Happy Friday the 13th! With temperatures slowly creeping upward and a wave of new leases being signed, it’s finally starting to feel like summer. In this month’s update, we highlight a near record high in the percentage of rent collected, outline a few fair housing do’s and don’ts, and discuss the likely impact of rising interest rates on the real estate market. But first, headlines.
April Jobs Report - U.S. Employers added 428,000 jobs in April, the same figure we saw in March, and the unemployment rate held steady at 3.6%. Last Friday’s report represents the 16th consecutive month of job growth and the 12th where we exceeded 400,000 jobs added. While we remain approximately 1.2 million jobs sort of our pre-Covid numbers, we have almost fully recovered. Also, while this report lacks the big numbers we’ve seen previously, it paints the picture of a strong and still growing American labor market.
Weekly Jobless Claims - The number of Americans filing claims for new unemployment benefits jumped to a near 3-month high. According to the department of labor’s weekly release, 203,000 people filed for unemployment benefits in the week ending May 7th. This figure was slightly above analyst expectations of 195,000, but does not change the overall picture of a tight labor market. Continuing claims, or the total number of those receiving benefits for multiple weeks, came in a 1.343 million - the lowest level recorded since January of 1970. Locally, Utah saw a 3.3% increase in filers for a total of 1,460.
Fed Hikes Interest Rates Again - Last Wednesday, the central bank raised interest rates by a half percentage point. The move, which was widely expected, marked the first time in 22 years that the federal reserve has initiated a 50 basis point increase. The reason for this drastic increase? Only The highest inflation we’ve seen in 40-years. The Fed’s preferred metric for tracking inflation is the Personal Consumptions Expenditures price index or PCE, and when measured at the end of April showed a 6.6% year-over-year increase.
How will Housing Prices Respond to Rising Interest Rates?
Inflation is easy to understand because it’s right in front of us. We can see it in the form of higher prices at the gas pump, the grocery store, or anywhere else we reach for our wallets. What’s harder to grasp is how it’s effects ripple through the broader economy and impact certain segments such as housing.
The price of housing is clearly tied to the availability and affordability of money as very few people are able to purchase a home without first obtaining a mortgage. How much that mortgage will cost is tied to interest rates and those are dictated by the federal reserve who will raise or lower them in an effort to maintain a stable economy and financial system. At present, the American economy is experiencing inflation at levels we haven’t seen since the early 1980’s and the Fed’s response has been to aggressively increase interest rates. The desired impact of higher borrowing costs is that consumers will typically spend less and that will reduce inflation. Conversely, when money is cheap, those lower interest rates typically lift housing prices - which is exactly what we’ve seen over the past several years.
Okay, so this is simple. Home prices have been increasing rapidly recently, the fed is stepping in to increase borrowing costs, that will crater demand, so we are looking at a 2008 level crash in our near future? The smart move must be to sell now, and then buy back into the market when prices cone down, right? Not so fast. We forget that the crash of 2008 was largely a story about housing demand being fueled by the availability of subprime lending products while the demand for housing that we see today is based on a housing shortage born from that very crash. In other words, when you essentially stop building homes for a decade, refuse to increase density in suburban areas, and have low borrowing costs, you get a housing market that’s out of equilibrium.
What happens next isn’t known, and no one can predict the impact of unforeseen events (ahem…COVID 19 anyone), but many economists and real estate professionals believe that rising interest rates will slow, but not stop, the climb in housing prices. It’s certainly possible that some severely overheated markets could see declines in value, but it’s also possible that the Fed’s measures will simply bring home price increases back in line with their historical averages. You can read more about bull and bear market cases for where housing prices are headed at the links below:
Utah Real Estate Market
“The median sold price for a single family home in Salt Lake, Davis and Utah Counties hit a fresh record high last month”. That is a line we could have copied and pasted 11 times in the past 12 months. This time, that record high reached $613,000 which represents a 22.6% year over year increase. Also, the spring selling season is in full swing with sold transactions jumping 6.0% month-over-month and the average number of active listings nearly doubling since March. This crazy pace of home price increases has placed three Utah cities on the “most overvalued” list (Ogden, SLC, and Provo) according to a recent study from Florida Atlantic University. The craziest part? Experts predict further increases for Utah home values in 2022.
Median Sold Price*
Monthly Change: Up 2.2%
Monthly Change: Up 6.1%
Year Over Year: Down 6.0%
Average # of Active Listings*
Monthly Change: Up 94.1%
Year Over Year: Up 50.4%
* all graphs/data are for single family homes in Salt Lake, Utah and Davis Counties.
Rent Growth Hits Record High - According to research conducted by industry software giant Yardi, rent growth hit a record high in Q1. Both single and multi-family rents increased in the first quarter of 2022, to an average of $1,999 and $1,642 respectively. While these increases are notable, the trendlines are pointing in the opposite direction with the report stating: “The big picture that emerges from March multifamily data is that the market remains healthy, though signs point to the inevitable deceleration in some markets. Meanwhile, economic conditions and global events contain headwinds that justify the expectations of moderation and caution.”
Fair Housing Advertising - Many landlords are unaware of just how easy it is to inadvertently violate fair housing laws when advertising a rental property. Some violations, like stating a preference for a particular ethnic or religious group is obvious, but other potential violations such as lacking sufficient diversity in your advertising photos are more subtle. This article takes a look at where the line is drawn between making statements like “Merry Christmas” in your advertising verses outlining a preference for a “Christian Roommate” for example.