NWAOR: 5 questions about Utah’s housing market
After 2022’s sudden spike in mortgage rates and the subsequent slowing in the real estate market, many Utahns are wondering what they should expect for housing in 2023.
Jim Wood, Ivory-Boyer senior fellow for the Kem C. Gardner Policy Institute, answered many common questions during a Jan. 13 presentation. Wood, who has studied Utah’s housing market since the 1970s, gave his predictions about where the market is headed in 2023 and 2024. Here’s what he had to say:
Will Utah have a recession?
Historically, Utah has a long-term employment growth rate of about 3% and seldom has job loss. While the definition of a recession is a national concept, the state Revenue Assumptions Working Group loosely agrees that less than 1% job growth would put the state in a recessionary environment.
“There’s no formal or accepted definition of a state recession, but if job growth falls below 1%, that indicates weak economic conditions associated with a national recession,” Wood wrote in a report associated with his presentation.
The group’s consensus forecast is that employment growth would be at 2% for 2023 and 1.7% for 2024.
“Will Utah have a recession?” Wood said. “I don’t believe they will, and the official forecast for the state doesn’t point to a recession for 2023 and 2024.”
Does Utah have a housing bubble?
Alan Greenspan defined a housing bubble as a “prolonged period of price decline,” Wood said.
Utah has had only two housing bubbles: a serious one during the Great Recession when home prices dropped over 20% for 16 consecutive quarters, and a weak period during the 1980s when prices went down for nine consecutive quarters. Wood said a similar decline is extremely unlikely in Utah over the next two years.
“No, we do not have a housing bubble,” Wood said. “Those are very rare in Utah.”
What’s the forecast for inflation?
After a long period of low inflation, the Federal Reserve began raising interest rates in 2022 in response to the highest inflation in 40 years.
According to Wood, three things set off the inflation: 1) the $5.1 trillion federal response to the pandemic, 2) pandemic supply chain disruptions and 3) the Ukraine war that put pressure on energy and commodity prices.
“We hit the trifecta when it came to inflationary causes,” Wood said.
Even though the Consumer Price Index has come down for six consecutive months, Wood believes the Fed will keep rates high through 2023.
“They are determined really to break the back of inflation and inflationary expectations,” said Wood, who predicts inflation between 5% and 6% this year.
What’s the forecast for mortgage rates?
In response to the Federal Reserve’s actions as well as the broader economic conditions, mortgage rates spiked in 2022, rising from 3.2% in January to 7% in October.
“That’s the fastest increase in the mortgage rate that we’ve ever seen,” Wood said. “That really hurt the housing market.”
As an example, the mortgage payment on a median-priced home has increased 29% because of higher rates.
For 2023, mortgage rate forecasts vary from 5%-9%. Wood said he thinks rates will be between 6.5% and 7.5%.
What will happen with home prices and sales?
Rising interest rates have put downward pressure on home prices, which started falling in May — although year-over-year prices were still up in December for Weber, Davis and Morgan counties.
“We’ll probably see year-over price declines in the first and second quarter of 2023, but prices will begin to stabilize by the third and fourth quarter,” Wood said.
For the entire year, he expects prices will be about the same as 2022.
He is optimistic because there are very few desperate, unemployed sellers facing foreclosure.
“I don’t think we’re going to have prices go down when we have strong fundamentals, and we’re still growing demographically and economically,” Wood said.
However, 2023 will be tough for sales because there are many sellers who are waiting on the sidelines along with many buyers who have been priced out.
“Hang in there,” Wood said. “2024 will be better.”
While 2023 may present some challenges, there will also be opportunities. Buyers have regained negotiating power and no longer face intense competition. Meanwhile, sellers who price their homes correctly will still find interested buyers due to Utah’s housing shortage.
Whether you’re buying or selling in 2023, a local Realtor will help you navigate all the ins and outs of the changing market. To find a Northern Wasatch Realtor who serves your area, visit NWAOR.com.
Adam Speth is the 2023 president of the Northern Wasatch Association of Realtors.