High Rates & Reluctant Home Owners

Things are changing fast this year!  In the first quarter of the year, the real estate market was hyper competitive as buyers chased the few homes that were for sale in an attempt to snag the last of the low interest rate mortgages.  Two of the homes I listed during that period had 20 and 23 offers on them, and the number of single family homes for sale in Salt Lake County were at record lows in a range of 230 to 358 homes.

Then in the second quarter we saw the market shift as the rate for a 30-year mortgage rose to 5% in April.  There were still multiple offer situations on some homes and robust buyer activity due to the backlog of buyers in the market, but fewer offers were being made and inventory of homes climbed dramatically from 385 homes for sale on April 6th to 1,502 homes on June 28th.

By the time we got to the third quarter, interest rates continued climbing and increased from an average rate of 5.3% on July 7th, to 6.02% on September 15th, and then all the way up to 7.08% by October 27th.

During this time, inventory of single family homes for sale flattened out in Salt Lake County and has been in the range of 1,600 to 1,900 homes for sale, but the number of homes under contract has declined to just 870 homes as of November 8th, compared to a range of 1,100 to 1,400 homes under contract from February 8th to September 13th of this year.

But here’s the thing, as much as the number of homes for sale has increased from earlier this year, there were still fewer homes actually listed for sale in the 3rd quarter of 2022 than there were in any third quarter in the last five years.  Inventory rose because buyer activity declined.

Part of buyer activity is the result of existing home owners who sell in order to buy another home.  The decline in housing affordability is causing many of these home owners to stay longer in their existing homes resulting in fewer homes for sale and fewer buyers.

According to Redfin and the Kem Gardner Institute at the University of Utah, 93% of home owners in Utah who have a mortgage have a rate under 5%, 75% have a rate under 4% and 31% have a rate below 3%.  That combined with the 30% of home owners in Utah that own their home free and clear is causing many home owners to stay put.

So high interest rates are simultaneously decreasing the number of sellers and buyers in our market.

Interest Rates:

Interest rates have been increasing as the Federal Reserve fights inflation.  The Fed raised rates by 3/4% again at their last Federal Open Market Committee (FOMC) meeting on November 2nd.  They have raised the overnight benchmark rate six times so far this year, with the last four increases in a row being 3/4%, something we’ve never seen before.

The benchmark rate is now in a range of 3.75% – 4.0%.  Fed Chairman Jerome Powell said they might slow the increases down if they think inflation is subsiding, but don’t be surprised if we see the benchmark rate at 4.5% to 4.75% in the coming months, which is only 3/4% higher than it is now.  Their goal is to get inflation back down to the annual target rate of 2%, without causing an increase in unemployment or a recession.

These increases to the federal funds rate come at a time when quantitative easing, the purchase of mortgage backed securities (MBS) by the federal government, is no longer happening.  The last purchase of MBS by the Federal Reserve was back on March 9, 2022.  It had been going on since the beginning of the COVID-19 pandemic.

When the Federal Reserve buys Mortgage Backed Securities, it’s like pumping money into the economy because it frees up private sector money to be lent elsewhere and keeps rates low.  This had been another contributing factor to high inflation.


We had some positive news about inflation last week, with the October Consumer Price Index (CPI) coming in at 7.7%.  This was lower than the forecasted expectation of 8.0%.  It was also the fourth month in a row that inflation declined and the lowest it’s been since January 2022.

Hopefully the downward trend for inflation continues.  We’ll know that on Tuesday morning December 13th when November CPI is released.  The timing of this release will be highly anticipated because the next meeting for the FOMC (Fed) is scheduled for December 13th and 14th.

Let’s hope we get the gift of good news and they don’t raise rates further!

Looking Forward:

The diminished buyer activity level we’re seeing now is an affordability issue, but the potential buyers are still there and will make a move once they can afford it again, and after a period of low buyer activity, there will be a lot of of people that want to get into their first home or a different home if they have been waiting for the opportunity to make a move.

If 30-year mortgage rates stay at or above 7%, we can expect the same trend we’re seeing now with fewer homes under contract and current home owners only making a move if they really have to.

If 30-year mortgage rates go back down into the 5% range, I think that buyer activity would increase again because 5% rates will seem low after rates at or above 7%, and the number of homes under contract in Salt Lake County greatly declined once rates rose above 6%.

If I was considering buying or selling, I’d be keeping in touch with my Realtor and lender and keeping a finger on the pulse of the market.  If and when conditions become more favorable again, you’re going to want to see it coming.  Hopefully, we’ll see rates go back down in 2023!

If you have any questions about buying or selling residential real estate in or around Salt Lake, wonder what your home is worth, or know someone that needs help buying or selling, please contact me.  Over 90% of the people I help are repeat customers and referrals from the people I know.  I love what I do, and I can’t do it without you!😊

Thank you!



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