As we step into the month of July, the real estate landscape continues to captivate our attention. Contrary to predictions of a housing market crash, the Utah real estate market has exhibited remarkable resilience this spring, despite near 7% mortgage rates. In this month’s update we will highlight weakening in the jobs market, falling inflation, a pause in interest rate hikes, and explore stability in the real estate sales market and a decline in rental rates.
June Jobs Report - In June, nonfarm payrolls increased by 209,000, falling well short of analyst expectations of 240,000 jobs added and marking the slowest month for job creation since December 2020. The unemployment rate declined by 0.1% to 3.6% and average hourly earnings rose by 0.4% for the month and 4.4% from a year ago. With nearly 100,000 fewer jobs created than in the previous month, we might finally be seeing the labor market slowdown the Fed has been begging for. Despite a pause in rate hikes at the last meeting, Federal Reserve officials still anticipate future interest rate hikes to address inflation concerns.
Weekly Jobless Claims - In the week ending July 8th, the number of Americans filing for unemployment benefits declined by 12,000 to 237,000, against expectations of 250,000. Continuing claims slightly rose by 11,000, but remained near a four-month low from June's end, suggesting potential improvement in job opportunities. This report seemingly conflicts with the June jobs report, and may indicate a tighter labor market than the Fed is hoping for, raising the likelihood of another rate hike. In Utah, we saw 1,598 new filers, marking a 6.6% increase from the prior week.
Consumer Price Index - Inflation in the US fell to its lowest annual rate in over two years in June. The consumer price index (CPI) increased by 3% from a year ago, the lowest level since March 2021. The core CPI, which excludes volatile food and energy prices, rose 4.8% annually and 0.2% monthly. The Federal Reserve sees progress in curbing inflation but still focuses on core inflation, which remains above the 2% target. Wall Street reacted positively to the report, with speculation of a quarter percentage point rate hike by the Fed. All in all, this is good news because it means inflation is trending in the right direction, and if this momentum continues, hopefully it will mean the end of rate increases.
Fed Meeting - The Federal Reserve skipped a rate increase in their last meeting, but signaled that some further rate increases will be appropriate this year to reduce inflation that is still double its 2% goal. The Fed Chair Jerome Powell said he expects inflation to come down as shelter costs moderate, but also acknowledged the resilient job market and the sticky core inflation. The Fed also noted the headwinds from tighter credit conditions for households and businesses, which could affect economic activity and inflation. The Fed’s future policy moves will depend on many of the reports released this week, and we won’t have to wait long to find out if the next meeting is scheduled for July 25-26.
US Rental Market Sees First Annual Decline in Three Years
Renters in the United States can find some relief as the national median rent experienced an annual decline for the first time in three years. The decrease in rents, combined with cooling inflation and a strong job market, provides a positive outlook for households who rent, but also showcases a new reality for landlords who’ve enjoyed double digit rent increases over the past several years.
Trends in Utah’s Rental Market: First, the good news. In June, every submarket we track showed rent increases between 21.3% (Salt Lake City) to 30.2% (Murray) since March of 2020. Simply put, that is stellar rent growth over any 3+ year period and landlords have certainly enjoyed the ride. However, the game is changing. The meteoric rise in rents that occurred since the beginning of the pandemic has given way to an inevitable correction. Each of those same submarkets shows year-over-year declines ranging from 0.8% (South Jordan) to 2.7% (Salt Lake City). Not only has the rent increase party stopped, but it has actually reversed course over the past 12 months leaving landlords in an unfamiliar position. This new reality, not only necessitates a change in perspective but also a change in strategy. Gone are the days of simply throwing a property online at an unbelievably high rental rate and expecting a flood of applications. Landlords with a vacancy in today’s market must be far more aggressive with their pricing strategy and that means adjusting rent, increasing expectations and even offering concessions to land a good tenant.
Factors Influencing Rental Prices: The surge in rental prices during 2021 and the first half of last year was driven by factors such as the return of individuals to urban areas for in-person work and school. Aspiring homeowners turned to renting due to affordability challenges in the housing market, which further contributed to rising rents. While the affordability issues have not dissipated in the face of sky high interest rates and only a modest reduction in local home values, buyers and renters alike are choosing to stay put until conditions are more favorable. Exacerbating this problem is the thousands of new units that have come online nationally in the past year as markets try to keep up with housing demand. In fact, there are now more multi-family units under construction than at any point since 1970.
Regional Variations and Projections: Rent trends vary across regions with nearly half of the country moving in opposite directions. Of the 100 largest metros, 57 showed year-over-year declines so it’s not just Utah. Meanwhile national vacancy rates have been climbing for over a year and now sit at 7.2%. There is good news though. For the first time in months, local rents are starting to stabilize month-over-month. This isn’t to say that Utah landlords can expect anywhere near the rent growth they saw in the last few years moving forward, but the worst is probably behind us.
Looking ahead, rental prices are expected to continue softening nationwide throughout the remainder of this year and into the next. The anticipated surge in supply, driven by ongoing multifamily construction activity, will contribute to the decline in rents. However, it may take some time for these changes to be reflected in national inflation gauges, such as the Consumer Price Index, as rental data collection and lease adjustments have inherent lags.
Utah Real Estate Market
Contrary to predictions of a housing market crash, including national forecasts from economists like Jeremy Siegel and Mark Zandi, the Utah real estate market has shown resilience. While these experts anticipated significant declines in home prices ranging from 5% to 20%, recent data indicates that home prices in Utah have not experienced a crash and are rebounding from minimal depreciation. This tracks as the median sold price for a single family home in Salt Lake, Utah, and Davis Counties is only 6.2% lower year-over-year, and has been climbing since January. During that time, values are up nearly 10%. The number of homes sold has also been steadily climbing since January but is still off by nearly 20% year-over-year. Additionally, high interest rates seem to be discouraging buyers as the average number of active listings is significantly higher over both time horizons. Hopefully, cooling inflation will bring us interest rate relief and spur demand.
Median Sold Price*
Average # of Listings*
Monthly Change: Up 0.8%
Monthly Change: Up 0.3%
Year Over Year: Down 19.8%
Monthly Change: Up 15.6%
Year Over Year: Up 31.7%
* all graphs/data are for single-family homes in Salt Lake, Utah, and Davis Counties.
The national rental market is showing signs of weakness in a majority of metros, but locally, we are seeing signs that the worst may be behind us. While it's true that all submarkets are in the red year-over-year, 71% showed rent growth month-over-month. Yes, it’s the summer leasing season so we would expect higher demand and 60% of those climbs were essentially flat, but they weren’t negative and 57% of our markets are within 2% of where rents stood last summer. Considering the headwinds, that’s not too shabby.
Month Over Month
Year Over Year
North Salt Lake
Salt Lake City
*Rental data provided by apartment list.
More homes on the way. A new report reveals significant growth in the build-to-rent (BTR) sector. In 2022, there were over 14,500 new BTR homes completed, a 47% increase compared to 2021. Additionally, there are currently around 45,000 BTR homes under construction. BTR completions have been steadily rising, with over 9,900 in 2021, approximately 7,500 in 2020, and over 6,600 in 2019. During the pandemic, BTR completions experienced a notable increase after remaining relatively flat from 2016 to 2019. The average size of BTR homes also increased by 2.6% to 1,361 square feet in 2022. Dallas had the highest number of BTR home completions in 2022, followed by Phoenix and Atlanta, with Phoenix leading in BTR completions over the past five years.
New inspection standards for public housing. The U.S. Department of Housing and Urban Development (HUD) has introduced the National Standards for the Physical Inspection of Real Estate (NSPIRE) to replace existing standards for HUD housing programs. The NSPIRE standards were implemented on July 1 for public housing and will be effective from October 1 for other HUD-assisted housing. HUD published detailed inspection standards on June 22, 2023, including criteria for deficiencies, scoring impact, and correction timelines. The NSPIRE standards will be updated every three years with public input and include provisions for addressing severe deficiencies, aligning with fire safety codes, addressing infestation and mold issues, and assessing potential lead-based paint hazards in units with young children.