KSL+: Understanding the Current Real Estate Market
If you know anyone trying to buy a house right now, you know that they’re probably having a rough time.
“It’s a little crazy out here. We’ve never had a market exactly like this before. And we’ve had a hot market for about five years. But it’s like pouring gasoline on to a fire at this point,” said real estate agent Justin Hurd. “I’ve always said that when you really need a good real estate agent is when the markets really, really good, or when it’s really, really bad. Back when it was really, really bad, we did about 120 short sales. People really needed us at this point. They really need us again.”
Utah real estate prices have shot up and everyone’s pointing fingers. From Californians moving to Utah, to the cost of lumber, to the pandemic, they’re all pretty common scapegoats for frustrated buyers. The fact is, no matter the cause, the number of homes for sale right now is significantly lower than normal.
“Over the past really six years, we have seen the largest increase in housing prices in our state’s history. This is a growth that’s unsustainable,” said Governor Spencer Cox in an April press conference. “Right now in the state there are less than 2,000 homes for sale. Now, I don’t know how to put that into perspective, except to say that normally this time of year, we would have 20-30,000 homes for sale. And we have less than 2,000. So that tells you what’s happening.”
But what’s next? My colleague Ladd Egan has been reporting extensively on the housing market as part of the Unaffordable Utah series. He joins us now.
Editor’s note: Interview lightly edited for clarity and readability.
Matt Rascon: I want to start off with sort of a broad question. What’s happening with the housing market in Utah right now? Why are prices so high?
Ladd Egan: In Utah, we’ve got an interesting situation here. When I talk with the experts, a lot of times, they go back to the Great Recession, and talk about how we lost a lot of home builders at that time, and we got a housing shortage and we still have the housing shortage. So we’ve never caught up completely. And as we know, Utah is also the fastest growing state in the nation. We’ve got people moving here and we have a high birthrate anyway. And so we have demand for housing and they’re saying that is what is driving what’s going on right now. There are not enough homes and there are buyers entering the market.
Another reason people are entering the market–the low interest rates. An expert at the University of Utah calls that a buyers panic–people just want to get into the market. And there was a barely a blip of slowdown during the pandemic. And then it just roared right back. Many assumed housing was going to be deeply affected by the pandemic. But that did not happen here in Utah. And so the upward pressure on prices comes as there is just such an intense demand. And that’s why you’ve got the bidding wars. And when anyone goes out to look for a home, there’s low inventory, homes are selling very quickly. In fact, in April, the Utah Board of realtors said there was a record number of homes sold. But at any given time, if you start looking for a home, there’s not a lot of options out there. And so you we’ve heard the stories of you know, 50, 60, 100 bids on a single home, because there are so few options for so many buyers.
Matt Rascon: Yeah, yeah, three homes in my neighborhood actually just just sold. It just took a matter of days. Well above what they were listed for and everything so well, it sounds like it’s it’s a little bit different. Not necessarily comparable to what we saw in 2008.
Ladd Egan: What’s interesting is there’s no slowdown, even as prices continue to tick up. In fact, I’ve got the latest report right here. This is from the Board of Realtors I’ve been looking at and year over a year, the median home sales price in Utah is up 27%. That’s almost $100,000 more than just a year ago. And so you have prices going up but yet that’s not stopping the demand. And it is because the low interest rates allow people to afford more and and and the monthly payments still stays affordable. And so nothing seems to be stopping the frenzy and the intense competition out there. And so many say “oh is this a similar situation?” and the experts tell me no they say that it is still very difficult to get approved for a loan. And that unlike back in the Great Recession, the housing meltdown where you had fraudulent loans and loans that never should have been given. They say the people that are buying homes right now can afford them. But in the same breath, people are very concerned about long term affordability, whether people who were born and raised here in Utah are going to be able to afford to stay here in Utah.
Matt Rascon: Right. Yeah. So we hear kind of on the one hand, that this is a bubble that’s about to burst at some point. On the other hand, we hear that maybe this isn’t that way, and we should actually be prepared for a sort of new normal. What what are you hearing about that?
Ladd Egan: I think what you said there– this is a new normal just as long as you have low unemployment here in Utah, we have a very healthy economy. And so as long as the demand is there for homes, this is the new normal. And we’ve been in a housing price increase for for about a decade now. And you know some talk about what type of correction could there be? Well, definitely, if interest rates go up, that could slow down. That could make it so people can’t afford as much home and so that could stop the situation we have right now, where there’s so much competition and the bidding wars.
And in terms of how many houses are on the market, in a balanced market, the Board of Realtors likes to see about a six months supply of homes currently out there for sale. That’s a good back and forth between buyers and sellers. Matt right now, we just have a one month supply of homes on the market. So I think in terms of it being an unhealthy market, everyone’s saying this is unhealthy, it is our reality. So if you’ve got to buy a home right now, you have to deal with what the reality is. But many would like it to get back to a more healthy situation, a good back and forth, more homes on the market.
You talked about the homes in your neighborhood, how quickly they sold. Of course, if you’re selling right now, it’s great. But the question is, where do you go? You have a lack of the move-up buyers entering the market, someone who maybe would sell their home and and go get something else. But if you’re selling high and buying high, it’s not a very good situation. Many fear being trapped in a situation where they sell their home, and then they can’t secure that other home.
And Matt, we should also talk about new housing construction because we have the skyrocketing lumber prices. So many, when they can’t compete for existing homes, they turn to new construction, but new construction also has its challenges right now, in that prices are also going up and and the price of lumber is increasing the cost of those new homes.
Matt Rascon: Yeah, you’ve heard those stories where they have something signed and everything’s set to go and then they hear back later that suddenly the price has gone up and you know they’re out of it.
Ladd Egan: Yes. You have to pay attention to the contract in terms of what is the the builder allowed to do, when can they end the contract but also who absorbs the increasing costs of construction materials? You have to pay very close attention to that and see who’s on the hook for the price increases because it’s so volatile right now [as we see] the price of lumber just skyrocket. The National Association of homebuilders said it’s adding on average $27,000 to the cost of a new home because of the increase in lumber.
Matt Rascon: Okay. Well, maybe for some more practical advice here. So if someone wants to buy a home, especially first time homebuyers here, should they wait?
Ladd Egan: I think that’s the big question and it’s going depend on what their situation is. But there’s there’s no harm in getting out there and trying to see what is available, trying to make sure you’ve got your financing in order. That’s probably the first place to start because as you’re putting in offers for homes, if you’re competing with other people, you want to make sure you’re the hassle-free buyer. So get that financing in order. And then as I talk with real estate agents, they say yeah, it’s going to be intense, it’s not going to be the first or second offer but you can figure out a way to be competitive in this market. Some say it’s not always just putting in an offer for over-asking price. Sometimes it’s the terms. Are you willing to give the seller some flexibility to complete the transaction but they are allowed to stay in the home for a while, whether that’s letting them stay in the home for free or you’re charging rent but are you going to give some flexibility? That’s really where it’s time to come up with a with a strategy of what works for you. But yeah, many say don’t give up and compete in the market but just realize that there are a lot of people out there competing. One of the people that I interviewed for the story out in South Jordan said, you just don’t realize that really the game has changed. Some of the old ways of going about it really don’t apply right now. And that you just have to be creative and competitive with your offers.
Matt Rascon: The alternative, especially if you’re a first time homebuyer, is renting, but it’s not like that’s necessarily that much better. If you to go and find a rental and if you’re going to be paying something similar to what you are you pay with a mortgage.
Ladd Egan: I was talking to an agent who said a family he knew was was saving money and was being very diligent about saving money over a course of a number of years, but in that same time that they were saving the money, houses were steadily marching upward. And so if you’re if your goal is to build equity, when do you jump in order to build that equity? With prices increasing at the rates they are, people do want to secure the home and be able to capture the price increases, because then you do have the equity. Many have instant equity as soon as they’re closing on their homes with how quickly prices are going up right now.
Matt Rascon: You mentioned a couple of things I think about being competitive. Is there anything else that people should know, to kind of set themselves apart if they’re diving into this market right now?
Ladd Egan: Well, one agent told me that you have to come to play from day one, and that you need access to cash. And so what’s going on right now is that as you make an offer, many are making their earnest money non-refundable. Or they’re layering in that at a certain point it becomes non-refundable or more of it becomes non-refundable. And this is to say, you should pick my offer. I’ll put this money on the line and it will be non-refundable. And whether you have a tolerance for that, or not really depends on how you want to approach this, but many say that it is a good idea to have access to some earnest money. And that’s where there’s the dilemma of if you do have an existing home, you sell it and then have access to that money to make your next transaction. But things are moving so quickly, that some are saying, you know, I don’t want to sell my existing home. It’s how I know for sure that I’ve secured my next home.
Matt Rascon: Right. Yeah, yeah, I was interesting. The the family that you talked to who’s realtors stepped in with the cash?
Ladd Egan: Yeah, wasn’t wasn’t that interesting? So this was a situation where the the agents are planning a venture, and they’ve got some money in the bank. And they have clients that were losing out and weren’t able to be first place and get their offers accepted. They said, Well, we do have some money in the bank. And if a cash-only offer is what is going to win the transaction, they were willing to, of course, do it all legally, and they had to cancel some agreements in order to make it all work out. But what happens is when they’re able to say we’ve got cash, we have it right now. And we can close in a couple of days, some people who are selling their homes, because maybe they’re trying to secure their next home or they’re building a home. That’s attractive to them. And in one situation, they said, our offer was not the highest offer. But we were able to close more quickly. And so they selected our offer. And so that was interesting, because what many think right now is the highest offer is always winning. But in that case, it was actually being able to finish the transaction in less than a week that was more attractive to the seller.
Matt Rascon: So you really got to find out what they’re after.
Ladd Egan: Yeah, I think I think that’s the key point. That’s where you’ve got to maybe ask them questions about what do they want? And maybe they won’t tell you everything. But if you can get a sense for what that seller wants–do they want a hassle-free transaction? Do they, like we talked about, do they want it to go very quickly? Do they want a lot of time in the neighborhood? You know, I think asking questions and figuring out their situation is important. And also people are being creative about simply finding a home that they know maybe was coming on the market. One agent told me that a family knew they wanted to build or wanted to buy a home in a certain neighborhood and so the mom simply went to the park asked around to the other moms, is anyone thinking of selling around here and they found out. And that way they can be basically ahead of the pack and know what’s coming onto the market and be ready, and maybe do some research and know what that house might be priced at and be able to put it in an attractive offer.
Matt Rascon: One other thing I just thought of, at least in my mind, it seems like it might be a risk is you have a home, you’re like, Oh, my gosh, it’s worth this much more, I want to go to this neighborhood. You know, you want to get into the market over there, do you run the risk of you’re buying so high, I mean, down the road, if you’re not keeping that home, because you’re getting into this market when it is so I do run the risk of maybe losing out on your home, because down the road, it’s not going to be worth as much?
Ladd Egan: I think that’s always been a risk in the housing market. And, and as as the the expert up at the Kem C. Gardner Policy Institute told me, James Wood, who has been studying the housing market since the 1970s. He said this is a very unhealthy market right now. And he quote from him that we use in my story this week is, you know, he’s not sure how the correction will come. But, you know, if there’s something that’s off there, there can be a correction in the market. So I think people need to very much look at it at their transaction, talk with experts, talk with financial planners, and just make sure they’re making a good transaction, but also realize that Utah has a healthy economy. And that the the price increases are what many say are due to actual demand for housing, and that that is pushing that up. If we can catch up and build more and cause some stability in the market. I think everyone would welcome that and have a have a more healthy balance there between the buyers and sellers.
Matt Rascon: Anything else you’re working on right now for Unaffordable Utah in the future?
Ladd Egan: Unaffordable Utah is so interesting to see, you know, with growth comes challenges. We love this state but I think that is the concern that we’re hearing from families. They want their children to be able to live here and and they worry about long-term affordability. And I think, Matt, as we’ve talked about unemployment benefits, and Utah opting out of those federally enhanced unemployment benefits is will we see employers compete for employees by raising wages. And if we’ll see that upward pressure on wages, and if that if that will help, long-term, people make more money here in Utah.
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