Over the last few months, and for the first time in a couple years, we have had more homes for sale than under contract in Salt Lake County. Some homes are still selling in a weekend, but there are few multiple offer situations happening and many homes are requiring more time and price reductions to attract an offer.
Buyers have time to look around, and instead of offering on many homes just to get one, they can wait for a home that checks most or all of their boxes, and have a high likelihood of getting it.
Personally I feel like we are back to a normal market, and yes, prices have come down some, even though the second quarter numbers didn’t show that, but I don’t believe this is a precursor to a crash, I think it’s a much needed correction after two years of record appreciation.
The cause of the increasing housing inventory is increasing interest rates as a result of high inflation and wages that haven’t kept up. So let’s start by taking a look at inventory of single family homes in Salt Lake County over the last year and see how that coincides with increasing rates.
The table below shows inventory of single family homes for sale and under contract in Salt Lake County for the first Tuesday of the month over the last year and weekly for the last five weeks.
|Salt Lake County Single Family Home Inventory
Last year at this time there were 2 to 3 weeks of inventory when you compare the number of homes for sale to under contract, and that inventory level lasted until Halloween. Then during the holidays, inventory dropped and we started 2022 with about one week of inventory and stayed at that level until late March of this year.
You can see on the graph below from Freddie Mac, that mortgage rates were increasing from the beginning of 2022, and the 30-year rate hit 4% by mid March and 5% by mid April.
As the 30-year mortgage rate rose above 5% in April, inventory started to climb. By May it was up to 2 to 3 weeks and by June there were 3 to 4 weeks, as the 30-year rate rose above 5.75%.
By mid July inventory reached 6 to 7 weeks and since then we have leveled out over the last month.
From July 19th to August 16th, the number of single family homes for sale has been in the range of 1,730 to 1,772 and the number under contract has been from 1,166 to 1,201.
Since early July, the 30-year mortgage rate has been in the 5.0% to 5.3% range and I’ve seen buyers who have locked their 30-year rates as low as 4.75%.
In a traditional market, housing inventory typically increases after Memorial Day and into the summer, so we’re probably seeing some inventory as a result of that, but there is definitely more than a seasonal fluctuation going on this year, and the increase in interest rates and inflation are playing a big role.
I mentioned earlier that I think this is a correction and not a crash. The graph below shows the number of single family homes listed and sold in Salt Lake County during the 2nd quarter from 2002 to 2022.
When the real estate market crashed in 2008, inventory was high and there were a lot of low credit buyers who had purchased their home with sub-prime loans, with little to no money down.
This time around nearly all home owners have skin in the game, a ton of equity in their homes and low interest rates mortgages, at a time of record low unemployment, so the risk of foreclosure is low.
So where are we heading from here? The experts are predicting that 30-year mortgage rates will be in the low 5% to 7% range by the end of the year.
The increase in principal and interest on a 30-year mortgage goes up by 28% when the rate goes from 3% to 5%. That increase is 43% when the rate goes from 3% to 6% and 58% when it goes to 7%.
From what we’ve seen over the last few months, I think if the 30-year rate stays close to 5%, we’ll see a flat market this fall and winter, but if rates continue to climb to 7% and stay there, inventory of homes for sale will further increase and home prices will decline.
If I were selling my house in the next six months, I’d be getting it on the market sooner than later to avoid the risk of rates going to 7%. The second half of the year in a traditional market is usually softer than the first half, and with the risk of higher interest rates, why not get ahead of it?
If I was a buyer, I’d start looking now so I could make an educated decision when I came across the right house at the right price. With rents as high as they are and the overall cumulative housing shortage still at 31,000 units in Utah, this could be a buying opportunity.
If you or someone you know has any questions about buying or selling real estate or if you’re wondering what your home is worth, I’d love to hear from you!
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