Last month, we mentioned a significant jump in interest rates. We certainly hope you aren’t as tired of hearing about that as you were about COVID-19 in 2020, because all signs point to that being an ongoing theme. In this month’s update we will discuss the impact of rising interest rates on the housing market, a new record high for home values, and outline some pricing changes for move out and security inspections. But first, the headlines.
Headlines
March Jobs Report - The unemployment rate just hit a new pandemic era low of 3.6% following the March jobs report that showed a gain of 431,000 jobs. For comparison purposes, in 2019, the unemployment rate hit 3.5% which was a near 50-year low, and we are now only 1.6 million jobs below the levels we saw in February of 2020. In other words, we are now within striking distance of a full recovery in the labor market. Now, if we can just get inflation under control, we might finally ease concerns about a recession.
Weekly Jobless Claims - Initial jobless claims for the week ending April 2nd fell to a low not seen since 1968. The 166,000 new filers was less than the 200,000 analysts expected, and with continuing claims little changed from the previous week at 1.52M, the report demonstrates just how tight the labor market is. The US labor market currently has the opposite problem (more available jobs than job seekers) from what we are seeing with the real estate market (more buyers than homes for sale). On a local level, Utah saw a slight increase of 177 filers over last week’s total of 1637.
Rising Interest Rates - The fact that interest rates have climbed recently isn’t a surprise due to rampant inflation, but the speed at which they’ve jumped has been “rapid” to say the least. For the week ending April 1st, the average interest rate on a 30-year fixed mortgage reached 4.9% according to the Mortgage Bankers Association. The increase represents a 1.6% jump since the beginning of the year, which is the fastest climb in borrowing costs since 1994, and the highest rates we’ve seen since December of 2018. This rise has reduced demand for mortgages by 41% year over year, and has pushed applications to refinance down by 62% over that same period. This will no doubt have a cooling effect on a red hot housing market, and all indications are the Fed isn’t afraid to increase rates at an even faster pace.
Utah Real Estate Market
The median sold price for a single family home in Salt Lake, Davis and Utah Counties hit a new record high of $600,000 in March. That’s a 4.0% increase in sold price and a 36.2% jump in completed transactions from just a month ago. All of this despite climbing interest rates (see headlines above) and a 20.6% increase in average active listings. With borrowing costs on the rise, home buyers are no doubt trying to lock in the best terms they can get before costs climb even higher and price more potential buyers out of the market. Despite this unprecedented growth in prices, experts predict that the current supply/demand imbalance will only serve to slow the pace of growth rather than end it. Time will tell.
Median Sold Price* March: $482,161 April: $499,900 May: $505,000 June: $530,000 July: $530,608 August: $526,000 September: $537,500 November: $537,000 December: $559,000 January: $564,500 February: $577,000 March: $600,000 Monthly Change: Up 4.0% | Sold Count* March: 1,726 April: 1,966 May: 1,955 September: 2,107 November: 1,957 December: 1,995 January: 1,177 February: 1,277 March: 1,740 Monthly Change: Up 36.2% Year Over Year: Up 0.8% | Average # of Active Listings* March: 1,004 April: 1,422 May: 1,439 June: 1,762 July: 2,422 September: 2,544 November: 1,695 December: 1,012 January: 957 February: 914 March: 1,102 Monthly Change: Up 20.6% Year Over Year: Up 9.8% |
* all graphs/data are for single family homes in Salt Lake, Utah and Davis Counties.
Industry Updates
Water Issues - We want to make you aware of the urgency behind the state of Utah’s ongoing drought. We monitor the monthly DNR Drought Updates, and as of March 10th, 96.93% of the state is in “severe drought” with 33.34% of the state in “extreme drought”. Obviously, the situation is dire, and we’ve already seen articles and news reports about imminent water restrictions. As such, these restrictions should update our expectations about lawn conditions this summer and possibly even begin long term thinking surrounding xeriscaping or turf as an alternative.
Rents and Wages Rise - As of Q4 2021, rents were up almost 9.9% year over year while wages grew only 5.2%. The reasons behind these trends (low supply/increased demand for housing and inflationary pressures/low unemployment for wages) have been discussed in these updates over the past year, but the disparity raises an interesting question. How will tenants afford higher rents when only half of the increase is covered by higher wages? The answer is unfortunately by spending a higher percentage of their income on housing costs. If unaddressed over a long enough period of time, such an imbalance will eventually cause problems for the rental market.
Rent Growth Back on the Rise - After taking a break over the last few months, rents are starting to climb nationally again. We haven’t hit the busy spring/summer leasing season yet and we have already seen a 1.8% increase since the start of the year with nearly half of that gain taking place in March. In fact, Salt Lake City ranked #5 in the country at +5% rent growth in the past 6 months and several surrounding cities are at or near 1% growth month over month. This obviously bodes well for the months ahead as we hope it will increase renewals, and potentially lead to rent increases for those owners with a tenant who decides to vacate.
