When the bubble burst a decade ago, millions of Americans lost their homes. In the years that followed, home prices plummeted for six straight years and hit rock bottom in 2012. Here in Utah, home prices have recovered to pre-crash prices, adjusted for inflation. Nationally home prices are about one percent shy of the peak pre-bubble.
In Utah, experts say national numbers don’t matter; you have to look locally, because housing markets vary widely from area to area. Utah has a strong economy which means the housing outlook sits in a different place than any other state. In the last year, 15,000 new people have moved to the state in need of housing.
“The area I am worried about is the value of new home construction,” said Robert Spendlove, a senior economist for Zion’s Bank who keeps a close eye on Utah’s economy. Overall, he sees strength. Looking at the housing market and especially new home builds, he “wouldn't say people should wait- but they should be careful not to overbuild.”
His reticence comes from the possibility that interest rates could rise while families are waiting for their house to be built, pricing them over their allotted budget by the time they reach closing.
“The market will drop once interest rates start to go up. It will bring the prices of houses down," he said.
Spendlove believes the Federal Reserve will increase interest rates in the near future, making house prices pull back. He “expects home prices to back off as interest rates rise.”
But there are differing opinions on whether or not Utah is nearing a housing bubble.
Jim Wood, who’s studied Utah’s housing market for 40 years and is a senior fellow at the University of Utah’s Kem Gardner Policy Institute, “doesn’t see any sign of a bubble in the housing market, nor in new construction.”
He's watched housing in Utah since the early '70s and believes Utah’s prices will only keep increasing into 2017. While the increase will be about eight percent overall for 2016, he expects the increase to continue into the new year -- just not as fast. Wood tells people “don't wait for prices to go down. That's not going to happen in the short term.” He predicts next year’s prices to go up another five to six percent depending on where interest rates go.
A gradual rate hike, he said, won’t hurt Utah’s housing prices.
“I don't think it will force prices down unless they went up suddenly. If they go up gradually it will probably slow down the increase of housing prices," said Wood.
Some Utah builders say anecdotally a one percent increase would hurt them while slow quarter percent increases would not.
If you're in the market for a new house, Wood’s advice “would be to get into a home as soon as you can.”
Don’t refinance, he said, and pay off your mortgage as soon as you can.
If you are in the market for a new house, proceed with caution if you're offering on a home with multiple offers as it hits the market. Spendlove said “it is the sign of a very strong and maybe even a little overheated market.”
Only time will tell if Utah’s housing market will stay on its upward trajectory, but neither economist sees a big bubble that will burst and hit Utah families.
“The good thing about Utah is our economic fundamentals are strong and we have the fastest growing job market in the country.”
There is also a difference in the so called bubble effect this time around. The difference today is that rising prices are not being driven by bad mortgages. Price hikes are driven by a lack of homes for sale at a time while interest rates are still low. The big picture would indicate that a bubble in today’s market would not be anything like what was seen in every state in the nation in 2006.
The Federal Reserve met Tuesday to discuss a rate hike. An announcement is expected Wednesday. Most experts say a rate hike won’t come until December or possibly the spring.
Zion's Bank consumer index on housing
Zion’s Bank Consumer Index on housing points lower than its level 12 months ago. In comparison, the national Consumer Confidence Index® increased 5.6 points from May to June and currently sits at 98.0.
Home prices rose slightly both across the nation and in Utah in May. Utah’s home prices increased 1.3 percent from April to May, and have grown 7.5 percent since May 2015 Nationally, home prices increased 1.3 percent month over month and 5.9 percent year over year. National home prices for single-family homes, including distressed sales, are forecasted to rise by 0.8 percent in June 2016, and by 5.3 percent by May 2017.
Although home prices remain 7.2 percent below peak values recorded in May 2006, the U.S. has experienced 52 consecutive months of year-over-year increases, including distressed sales, indicating progress toward full recovery. A new peak level in home prices is expected to be reached in September 2017. In Utah, home prices are forecasted to increase 0.8 percent this month and 5.3 percent in the next year. According to a recent Associated Press analysis, renter costs are growing, and owner costs are dropping, further incentivizing potential homebuyers to enter the market. Housing prices can be expected to continue to rise as inventories struggle to keep up with buyer demand.