Report: Half of Utah families can't afford a mid-priced home

The “State of the State’s Housing Market” report, released recently by the Kem C. Gardner Policy Institute, shows that more than half of Utah’s households are now unable to afford the median-priced home. For renters, the path to ownership narrowed further. In 2019, approximately 63.1 percent of renter households were priced out of the median home price. In 2020, the share of renters priced out increased to 72.8 percent.

“Our research confirms that Utah is in the midst of a housing shortage, which occurs when the growth in households exceeds the growth in housing units, historically an uncommon condition in Utah,” said Dejan Eskic, senior research fellow at the Gardner Institute. “In addition, housing prices and affordability will likely be persistent themes for some time to come, but other issues are sure to arise, some unexpectedly like a global health crisis.”

Other key findings from the report include:

Despite record increases in prices, a housing bubble looks unlikely. In Utah, both brief and prolonged price declines have always been associated with job losses and recessions. Neither appears likely in the next two to three years. Furthermore, global and national financial conditions are much improved over the 2008-11 period.

The Utah housing market has a history of extreme price spikes. Home prices in Utah have a history of rapid acceleration. In the second quarter of 1994, the state led the country with an 18.3 percent increase in prices and led again in the second quarter of 2006 with a 17.2 percent increase. But both these price spikes pale in comparison with the 2021 second-quarter increase of 28.3 percent, which ranks second among all states.

Market conditions confirm Utah’s housing shortage. Market indicators confirm Utah’s housing shortage continues, whether measured by the gap between housing units and households or “on the ground” data, such as days on market, inventory of vacant unsold new homes and rental vacancy rates.

COVID-19 created unprecedented conditions in the housing market. COVID-19 disrupted the supply chain for building materials — 30 percent of construction materials are imported from China — and disrupted the availability of labor. On the demand side, the Federal Reserve distorted demand through lower interest rates and an extraordinary increase in liquidity via quantitative easing.

Price acceleration and production are expected to remain positive in 2022. After a record year of price acceleration and construction activity, 2022 will be dictated by mortgage rates, while demographic tailwinds are expected to keep housing demand robust for the rest of the decade. An average of eight different forecasts shows the 30-year mortgage rate at 3.1 percent in 2021 and climbing to 3.6 percent in 2022.