Unaffordable Utah: Mortgage rates climb again as buyers look for price reductions

LEHI, Utah — Housing market whiplash is setting in across the Beehive State as last year’s buying frenzy has given way to a slowdown and signs of a recession.

The most recent housing market index from the National Association of Home Builders (NAHB) and Wells Fargo revealed builder sentiment falling for the ninth month in a row and into recession territory.

“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said a statement from NAHB Chairman Jerry Konter about the September index.

The September reading of builder confidence at 46 points is now at its lowest level since May of 2015 (excluding the start of the pandemic in the spring of 2020).

Konter added that 24% of builders nationwide reported reducing home prices in September compared to 19% in August.

UTAH’S HOUSING MARKET

“This recession isn’t anything like what we went through in the Great Recession,” said Jaren Davis, the executive director of the Salt Lake Home Builders Association.

Davis said the pandemic housing boom was bad for builders because of supply shortages, price spikes, lack of workers, and delays.

“What a recession is going to do is bring us back to a market that is healthier,” he said.

Davis said builders need to keep building housing to keep up with Utah’s growing population.

“We still have that demand side exceeding our supply side,” he said.

The most recent report from the Utah Association of Realtors showed home sales in August were down nearly 24% compared to a year before. At the same time, the number of homes on the market jumped by 80%.

“The pullback in demand has been particularly hard on homebuilders, causing new-home sales and construction to slow,” the report said.

While the year-over-year median home sales price is still up 10% in Utah, the report said price growth is expected to moderate in the coming months.

The report blames inflation, higher interest rates and recession fears for the slowdown in transactions.

MORTGAGE RATE IMPACT

“There’s no question that the housing sector is struggling right now — it’s contracting,” said Wells Fargo senior economist Mark Vitner in an interview with KSL TV.

For six weeks in a row, mortgage rates have climbed, according to FreddieMac. The 30-year, fixed-rate mortgage soared to an average of 6.7% as of last week’s Primary Mortgage Market Survey.

“One of the issues that builders are facing is that interest rates have risen so dramatically over such a short period of time that many people that had put a home under contract have suddenly found out that they can’t afford it,” Vitner said. “So, we’ve seen a surge in contract cancellations.”

Vitner said the jump in interest rates comes at the same time inflation is hitting home for families.

“More and more people have been priced out of the market,” he said.

The FreddieMac survey also captured a large spread in mortgage rates, making it more important for potential buyers to get quotes from different lenders.

“Our research indicates that borrowers could save an average of $1,500 over the life of a loan by getting one additional rate quote and an average of about $3,000 if they get five quotes,” said a prepared statement on Sept. 8 from Sam Khater, Freddie Mac’s Chief Economist.

HOMEBUYING ROLLERCOASTER

Shopping around for the best loan benefited Utah County couple Peyton and Isaac Madsen.

“We had been living in an apartment for a while and were ready to get our own place,” said Peyton Madsen.

In late summer 2021, they decided to make the jump into homeownership. At the time, the real estate scene was ultracompetitive, and they had to submit bids just to secure a building lot in Lehi.

“We loved it and loved the location, and so it felt right,” Isaac Madsen said.

Then, halfway through construction, they nervously watched as mortgage interest rates started to increase.

“That was overwhelming — seeing them rise,” Peyton Madsen said.

When they signed their contract, mortgage rates were under 3%. When it came time to close on their townhome, rates were double that.

“We were looking at nearly a 6% interest rate, which we thought was insane and was totally going to push us out of our comfort zone where we were thinking about not doing it and just pulling out,” Peyton Madsen said.

“I think there were moments where we felt completely powerless,” Isaac Madsen added.

The Madsens decided to shop around at more than a dozen lenders until they found the right loan for them. They also asked for and got some concessions from the builder.

“We were able to find a much better rate, which was awesome,” Peyton Madsen said.

In the end, they’re happy they didn’t give up on their dream

“Someday, we’ll start a family, and it’s been just great since being here,” Isaac Madsen said.

“We were able to make it work, and we’re super grateful that it all worked it out through all of this madness,” she added.

BUYERS GAIN BARGAINING POWER

“It’s turning into a win-win market for both parties,” said St. George area realtor Blair Frei.

Frei said the market shift has changed the dynamic for potential buyers who recently had no bargaining power.

“Sellers were basically getting whatever they wanted,” Frei said. “We saw offers as crazy as people offering to deliver cookies monthly and mow people’s lawns. It was crazy.”

Now, he says, it’s the builders who are starting to offer incentives.

“We’ve had multiple builders reaching out to all of us realtors with some pretty cool incentives for buyers,” Frei said.

During one transaction, he helped a family get $12,000 of their closing costs paid.

“We were able to go in with no other competition on a home that they loved in an area they loved and make an offer and get the sellers to cover all of their closing costs,” Frei said.

Frei said there’s more wiggle room for price reductions and those home sellers are still in a good place with all of the equity they’ve accumulated over the last few years.

He said another tactic buyers can use is to use allowances or price reductions to buy down their mortgage interest rate.