What’s the Deal with the Booming Utah Real Estate Market?

What’s the deal with the booming Utah real estate market?

I get that question all the time lately. If you’re looking to buy, you know what I’m talking about. it’s wild out there! Prices are skyrocketing, inventory is low, and it seems like everyone wants the house that’s calling your name. The competition is fierce; quality listings are often under contract in mere days or even hours. Buyers have to be on their toes with solid financial pre-qualification letters, a steely decisiveness, and a willingness to make very strong offers that often exceed the asking price.

Everyone knows that seller’s markets come and go but the uniqueness of this moment in time is the juxtaposition against challenging times roiling our nation. Covid19, and the response to it, has seriously depressed the national economy, spiked unemployment numbers, and depressed real estate prices in some markets. Feelings of unease abound in other arenas but aren’t at all evident in our Utah real estate market. 

What is driving all of these enthusiastic buyers? Are they closing their eyes to the bigger picture? Is this any different from the blazing hot market prior to the bursting of the real estate bubble that ushered in the great recession in 2008? 

I readily admit that I’ve occasionally been worried for what lies ahead. The possibility that things could go sideways is real.

I doubt it, however. 

My opinion is primarily shaped by three key elements. The first being record low interest rates which translate to lower monthly mortgage payments for buyers. The Federal Reserve has recently reduced the prime rate to 0% to help stimulate economic activity. While mortgage interest rates aren’t directly tied to the prime rate, the actions taken by the Fed and the strong stock market have fostered historically low interest loans which likely won’t increase much in the near future. Consequently, buyers will continue to be motivated to pay more for housing due to relatively lower mortgage payments.

The second reason is a lack of listings. Ironically, in spite of being such a strong seller’s market, there aren’t many people that want to sell. The very nature of the lockdowns earlier this year and subsequent public restrictions have encouraged a lot of potential sellers to stay put and wait it out. I mean, when you’re spending even more time in your home, who wants to sell? Consequently, there is a dearth of new listings and the shortage pushes prices skyward.

The third and most telling element is that there simply aren’t enough housing units for everyone who wants to live here. This goes well beyond a current lack of willing sellers. Our region has experienced a serious housing deficit for several years that is only increasing despite myriad construction cranes dotting the skyline. Utah’s internal growth rate leads the nation and our strong, diversified economy attracts many new residents from out of state. Demographic trends do not indicate significant slowing of our population growth in the future.

Consequently, I believe that the long-term outlook for real estate appreciation within Utah, and especially along the Wasatch Front, is strong. 

That is only my opinion, but I can assure you that it was not formed in a cavalier fashion. I’ve been a real estate investor for several years but hadn’t purchased any property since 2017 due to rapidly rising prices. I felt that things would eventually settle down and that a market correction might even be a possibility. However, as I considered the situation relying more on data analysis rather than anxious feelings, I changed my view. The combination of high demand for housing, not enough new construction to supply it, and a multitude of zoning regulations restricting height and density, is a recipe for rising prices well into the future. We are becoming a metropolitan area akin to places such as Denver, Austin, and Portland with high demand and limited land for new construction. Prices will rise accordingly.

Just last week I put my money where my mouth is and got off the sidelines. I bought a nice duplex in Salt Lake City and am glad that I did! It feels great to be a new owner, but even more than that, the numbers for this deal were solid and will only improve over time. I stand to benefit from a low mortgage payment due to my low interest rate loan while the value of my building increases over time.  

What do you think? Feel free to contact me if you’d like to discuss anything that I’ve mentioned or any other aspect of the Utah real estate market.