No Bubble to Burst
Across the board, 2022 was a strong year for home sales. Salt Lake saw year-over-year growth in home prices, as has been the case for the past few years since the onset of the pandemic. However, this upward move decelerated in 2022, and there’s reason to believe home prices will stagnate or even slightly decline over 2023.
This is a result of a number of factors, chiefly elevated home prices due to excessive demand. Even though recent quarterly numbers for Salt Lake don’t show the same type of growth, sellers should feel encouraged that their homes have still significantly increased in value in just a short period of time.
With home prices inching seemingly higher and higher, it’s easy to believe that the bubble will burst soon and result in plummeting prices. But one thing’s for sure, this time is no 2008. Unlike the previous housing crisis, there’s no bubble because there aren’t nearly as many homes on the market, and lenders aren’t nearly as generous with handing out loans.
Many of the homes sold in the past few years were purchased by cash buyers who were able to pay for their homes sans a mortgage. Furthermore, rates were comparatively low for those buyers who did take out loans to finance their homes. The mortgage delinquency rate is low enough that there won’t be a plethora of foreclosed homes up for grabs in Salt Lake. Buyers waiting for a glut of discounted homes to hit the market as they did 15 years ago are going to be disappointed in 2023.
Up Then Down for Interest Rates
Throughout 2022, interest rates seemed to be on a roller coaster that only went up.
And if 2023 is any indication so far, the Fed isn’t letting us off this ride any time soon. The federal funds rate was increased by 25 basis points on February 1st. This marks the smallest hike the Fed has enacted since March of 2022, but it’s nonetheless still an increase that will have knock-on effects on mortgage rates.
Although the Federal Reserve doesn’t have a direct influence on mortgage rates—the Fed Funds rate they control is completely different—changes to the Fed Funds rate does indirectly impact mortgage rates by causing investors in the secondary mortgage market to make predictive changes.
Rates have fallen since their peak in late 2022 and, with the new rate hike on February 1st, mortgage rates actually fell as investors welcomed the smaller hike and signs that inflation is beginning to curb.
Many housing experts believe that rates will stabilize below 6% in 2023. This presents an opportunity for those potential buyers who have been waiting to purchase until rates stopped climbing.
Inventory Woes Persist
Considerably fewer homes were sold in 2022 than in the preceding years. This trend is set to continue thanks to the good old laws of supply and demand. Housing inventory in Salt Lake is falling and has been for quite some time. It’s still early 2023, and the number of available homes in Salt Lake is down by approximately 30% from the 2022 high.
There are a few reasons why supply remains low. Some sellers may be disheartened that they missed out on the great bidding wars of the 2020s, where homes sold for well above the asking price to extremely motivated buyers in the wake of the pandemic housing market. The smaller gains that have become standard as the pandemic fades from view could be spurring hesitancy to sell.
New construction also has not kept up with demand, and it’s not clear when — or if — the available supply of homes will catch up. Salt Lake remains a highly desirable area, yet fewer and fewer homes have been hitting the market. People disproportionately flocked to Salt Lake and the West in general during the pandemic-induced population migration, so it’s no wonder that the supply of available homes remains low.
Paradoxically, homes for sale across Salt Lake are spending longer on the market than they have in recent years. This low inventory coupled with increased time on the market is just another sign that this housing cycle has a noted disregard for the conventional rules.
Make Way for a Mixed Market
Even so, this sideways market that 2023 is shaping up to present opportunities for both sellers and buyers. Current Salt Lake homeowners looking to sell should aim to do so in the spring and summer months. Historically, this is the best time to sell since it’s more convenient for buyers with school-aged children, and the longer days give more people time to hunt for their next home.
Buyers looking to jump in will be able to take advantage of lower mortgage rates. Home prices are also projected to fall later in the year, so potential buyers may luck out and get their Salt Lake dream home at a bargain later in 2023.