Why is Housing Inventory so Low?

Tuesday March 8, 2016:

Housing inventory in Salt Lake County is incredibly low right now with more homes, condos and townhomes under contract than there are for sale.  As of today the Wasatch Front Regional Multiple Listing Service (MLS) shows that there are 1,683 single homes for sale and 1,785 under contract.  It also shows that there are 566 condos and townhomes for sale and 628 under contract.  This is all homes, condos and townhomes in Salt Lake County at any price.  If you look at single family homes priced at $300,000 or less, there are 461 homes for sale and 962 under contract.

This puts our current inventory levels at about 30 days for all homes and condos, and at about 2 weeks for single family homes under $300,000.  In the 17 years I’ve been a Realtor in SLC, I’ve never seen housing inventory as low as it is now.  So why is housing inventory so low?

Part of it is the robust home sales that we experienced during 2015.  The number of single family homes sold in Salt Lake County in 2015 compared to 2014 increased 15.1% from 11,632 in 2014 to 13,387 in 2015.  The last time more single family homes were sold than in 2015 was in 2006 when 14,878 homes were sold.  During 2008, 2009 and 2010, only 8,500 to 9,000 homes were sold per year.  The number of condos and townhomes sold in Salt Lake County in 2015 compared to 2014 increased 27.3% from 2,917 in 2014 to 3,713 in 2015.  As a result, we ended the 4th quarter of 2015 with super low inventory.

Our population is growing fast.  It’s estimated that the population of Utah just reached 3 million people at the end of 2015.  That’s up 8.7% from the 2.76 million people counted in the 2010 census and up 34% from the 2.23 million people in the 2000 census.  Utah’s annual population growth rate since the great recession ended has been reported at 1.4% to 1.7% annually making it one of the fastest growing states in the nation.  To put that in perspective, the USA is growing at 0.7% annually.  Utah was ranked the fourth fastest growing state in 2013 and second fastest in 2014.  The state legislature has reported that 56.5% of the states growth from 2010 to 2030 will be in Salt Lake and Utah County.

Utah has one of the most robust economies in the nation.  It’s estimated that the state of Utah’s job growth rate was 3.7% in 2015, the highest rate in the nation.  Most of these jobs are in Salt Lake and Utah County.  Also, unemployment in Salt Lake County was at 2.8% as of December 2015.  With a strong economy come more qualified home buyers and more demand for homes for sale.

Sustained historically low interest rates are also playing a factor.  The 30-year mortgage rate dropped below 4.5% at the end of the 2nd quarter 2011 which was six months before our local real estate market started it’s recovery.  Since then there have been three periods of significant increasing home values.  The people that bought a home during this time or during the recession, are now living in homes they bought at lower prices with historically low mortgage rates.  Unless they really need to, most of them are not moving or selling.

Low interest rates also apply to investment properties.  Many investors purchased single family homes, at lower prices with low rate financing.  According to Cushman and Wakefield Commercial Real Estate, the rental market in Salt Lake is the strongest it’s been since 2001, prior to the 2002 Winter Olympics games.  Vacancy rates were at 2.7% in the summer of 2015 and rents increased by 5% from 2014.  The report goes on to say that the number of rental property transactions were down 25% in summer 2015 from summer 2014 and down 55% in summer 2015 compared to summer 2013 due to the lack of willing sellers.  There’s a definite buy and hold mentality going on here.

Many institutional investors (hedge funds) bought up residential properties toward the end of the recession and since then.  According to Realty Trac, 4.05% of all Salt Lake County single family home sales were to institutional investors during 2012 and from 2012 to 2014, institutional investors purchased 2,393 homes in Salt Lake County.  This is not a big portion of the 272,000+ home in Salt Lake County, it’s just under 1%, but the homes the hedge funds bought had an average price of $175,350.  Homes in this price range make great rental properties and great homes for first time buyers if they weren’t already rented.

Individual investors and small investor groups have bought and held too.  I have one individual investor that I have sold seven single family homes and a duplex to over the last eight years.  They buy, remodel, rent and then hold their properties.

Many people are holding onto their property in Salt Lake County because they think the value will continue to rise.  Just like a winning stock, why sell and leave money on the table if you expect your investment will continue to perform.  Also, there aren’t many investments that are providing as high a return that people feel are as safe as a rental house in Salt Lake.  The stock market, oil, natural resources and parts of the global economy, including China, have been very volatile during the last year.

2016 is an election year and many people I talk to are feeling uncertain because of the mix of candidates running for president, and the uncertainty that exist about who will be elected and how that will effect our country and economy.  It’ll be interesting to see how this effect the second half of 2016.

We are coming into the spring home selling season right now, which typically starts to heat up in early March around daylight savings time, which happens to be this Sunday March 13th.  This year, there are already multiple offers happening.  Over the last two weeks I helped put a home under contract for a buyer and another for a seller.  Both properties had three offers.  I’m hearing from colleagues of negotiations taking place with even more offers than that.

So what does this mean for home buyers and sellers in Salt Lake County?  First of all, if you want to sell a property, it’s a seller’s market and I expect home values will rise in our area for at least the next couple months.

If you want to sell your existing home in order to buy another home, the process will likely be challenging on the purchase end because most sellers will be getting multiple offers and they will want the strongest buyer that they can find.  An offer that’s contingent upon selling a buyer’s existing home will probably not be their strongest offer.  However, if you’re moving up to a home priced higher than $600,000, this price range isn’t moving as fast and a seller might consider an offer contingent upon the sale of the buyer’s home if they don’t get multiple offers.

If you qualify to purchase your new home without selling your existing home, that approach will work much better this spring.  A seller taking this approach is often concerned about making two payments, but keep in mind that when you buy your new home, you skip a month until your first payment is due.  So if you closed on April 15th, your first payment wouldn’t be due until June 1st.  With homes selling with multiple offers, you can list your home for sale after you have your new home under contract and sell it quickly, assuming it’s in a price range that’s getting multiple offers.

Another option if you can’t buy a home before you sell your existing home would be to put your home up for sale and find a buyer that would be willing to rent your home back to you after the close.  If you find a cash buyer, the rent back can be for as long as the cash buyer agrees to rent the home back to you.  However, if the buyer has a loan, lenders only allow up to 60 days before they require a buyer to take occupancy on an owner occupied loan, so there is a time frame for short term rent backs if your buyer has a loan, and if you don’t find a home in that time frame, you’ll need to find temporary housing.

Some home owners plan to keep their existing home and rent it.  If this is an option you are considering, you should talk to a lender about this approach.  Fannie Mae and Freddie Mac have specific rules about this and most of the time, the home owner will need to be able to afford the new home without the rent from the existing home.

All home buyers, whether they own a home or not, will want to get pre-approved for a loan at the beginning of their home search.  Buyers with conventional financing are almost always considered stronger than buyers with FHA financing, so if you can qualify for conventional financing that would be best.  FHA loans require an FHA inspection as part of the appraisal, and FHA appraisals stick with a property for many months, so if they come in too low, that’s not just a one time problem.  Obviously cash buyers are considered the strongest all other things being equal.

Once pre-approved for a loan, buyers will want to start by looking at all the existing homes for sale that fall in their range.  This won’t take very long due to the low inventory in most areas and price ranges at this time.  Then it’s time to start chasing the new inventory and homes that fall out of contract.  It’s best to be on an automatic hot sheet set up by your Realtor so you’re going to seeing the new listings the day they come on the market.

Also, if you use Zillow or Trulia to search online for homes, keep in mind that the status of homes listed for sale on those web sites are manually updated by Realtors and their brokerages, and therefore aren’t always accurate because they aren’t automatically updated from the Wasatch Front Regional MLS.  A home may be listed for sale on Zillow when it’s actually under contract because the status wasn’t updated.  Utahrealestate.com is the public side of the MLS and is accurate and so is my web site, SLCHomeBuyer.com, which is updated automatically from the WFR MLS.

If you have any questions about buying or selling real estate in and around Salt Lake County or wonder what your home is worth, please contact me.  Ninety percent of my business comes from friend, clients I’ve worked with before and referrals.

Thank you!

Kevin Coyle
Realtor  Broker  MBA  CRS
SLC Homes
M: (801) 243-0699


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