March could be a very influential month in determining the rest of 2023’s outlook for home prices. After a shocker of a jobs report and CPI data trending in the wrong direction last month, March’s data will likely serve as a tipping point toward a soft landing or demonstrate that further rate hikes are needed. Also in this month’s update, we will discuss the end of Utah’s legislative session, highlight an attempt to end certain CARES Act restrictions, and outline a changing rental market.
Headlines
February Jobs Report - In February, the U.S. economy added 311,000 jobs against expectations of only 205,000 jobs being added and the unemployment rate climbed to 3.6%. This marks the second consecutive month where job gains well exceeded the expectations of analysts. Normally such news would be cheered, but in today’s inflation wary environment, a resilient labor market in the face of rapid interest rate hikes makes future rate hikes more likely. All indications are the Fed will do whatever it takes to tame runaway inflation, and in doing so, the odds of a recession increase.
Weekly Jobless Claims - The number of Americans who filed for unemployment benefits for the first time, jumped to a 5-month high for the week ending March 4th. Initial claims came in at 211,000, which is 21,000 claims higher than reported in the previous week and 7.1% higher than the 4-week moving average of 197,000 claims. Despite the uptick, the labor market clearly remains strong, as indicated by the past two job’s reports.
February CPI - The next release comes on March 14th, which just missed today’s publication date but that report will be worth monitoring. After multiple interest rate hikes and a good amount of lag time in the data, we finally saw inflation numbers start to improve. This prompted the Fed to slow the pace of their rate increases and signified the possibility of a “soft landing” for the U.S. economy. However, beginning last month, the economic data started working against this narrative in the form of a stronger than expected job’s reports, and more recently, in January’s CPI report (released on Feb 14th). All were indications that inflation may be more stubborn that originally thought, and if February’s data confirms that trajectory, we should expect more rate hikes.
Next Fed Meeting - The next meeting of the Federal Reserve is scheduled for March 21-22, and you can bet that today’s jobs report and Monday’s CPI report will weigh heavily on their decisions surrounding future policy. Following today’s jobs report, unless we see a shockingly low CPI report on Monday, future rate hikes seem all but guaranteed.
Legislative Session 2023
All said, the 2023 legislative session went about as well for rental operators as possible. The truly hostile bills were defeated, and reasonable compromises that benefited all parties were reached in others. For a full breakdown of the session, click here, but we have summarized the most impactful bills and their statuses below.
HB 80: Residential Renter Deposits
Summary: This bill extends the time period for a residential rental property owner to provide certain deposits and notices to a renter after the renter vacates the property.
Status: Sponsor has pulled the bill for this session.
Notes: N/A
HB 314: Remedies for Victims of Domestic Violence
Summary: This bill amends the requirements for terminating a rental agreement when a renter is a victim of domestic violence.
Status: This is a consensus bill. It has passed the House and Senate and is waiting for the Governor’s signature.
Notes: There are four main changes to the law. The first provides eligibility for four common protective orders that currently don’t apply. The second reduces the termination fee to the equivalent of 30-days worth of rent from the current 45-days. The third creates limited flexibility for nuisance issues, late rent, and damages while the current law requires perfect compliance with the lease. Finally, the bill clarifies that the resident must vacate within 15-days whereas the current law is undefined. Everyone agrees that victims of domestic violence need protection and this bill should make a difficult process easier for victims.
HB 316: Residential Rental Amendments
Summary: This bill required 90-day notice for rent increases above $100.
Status: This bill died 11-2 in committee after the sponsor refused to compromise.
Notes: After initially indicting a willingness to compromise, the sponsor eventually reversed course and added further hostile changes at the last minute. Rather than getting some of what was desired, the sponsor opted for the proposal without a consensus and the bill died. 90-day renewal notices are already standard practice for many operators so this legislation didn’t offer much benefit to renters anyway.
Summary: This bill allowed judges to remove the mandatory treble damages requirement at their discretion.
Status: Not heard in committee this year
Notes: This bill was a good example of bad policy. Since Utah has strict and clear penalties, our eviction filing rate has fallen 50% in the past decade. Even after evictions are filed, another 50% are settled, making Utah a state with one of the lowest eviction rates in the country. This bill would weaken the consequences of evictions by removing mandatory treble damages, and doing so could very likely increase the number of evictions in Utah and hurt both landlords and renters.
SB 191: Condominium and Community Association Amendments
Summary: This bill adds the ability for HOA’s to charge a $250 annual fee to rental property operators.
Status: Sponsor accepted compromise language.
Notes: Several years ago the rental housing industry sought and received prohibitions on community associations (HOA’s/PUD) charging extra fees to rental unit operators. The community association community is seeking the ability to charge a $250 annual administrative fee to rental operators. However, rental housing advocates insisted that the fee could only be charged in associations that allowed the maximum number of rentals in their community that would comply with HUD financing limits (35%). If allowing an annual fee to be charged (which would most likely be passed on to the renter in the lease) increased the number of rental units in community associations, it would help with rental supply and housing affordability. It could also create more opportunities for investors.
Section 8 Guarantee Fund Appropriation
Notes: Rental housing advocates were able to procure $600,000 for this fund. The Housing Choice Voucher (Section 8) Guarantee Fund is something that was set up at the request of the Rental Housing Association, to mitigate costs by being required, in Utah, to rent to tenants on Section 8 vouchers, if they meet all other rental criteria. The fund pays up to $5,000 to a landlord who rented to someone on Section 8, for lost rent and damages. Currently, a judgment against the tenant is required. More info on the Fund can be found at Section 8 Landlord Incentive Program.
Utah Real Estate Market
It’s easy to get discouraged about the current state of the real estate market, when you read headlines like “Mortgage applications drop to 28 year low” and “Housing market correction has already caused homeowners to lose $2.3 trillion”. In fact, it’s not much better if you stick to local news sources (see “SL County home sales slide to a 12-year low even as prices fall…”). Make no mistake, rising interest rates are causing massive problems in the industry, but it’s not all bad. Look no further than this month’s data if you want some good news. In February, the median sold price for a single family home in Salt Lake, Davis, or Utah county jumped 2.5%, the number of sold transactions jumped 33.3%, and the average number of active listings fell 11.6%. All figures, while showing a nice rebound from January, must be taken in context with the year over year figures in which prices are down nearly 5%, transaction volume is down almost 13%, and listings are up 300%. Challenges certainly remain, and likely will until rates come down, but in a market like this, it’s important to take the good news wherever we can get it.
Median Sold Price* | Sold Count* | Average # of Listings* |
February: $577,000 March: $600,000 April: $613,000 May: $629,260 June: $620,000 July: $600,000 August: $590,000 September: $591,750 October: $570,000 November: $550,000 December: $550,000 January: $536,500 February: $550,000 | February: 1,277 March: 1,740 April: 1,847 May: 1,897 June: 1,871 July: 1,517 August: 1,720 September: 1,582 October: 1,211 November: 1,111 December: 1,163 January: 835 February: 1,113 | February: 914 March: 1,102 April: 2,139 May: 3,054 June: 4,722 July: 5,314 August: 5,539 September: 5,874 October: 6,037 November: 5,754 December: 5,034 January: 4,143 February: 3,662 |
Monthly Change: Up 2.5% | Monthly Change: Up 33.3% Year Over Year: Down 12.8% | Monthly Change: Down 11.6% Year Over Year: Up 300% |
* all graphs/data are for single-family homes in Salt Lake, Utah, and Davis Counties.
Utah Rent Report
Month-over-month rent growth trended in the wrong direction in all but two of the Utah submarkets for which data is available. Additionally, year-over-year, all submarkets with the exception of West Jordan declined with Salt Lake City actually turning negative for the year. In fact, what’s happening locally is also playing out on the national stage. This quote from the research team at Apartment List sums things up pretty well: “This month’s data suggests that we’re beginning to see a mild rebound in rental demand, following a particularly slow off-season to close out 2022. That said, the surging rent growth that we saw in 2021 and the first half of last year should still be solidly behind us. Even if demand continues to strengthen, a robust supply of new inventory hitting the market this year should keep prices in check. It looks like 2023 is shaping to be a year of modest positive rent growth.” Considering the past 6 months, modest rent growth in 2023 sounds great. Especially when taken in context of the past few years. Since March of 2020, the three-year rent growth for all Utah submarkets ranged from a low of 22.1% (Salt Lake City) to a high of 33.6% (Midvale). Not bad at all.
Utah | Month Over Month | Year Over Year |
Draper Midvale Millcreek Murray North Salt Lake Orem Salt Lake City Sandy South Jordan West Jordan | 1.2% -0.8% -0.8% -1.0% -0.1% No data 0.6% -0.2% -0.1% -0.1% | 2.7% 2.1% 1.7% 2.5% 2.0% No data -0.2% 4.1% 3.7% 1.9% |
*Rental data provided by apartment list.
Industry Updates
Possible Repeal of the Cares Act - Representative Barry Loudermilk of Georgia has introduced legislation called the “Respect State Housing Laws Act” which seeks to eliminate the CARES Act 30-day notice to vacate. The CARES Act was signed into law nearly three years ago on March 27th, 2020, and despite the end of many COVID era programs like eviction moratorium and rent relief, it remains in place. This federal requirement to post an additional notice conflicts with many state laws and adds a confusing and unnecessary step that slows the process of legitimate evictions. This legislation is supported by industry trade groups such as NARPM, the NAA, and IREM so it will be interesting to see if it gains any traction.
HUD Drafts Open Letter on “Junk Fees” - HUD’s letter is in response to President Biden’s “Blueprint for a Renter Bill of Rights” and aims to offer industry best practices to crack down on “junk fees” and increase the transparency of costs for renters. Two of the four items outlined in the letter are our current practice and are completely reasonable (allowing the use of a single application for any property we manage and being fully transparent of all costs up front, before a tenant signs a lease) but the other points aim to eliminate fees charged for legitimate business purposes. HUD suggests limiting application fees to the cost of screening reports and eliminating administrative or processing fees charged during the leasing process. These suggestions might seem reasonable in theory but are problematic in practice because they completely overlook the costs associated with the service of leasing homes. Replying to inquiries, showing homes, negotiating terms, screening tenants, drafting leases, performing inspections, and preparing a home for move in all cost money, and eliminating the ability to charge fees for these services, will only lead to higher costs for property owners (who will naturally increase rents to cover these costs) or diminish the quality of service renters receive. In a perfect world, excellent service could be provided free of charge, but that just isn’t realistic in most cases so it will be interesting to follow this story.
