Have Utah home prices bottomed out?Mar 30, 2023 08:58AM ● By Robert Spendlove
As we enter the popular spring homebuying season, Utah’s housing market looks very different than it did a year ago. In spring 2022, the Beehive State’s home prices had experienced record growth, shooting up nearly 30% from the previous year. As of February 2023, home prices had fallen 7.6% annually, according to the latest data available from the Utah Association of Realtors.
In May 2022, Utah’s median home price peaked at $535,050. In February 2023, the state’s median home price was at $464,000.
What precipitated this change was a series of interest rate hikes aimed at taming inflation, including housing inflation. From March 2022 through March 2023, the Federal Reserve raised rates nine times. The Federal Funds Rate, which is indirectly tied to the mortgage rate, marched up from 0.25% to 5%, propelling the 30-year fixed mortgage to increase from around 4.5% to the 6-7% range.
A goal of these interest rate increases has been to soften demand for housing and bring down housing inflation, preventing the kind of boom and bust that occurred 15 years ago when housing prices jumped and then crashed, adding to the pain of the Great Recession of 2008-2009. It seems to be working.
As higher mortgage rates cut into home affordability, fewer prospective buyers entered the Utah housing market. Homes stayed on the market longer, prompting some sellers to drop their asking price or accept lower offers. The Utah Association of Realtors reports a 99% increase in the number of homes for sale and a 22% decline in home sales from February 2022 to February 2023.
Rising interest rates have also slowed new home construction. Homebuilders obtained 3,419 housing building permits for Utah in January 2022, compared to only 1,776 building permits in January 2023, according to the U.S. Department of Housing and Urban Development.
The question many are asking is whether Utah home prices have hit the proverbial floor. The slowing inflation we’ve seen over the last eight months could mean home prices are headed back up. The state’s median home price rose slightly from January to February, from $455,000 to $464,000, but it’s too soon to tell if this trend will continue. If price pressures continue to ease, the Fed will be able to back off aggressive rate hikes, helping mortgage rates stabilize.
Utah’s strong population growth has helped sustain housing demand through the period of rising rates. Even with the market cooling, the state continues to face a housing shortage, which could be exacerbated by the deceleration in homebuilding.
Despite these challenges, the Beehive State’s housing market and economy remains strong. Utah's February 2023 unemployment rate was 2.4%, compared to the U.S. rate of 3.6%. And the state’s total employment increased by 2.8%, or 46,000 jobs over the last year. The Beehive State’s economy continues to show resilience and strength through market shifts.
Robert Spendlove is senior economist for Zions Bank, a division of Zions Bancorporation, N.A