More Than Half of Utah’s Households Unable to Afford Median Home Price, Report Shows

The State of the State’s Housing Market report, released last week by the Gardner Policy Institute, shows that more than half of Utah’s households are now unable to afford the median-home priced home in 2021. For renters, the path to ownership narrowed further. In 2019, approximately 63.1% of renter households were priced out of the median home price. In 2020, the share of renters priced out increased to 72.8%.

“Our research confirms that Utah is in the midst of a housing shortage, which occurs when the growth in households exceeds the growth in housing units, historically an uncommon condition in Utah.” said Dejan Eskic, Senior Research Fellow at the Gardner Institute. “In addition, housing prices and affordability will likely be persistent themes for some time to come, but other issues are sure to arise, some unexpectedly like a global health crisis.”

Other key findings from the report include the following:

Despite record increases in prices, a housing bubble looks unlikely—In Utah, both brief and prolonged price declines have always been associated with job losses and recessions. Neither appears likely in the next two to three years. Furthermore, global and national financial conditions are much improved over the 2008–2011 period.

The Utah housing market has a history of extreme price spikes—Home prices in Utah have a history of rapid acceleration. In the second quarter of 1994, the state led the country with an 18.3% increase in prices, and led again in the second quarter of 2006 with a 17.2% increase. But both these price spikes pale in comparison with the 2021 second-quarter increase of 28.3%, which ranks second among all states.

Market conditions confirm Utah’s housing shortage— Market indicators confirm Utah’s housing shortage continues, whether measured by the gap between housing units and households or “on the ground” data, such as days on market, inventory of vacant unsold new homes, and rental vacancy rates.

COVID-19 created unprecedented conditions in the housing market—COVID-19 disrupted the supply chain for building materials—30% of construction materials are imported from China—and disrupted the availability of labor. On the demand side, the Federal Reserve distorted demand through lower interest rates and an extraordinary increase in liquidity via quantitative easing. These policies triggered high rates of demand, which in turn pushed up housing prices to record-breaking levels.

Price acceleration and production are expected to remain positive in 2022—After a record year of price acceleration and construction activity, 2022 will be dictated by mortgage rates, while demographic tailwinds are expected to keep housing demand robust for the rest of the decade. An average of eight different forecasts shows the 30-year mortgage rate at 3.1% in 2021 and climbing to 3.6% in 2022. While this isn’t a dramatic rise in rates, it is expected to impact affordability and bring price acceleration in Utah to single-digit growth.

The inaugural edition of the report marks the beginning of an annual fall publication by the Gardner Institute, which will examine the most pertinent housing market issues over the past year and provide a housing construction and price forecast for the coming year. The purpose of the report is to go beyond a simple description of data and trends by providing an analytical approach to the most current issues and the implications for homeowners, renters, homebuilders, developers, and the Utah economy.