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Property Management Blog

Market Updates for July 2022

July has officially arrived and has brought with it the high temperatures we have been lucky enough to avoid so far this year. Appropriately enough, we will be discussing a red hot rental market, a still warm but cooling real estate market, sizzling inflation, and other heat themed items in this month’s update. But first, the headlines.


Headlines


June Jobs Report - Today’s jobs report was a welcome surprise with employers adding 372,000 jobs against analyst expectations of 270,000. Additionally, the unemployment rate held firm at 3.6% indicating a robust labor market that is now only half a million jobs below pre-pandemic levels. The data shows a modest decline from May’s hiring activity, but is unlikely to prompt the Fed to dramatically change course. In other words, more interest rate hikes appear inevitable. 


Weekly Jobless Claims - Weekly jobless claims came in at 235,000 for the week ending July 2nd. New filings, which increased by 4,000 from the previous week, climbed to their hight level since January 2022. It’s important to remember that the Fed’s recent interest rate hikes are expected to have a cooing affect on the labor market as corporations from coast to coast announce hiring freezes and layoffs ahead of a possible recession. While a steep rise is not expected, it remains possible as the Fed looks to curb runaway inflation with it’s monetary policy while not doing major damage to the economy in the process.


Inflation Continues - Even though this month’s CPI report won’t be released until next week (June’s numbers are due on July 13th), we know that inflation is still a major problem for the economy. In fact, the PCE price index, another closely watched benchmark for inflation, showed consumer prices holding steady in May. Despite the most recent .75% rate hike in June, which makes a total of 150 basis points since the start of the the year, inflationary pressures have remained ever present and the Fed is expected to continue aggressively increasing rates until inflation shows signs of subsiding.


Utah’s Changing Real Estate Market


There is no doubt that locating viable housing options is difficult for Utahn’s these days. Whether buying or renting, challenges like high costs and low inventory are everywhere you look. There are multiple reasons for this, which we’ve covered in past updates, but this month we want to focus on the impact. What are both the short and long term consequences of these market factors at play? We will attempt to answer these questions and discuss some potential future outcomes for both landlords and tenants.


Say goodbye to the buying craze of 2021

The Utah real estate market is changing. Gone are days of multiple offers and single-digit days-on-market. As you’ll see in the real estate section below, despite solid sales figures, available listings are on the rise. As the inventory of available homes grows and demand is further stymied by rising borrowing costs, sellers must face a new reality. A ready, willing, and able buyer is becoming a hot commodity. This can only have one impact and that is a transition toward more of a buyers market, which means lower sales prices. Ultimately, we don’t know yet if prices will simply flatten or if significant declines are on the horizon, but be ready for the changing tides.


Homeownership will continue to fall

Following a near 10 year period of climbing homeownership rates, the U.S. has quickly turned back the clock. At the end of Q1, homeownership in America fell to 65.4%, well off the recent high of 68% (2020) and not that far above the all time low of 62.9% (2016 and 1960’s). When we look at mortgage application data, we get the same story with new applications hitting a 22-year low. This is no doubt caused by a combination of run away home values and rising borrowing costs, and with the Fed likely committed to further interest rate increases throughout the year, homeownership rates will likely fall further before turning around.


Rents will remain high

You don’t have to look very far to see headlines about soaring rental rates (here, here, and here). In fact, that narrative makes perfect sense when you follow the logical trail of breadcrumbs from rising interest rates eliminating potential buyers to those “buyers” being forced into renting as an alternative. An increasing pool of renters means more competition and that translates into higher prices as they compete over the available inventory. What might cause this to change? A flood of new inventory (not happening anytime soon with the current housing shortage in Utah) or reduced demand in the form of climbing homeownership (see above). For now, the trendline points toward rental rates continuing their ascent.


Homelessness will increase

This is by far the most devastating consequence of the current housing crunch. The same way rising interest rates are pushing buyers out of the market, spiraling rents and the end of federal COVID relief programs are pushing some would be renters into homelessness. According to the Utah Department of Workforce Services' Office of Homeless Services, the number of Utahn’s experiencing homelessness jumped 14% in 2021. That makes a total of 7,712 people or 1,000 more than we saw in 2020. This is all despite spending to fight homelessness climbing 600% since 2016. 


Utah Real Estate Market


Through the first 6 months of the year we saw interest rate increases of 0.25%, 0.50%, and 0.75%. It was only a matter of time before that 150 basis point climb was going to show up in the housing data. That time is now. The median sold price dropped 1.5% to $620,000 for single family homes in Davis, Salt Lake, and Utah counties while the average number of active listings jumped 54.6% month-over-month. As rising interest rates translate into higher borrowing costs, some buyers will naturally be priced out, and that appears to be what we are seeing. While the sold count remains flat over the past three months, inventory levels are starting to climb which will only serve to apply downward pressure on pricing. The next few months will be very telling as we await July’s CPI data and further action from the Fed. 


Median Sold Price*

June: $530,000

July: $530,608

August: $526,000

September: $537,500
 October: $535,000

November: $537,000

December: $559,000

January: $564,500

February: $577,000

March: $600,000

April: $613,000

May: $629,260

June: $620,000
 
 

Monthly Change: Down 1.5%
 Year Over Year: Up 16.9%

Sold Count*
 June: 2,273
 July: 2,074
 August: 2,206

September: 2,107
 October: 2,023

November: 1,957

December: 1,995

January: 1,177

February: 1,277

March: 1,740

April: 1,847

May: 1,897

June: 1,871
 
 

Monthly Change: Up 1.4%

Year Over Year: Down 17.7%

Average # of Active Listings*

June: 1,762

July: 2,422
 August: 2,295

September: 2,544
 October: 2,290

November: 1,695

December: 1,012

January: 957

February: 914

March: 1,102

April: 2,139

May: 3,054

June: 4,722
 
 

Monthly Change: Up 54.6%

Year Over Year: Up 168%


* all graphs/data are for single-family homes in Salt Lake, Utah, and Davis Counties. 


Industry Updates


Asking Rents Hit All Time High - Asking rents, or the rental price listed by landlords, hit an all time high in May. According to research from Redfin, we have officially eclipsed the $2,000/month mark with median monthly asking rent climbing 15.2% year-over-year, and 2% month-over-month. For context, just before the pandemic, median asking rents hovered near $1,600/month. That’s a steep climb in just over 2 years, and while experts predict that rent growth will slow throughout the year, affordability issues will remain a challenge for renters. 

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