ The average home sale price in the third quarter was up 5.9% from a year ago to $627,503. However, prices fell 5.7% compared to the second quarter of this year.

❱ Median listing prices in the third quarter were down across the board. Sellers appear to be coming to terms with the fact that the remarkably buoyant market we’ve experienced since the start of the pandemic has now ended.

❱ All areas contained in this report except Morgan County had higher sale prices than a year ago. Compared to the second quarter of this year, only Wasatch County had higher sale prices.

❱ Although the data suggests that a market correction has started, I don’t find this terribly troubling. Homeowners have seen a remarkable run-up in home values over the past couple of years. It was only a matter of time before the market reverted back to a more sustainable pace of price growth.

Mortgage Rates

This remains an uncertain period for mortgage rates. When the Federal Reserve slowed bond purchases in 2013, investors were accused of having a “taper tantrum,” and we are seeing a similar reaction today. The Fed appears to be content to watch the housing market go through a period of pain as they throw all their tools at reducing inflation.

As a result, mortgage rates are out of sync with treasury yields, which not only continues to push rates much higher, but also creates violent swings in both directions. My current forecast calls for rates to peak in the fourth quarter of this year before starting to slowly pull back. That said, they will remain in the 6% range until the end of 2023.

Utah Days on Market

❱ The average number of days it took to sell a home in the counties covered by this report rose ten days compared to the same period a year ago.

❱ Though homes sold fastest in Salt Lake County, average market time rose in all counties covered by this report year over year. Days on market was also higher in every county compared to the second quarter of this year.

❱ During the quarter, it took an average of 33 days to sell a home in the region. Market time rose 15 days compared to the second quarter of 2022.

❱ Rapidly rising inventory levels and mortgage rates have put the brakes on the Utah housing market.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. A little while ago, a housing analyst was being interviewed about the current state of the residential market and they suggested that the country is in a “housing recession.” Well, needless to say, this got a lot of attention from the media and the public at large—for obvious reasons.

Any time the word “recession” is mentioned we almost subliminally cast our minds back to 2007. And when the word “recession” is combined with the word “housing,” then panic starts to set in with flashbacks of headlines about burgeoning housing supply, plummeting home prices, and surging foreclosures.

As this is a topic being discussed by many across the country right now, I wanted to share with you my opinion as to whether the phrase “housing recession” is an appropriate one when describing today’s market.

So, what is a recession? To answer this, I will turn to my trusted Oxford English Dictionary, and this is how they describe that word.

Definition of a Recession

Recession:

• a difficult time for the economy of a country, when there is less trade and industrial activity than usual, and more people are unemployed
• the movement backward of something from a previous position

Well, how do we use these definitions when it comes to the ownership housing market?

I guess that “less trade” could mean lower sales and we have certainly seen sales pull back. “Movement backward” could be how someone might describe the fact that sale prices have been pulling back in many markets across the country.

But although some may say that we really are in a housing recession given the definition of the word, is it really accurate? Are we are inextricably headed down a road that leads to the bursting of some sort of bubble as we all remember from 2007? I don’t believe we are. To explain my thinking let’s start out by looking at housing supply.

Inventory of Homes for Sale

Yes, listing activity is up—can’t argue with that—with the number of resale homes for sale jumping by more than a third from the start of this year. But there’s more to it than that. You see, we have to look a little further back to better understand what’s really going on.

And to do this, let’s check out the number of homes for sale during the first seven months of this year and compare those numbers to the same periods in 2018 through 2021.

Active Listings By Month

I don’t know about you, but this doesn’t look like a chart showing a massively oversupplied market! The number of homes for sale in July of this year was almost exactly the same as we saw last July and is still well below the levels seen in 2018, 2019, or 2020.

Sure, listings are up. But are we at levels that will cause prices to tumble? Remember that it was a massive increase in the number of homes for sale that led to the housing bubble bursting back in 2007. Listings peaked at almost 3.9 million units in 2006; but today there are 2.6 million fewer units on the market than we saw back then. Now that we’ve seen that supply isn’t at concerning levels, let’s look at demand.

Existing Home Sales

This chart doesn’t look too good. On an annualized basis, sales have been pulling back since the start of the year but that’s not the full story. Let’s look at this in a slightly different way.

Year-to-Date Sales

The bars here show year-to-date sales through July—both adjusted and unadjusted for seasonality—and although unadjusted sales so far this year are lower than we saw during the first seven months of 2021, they are at about the same level as we saw in 2018 and are higher than in 2019 or 2020.

But when we adjust the monthly sales data for seasonality, year-to-date sales in 2022 were higher than all years shown here other than 2021.

So, although sales have fallen, it appears to me that we are heading back to a more realistic market rather than one that is hemorrhaging. Yet another indicator we need to consider when examining the market for evidence of some sort of recession are months of inventory , which shows how long it would take to sell every home for sale using the current monthly sales pace.

Months of Inventory

This graph shows that it would take three months to sell every home on the market given the sales we saw in July. That is quite a jump from the January pace but, again, perspective is everything.

Months of Inventory: Seller’s Market

At three months, it is still a seller’s market. It’s generally accepted that the definition of a seller’s market is any number below four months; a balanced market is four to six months of inventory, and a buyer’s market is when the month of inventory is above six.

And a simple bit of math shows us that, for the market to shift from favoring sellers to favoring buyers, the number of homes for sale must break above two million—which we haven’t seen since 2015—and monthly sales would have to drop to below 300,000. We’ve only seen that happen three times in history: November 2008, and again in July and August of 2010.

Yes, listings are up, and sales are down. There’s no denying it. But, again, does the data justify the term recession? My answer would be no. But, if you’re still not convinced, let’s turn our attention to sale prices. I think that might help make things even clearer.

Median U.S. Existing Home Price

The solid line represents the median sale prices of homes over time and the dotted line shows the trend. You can clearly see that we started breaking away from the trend line in early 2021 and that’s not at all surprising as it started the month after mortgage rates hit their historic all-time low.

But today’s financing costs are significantly higher, and prices have started to slide. Although I certainly expect that we will see sale prices fall further, it appears to me as if they are simply moving back to the long-term trend, and not collapsing.

Mortgage Rate Forecasts

With mortgage rates doubling from their 2021 lows, downward pressure on sale price was to be expected. But will they—as some think—rise to a level that will cause home prices to plummet? To answer that, here are the forecasts of several associations. You’ll see that all, bar the National Association of Realtors and Freddie Mac, see rates pulling back—albeit modestly—in 2023.

Of course, all these are annual averages and today’s rates are higher with the latest Freddie Mac data showing the average 30-year fixed rate above 6%—a level we haven’t seen since 2008.

However, economists including myself find it unlikely that rates will continue rising significantly from where they are today. The mortgage market is certainly in a bit of disarray right now with the yield curve inverting, but that should correct itself by early next year and that’s why we generally expect rates to start pulling back from their current levels by the start of 2023.

But if rising rates are triggering memories of 2008, you wouldn’t be alone. There are some expecting that the spike in rates will trigger a surge in foreclosures and that will doom the market. But as you see here, although foreclosure filings have certainly risen, they are still remarkably low compared to historic standards.

U.S. Foreclosure Filings

In the second quarter, newly delinquent mortgages represented just 1.9% of all mortgages outstanding¹ and that’s the lowest share the market has seen since 2006. Although I do expect the number of homes being foreclosed on will rise as we move into 2023, I just don’t see it getting to the levels necessary to materially impact the market. And a big part of the reasoning behind my thinking is this:

Equity Rich Households (Q2 2022)

In the second quarter of 2022, over 48% of homeowners with a mortgage were sitting on more than 50% equity.

Simply put, for enough homeowners to be put in a negative equity situation that would lead them to enter foreclosure and materially damage the market, home prices across the country would have to fall by a percentage greater than we saw during the market crash. And I just don’t see this happening.

The word “recession” has many connotations, and when it’s used to describe the housing market, it can engender a significant level of panic. So, I will ask you all. Given the data I have showed you today, do you think that we are in a housing recession?

Yes, supply levels have risen. But they are still relatively low when compared to historic averages and with builders slowing construction activity to a crawl, it’s unlikely that housing supply will grow much organically. Over the longer term, I believe that the supply of resale homes for sale will remain below historic averages. I say this for one simple reason: mortgage rates.

In 2020, a record number of households refinanced their homes to take advantage of the mortgage rates that had been plummeting. And in 2021, over six million home buyers got mortgages with rates averaging below 3%.

I would suggest to you that we will not see the number of homes for sale even get back to normalized levels in the mid-term, as many potential sellers will decide not to sell, because if they did, they would lose the never seen before and likely never to be seen again mortgage rate that they currently have.

Of course, there will be sellers who have to move because of factors such as job relocation, death, or divorce, but I would contend that listing activity may well be tight for a long time. And if supply remains below the level of demand, the market is further protected.

And as far as demand goes, let’s not forget that the age makeup of the country suggests that we will see a lot more potential buyers as Millennials and Generation Z mature, with current numbers suggesting significant buyer demand for the next two decades.

As for sale prices, I still believe (as do almost all economists) that the median home price next year will be higher than we will see this year, but a very significant drop in the pace of sales growth is likely as we trend down to historic averages.

Of course, all real estate is local and there are markets across the country that will see prices drop in absolute terms. But even in the most highly susceptible markets, it will be a temporary phenomenon. By 2024, homeowners in these markets will see the value of their homes start to rise again.

I’m going to leave you with my quote to describe today’s market today and it’s that we are in a “housing reversion,” NOT a housing recession.

As always, I’d love to hear your comments on my thoughts so feel free to reach out. In the meantime, stay safe out there and I’ll see you all again next month.

1: New York Fed Quarterly Report on Household Debt and Credit

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. Today we are going to take a look at the new home market where headwinds are certainly growing. And the reason this particular subject piqued my interest was that the National Association of Home Builders just released their Housing Market Index for August, and the numbers were certainly eye-opening.

Now, for those of you who may not be particularly familiar with this index, it is based on a survey of home builders which asks them to give their opinions on the single-family home market and asks them to rate current market conditions for the sale of homes today as well as in six months’ time. It also asks their opinion regarding foot traffic of prospective buyers to their new home communities.

NAHB Housing Market Index

And as you can see, the headline index level fell six points to 49. The drop in August marked the eighth consecutive monthly decline for the Housing Market Index. It was also notable because it was the first time since May of 2020 that the index has dropped below the key 50 breakeven level. This is significant, as it tells us that today more home builders currently rate sales conditions as poor than good.

Now, while the August number was certainly lower than some economists had forecast, I was actually not too surprised as builders have been reporting a spike in cancelled contracts recently. In fact, a report I just read that was put out by John Burns Consulting suggested that the cancellations have more than doubled since April with 17.6% of buyers pulling out of their purchases in July. That compares to 8% in April and 7 ½% a year ago.

Housing Market Index Components

This chart shows a breakdown of three components of the Housing Market Index which are all at their lowest levels since May of 2020, which was just before housing activity rebounded following the lockdown due to COVID-19.

• The present sales index fell seven points to 57 but is still above the breakeven point
• The future sales series fell two points to 47
• Prospective buyer traffic fell five points to 32 which, if we exclude the pandemic, represents the lowest index level since April of 2014

I find this index has a very strong correlation with new home sales, but I also use it as a pretty reliable leading indicator when it comes to single-family housing starts. I’ll get to that shortly. The survey also stated that one in five builders had reduced prices in August. That might help to explain the 10-point spread between builders’ perception of current versus future sales. But there are limits on home builders’ ability to keep cutting prices in order to support sales. This has become a significant issue because many of them are currently holding a large stock of inventory.

New Homes for Sale

Here is what current inventory levels look like. Although you might think that it’s not that bad given that only 9% of available homes are finished are ready to move into, I would tell you that builders incur costs every day that a home is not sold, even if that home has yet to be built. And with inventory at a level not seen since 2008, I’m sure there are a lot of builders not sleeping too well right now.

I would add that by the time the above video is released, the July new home sales report will have been published. I can almost guarantee that the number of homes for sale will have grown further.

New Home Sales

Higher inventory levels are due to slower sales activity, which is continuing to decline. Sales are 17% lower than a year ago. With more homes for sale and lower transactions, it would now take more than nine months to absorb all available homes using the current sales pace. I would also tell you that the last time months of supply broke above nine was all the way back in 2010.

• It’s my forecast that sales in July will have dropped from the annualized rate of 590,000 shown in the chart above to somewhere between 570,000 and 580,000.

U.S. Single-Family Housing Starts

With high supply levels and lower sales, it’s not at all surprising to see builders hitting the brakes, with new home starts falling by 10.1% between June and July of this year. Starts are down by 18 ½% from a year ago. Starts have dropped on a sequential basis for five consecutive months now, and I am afraid that they will drop further before finding a bottom.

So, what’s the bottom line here? Well, there are several issues I see, the first of which is affordability. Home prices have been spiraling upward since the start of the pandemic not only because mortgage rates dropped, but construction costs started jumping and builders had to charge more for a home.

Builders saw prices rise by almost 18% last year. This had already taken a significant toll on affordability even before the mortgage rates spike we saw earlier this year. The upshot, as I see it, is that tighter monetary policy from the Fed, in concert with construction costs that remain well above normal levels, has hit builders and hit them hard. Of course, they are doing their best to address the situation by slowing construction activity significantly, but I think that they are going to have a pretty rough time for the next several months.

Ultimately, I see little option for home builders other than lowering prices further, especially now that they are competing with rising inventories in the resale market. I also believe that there are buyers out there waiting patiently on the sidelines for prices to drop in the coming months as they know that builders at some point have to solve the current supply demand imbalance and lowering prices is the easiest way of doing this. Last month the average price drop was 5%, but this is very likely to increase as we move toward the fall.

Will builders get through the situation they find themselves in? I believe that they will. And there are some glimmers of light out there with inflation appearing to be peaking, interest rates are, if not dropping, then certainly stabilizing, and this will help.

Builders also understand that the country has a significant housing shortage. In fact, a recent report published by “Up For Growth” suggested that we have a housing shortage today of around 3.8 million homes. Although this includes rental and ownership housing, some basic math tells me that there is a need today for around 2.5 million new owner-occupied homes. So, light is definitely at the end of the tunnel, but there is a way to go before they get out of it.

And there you have it. I hope that you’ve found my thoughts on this topic of interest. As always, if you have any questions or comments about the current new home environment, please do reach out to me. In the meantime, stay safe out there and I look forward to visiting with you all again next month.

Bye now.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

The following analysis of select counties of the Utah real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

Regional Economic Overview

The Utah economy remains buoyant. Although the pace of job growth has tapered somewhat from 2021, jobs continue to be added faster than the long-term average. Over the past 12 months, the state has added 55,400 jobs, representing a growth rate of 3.4%. The counties covered in this report added almost 53,000 new jobs over the past year, representing a growth rate of 4%. The state’s unemployment rate in May was 2%, which is marginally above the all-time low of 1.9% in April of this year. The labor force continues to expand, suggesting that the region expects economic growth to remain strong. All in all, a very impressive situation.

Utah Home Sales

❱ In the second quarter of 2022, 8,501 homes sold, which was a drop of 14.4% year over year. Sales were 30.9% higher than in first quarter of the year.

❱ Year over year, sales rose in the small Morgan County area but fell in the rest of the markets included in this report. Conversely, sales rose across the board compared to the first quarter, with impressive growth in Morgan, Davis, Utah, and Salt Lake counties.

❱ Inventory levels, which had been remarkably low, rose 206.2% from the first quarter of the year. This clearly had a positive effect on the market as more choice for buyers led to more sales.

❱ Buyers appeared to shrug off the fact that mortgage rates rose more than 1.5% in the quarter, which suggests they still believe owning a home is a solid investment.

Utah Home Prices

❱ Even with more homes on the market, prices continued to rise. Home prices rose 15.4% year over year to an average of $665,697, and they were 4.2% higher than in the first quarter of 2021.

❱ I have started watching list prices, as they will be a leading indicator of whether the market is starting to feel the impacts of declining affordability due to rising financing costs. In the second quarter, the median list price in the region dropped 2.2%, but it rose in Morgan, Davis, and Salt Lake counties.

❱ All areas contained in the report except for Wasatch County saw sale prices increase by double digits compared to a year ago. Compared to the first quarter of this year, prices were higher in every county other than Summit.

❱ Higher financing costs combined with declining affordability may have started to slow the rapid pace of appreciation we’ve seen over the past two years. This is nothing to be concerned about; rather it suggests that the market is starting to return to some sense of normalcy.

Mortgage Rates

Although mortgage rates did drop in June, the quarterly trend was still moving higher. Inflation—the bane of bonds and, therefore, mortgage rates—has yet to slow, which is putting upward pressure on financing costs.

That said, there are some signs that inflation is starting to soften and if this starts to show in upcoming Consumer Price Index numbers then rates will likely find a ceiling. I am hopeful this will be the case at some point in the third quarter, which is reflected in my forecast.

Utah Days on Market

❱ The average time it took to sell a home in the counties covered by this report dropped two days compared to the same period a year ago.

❱ Homes again sold fastest in Davis County, and every county except Summit and Wasatch saw average time on market rise compared to a year ago. The greatest drop in market time was in Summit County, where it took 19 fewer days to sell a home.

❱ During the second quarter, it took an average of 17 days to sell a home in the region. Not only did market time fall year over year, but it took 8 fewer days for homes to sell compared to first quarter.

❱ The market remains very competitive and, as mentioned earlier, appears to not yet be impacted by higher mortgage rates.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.