2014 Salt Lake Housing Forecast
A Return to Normalcy By James Wood, Director of the Bureau of Economic and Business Research This report was commissioned by the Salt Lake Board of Realtors®
With a strong performance in 2013, Salt Lake County’s residential real estate market has almost fully recovered from the worst housing recession in our history. Some of the most notable features of last year’s market include: A 5 percent increase in single-family homes sales pushing total sales to 11,700 homes. $3.3 billion in home sales; $600 million more than 2012, up 22 percent. A 26 percent increase in condominium, town home and twin home sales for a total of 2,986 units. $546 million in condominium, town home and twin home sales; $171 million more than 2012, up 46 percent. $230 million in real estate commissions; $46 million more than 2012. A 15 percent increase in the median sales price of a home; $212,000 in 2012 to $245,000 in 2013. A 15 percent increase in the median sales price of a condominium, town home and twin home, $144,100 in 2012 to $166,000 in 2013.
Utah’s Solid Economy Increases Demand for Housing
Salt Lake County’s residential real estate expansion rests on the strong growth of the local economy. In 2013, the Utah economy had a solid year with an increase of more than 40,000 jobs and an unemployment rate less than 5 percent. Utah currently ranks fourth among all states in relative job growth. In the second half of the year, however, the economy’s momentum slowed a bit as higher interest rates, the sequester and the government shutdown cut into the growth rate. Despite this slight pause in high growth rates the statewide forecast for 2014 shows an increase in every major indicator with record highs for auto and truck sales, exports and nonagricultural employment (Table 1). Most important, employment has recovered from the Great Recession and job growth is leading to higher rates of net in-migration, a very favorable sign for the real estate and home building industry. Net in-migration is one of the most important drivers of demand for housing. Table 1 Forecast of Major Economic Indicators for Utah Nonagricultural Employment (000) Unemployment Rate Total Wages (billion)
2013
2014
% Change
1,290.5
1,330.4
3.1%
4.8
4.2
-
$53.2
$56.1
5.4%
Average Annual Wage
$41,245
$42,276
2.5%
Total Personal Income (billion)
$105.2
$110.8
5.3%
Utah Exports (billion)
$19.3
$21.0
9.0%
Net Migration (000)
8.2
11.7
-
108.2
119.5
10.4%
New Auto/Truck Sales (000 vehicles) New Residential Units (000)
13.0
14.0
7.7%
Residential Construction Valuation (billion)
$2.7
$3.1
15.2%
Nonresidential Valuation (million)
$900
$1,100
22.2%
Taxable Retail Sales (billion)
$24.8
$26.1
5.1%
Source: Governor’s Office of Management and Budget.
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Salt Lake Home Sales on the Rise
The sale of single-family homes in Salt Lake County increased by 5 percent in 2013 to 11,686 homes (Table 2). Thirty percent of all sales in the county were in Salt Lake City although home sales in Salt Lake City increased by only 1.5 percent in 2013. Sandy and West Jordan were the next largest markets each with roughly 11 percent market share. Sales in Sandy and West Jordan were up 6.8 percent and 10.9 percent respectively. The small city of Bluffdale had the largest percentage gain in sales with an increase of nearly 52 percent to 103 total sales. Only two cities had declines in sales activity; West Valley down nearly 6 percent and Midvale, down about 1 percent. Single-family home sales in Salt Lake County established an all-time high of 14,878 sales in 2006. By last year sales had recovered to 80 percent of that peak. However, it will likely be some years before the 2006 peak is reached since that was a level that was clearly unsustainable (Table 3). The combined single-family home sales of the Wasatch Front counties also peaked in 2006 at 29,303 units. In 2013, total home sales for the four counties were 23,555 units, 80 percent of the 2006 peak. Utah County is within 10 percent of its all-time high. In the last couple of years Utah County has had remarkable employment growth which has helped to boost home sales, particularly in the north end of the county. In contrast, the recovery in Weber County is lagging well behind the other counties.
Table 2 Change in Sales of Existing Single Family Homes by City 2012
2013
% Change
Bluffdale
68
103
51.5
Cottonwood Heights
304
309
1.6
Draper
506
525
3.8
Herriman
477
518
8.6
Holladay
235
255
8.5
Midvale
229
227
-0.9
Murray
280
332
18.6
Riverton
436
452
3.7
Salt Lake City
3,409
3,460
1.5
Sandy
1,137
1,214
6.8
South Jordan
738
834
13.0
South Salt Lake
54
61
13.0
337
484
43.6
1,149
1,274
10.9
Taylorsville West Jordan West Valley
1,079
1,015
-5.9
Salt Lake County
11,062
11,686
5.6
Source: UtahRealEstate.com
Table 3 Percent Recovered to Peak SF Home Sales (Sales peak 2006) 2006 Home Sales
2013 Home Sales
% Recovered
Wasatch Front
29,303
23,555
80.4%
Davis
4,553
3,840
84.3%
Salt Lake
14,878
11,686
78.5%
Utah
5,663
5,148
90.9%
Weber
4,209
2,881
68.5%
Source: UtahRealEstate.com
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RealtorsŽ have a significant share of the home sales market in the county. This has not always been the case. Historically, about one-third of all residential home sales have gone to home builders. Presently, the home builder’s share is only 20 percent of all sales. In 2009 it was as low as 10 percent (Figure 1). The home builder’s share of the market will improve in 2014 due to the recent increase in housing prices and decline of foreclosures. Rising home prices are bringing home builders back into the market. Over the past few years home builders simply could not compete with declining home prices due, in part, to price discounts on foreclosed and short sales properties. Now, with prices on the rise and the number of distressed sales greatly diminished homebuilders are in a more competitive position.
Figure 1 New Home Construction and Sales of Existing Single-Family Homes in Salt Lake County
Dave Anderton
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Housing Prices Near Pre-Recession Levels
After six years housing prices have nearly recovered to their pre-recession levels. In Salt Lake County the median sales price of an existing single-family home in 2013 was $245,000 compared to $250,000 in 2007 (Table 4). The other three Wasatch Front counties are also very close to full recovery in nominal or current dollars. When adjusted for inflation, real housing prices have recovered 87 percent in Salt Lake County and close to 85 percent in the other three counties. Table 4 Single-Family Homes (Percent Recovered to Peak Median Price) 2007
2013
Nominal Price
Real Price Inflation Adj.
Wasatch Front
$234,325
$225,100
96.0%
85.0%
Davis
$229,000
$219,000
95.6%
84.6%
Salt Lake
$250,000
$245,000
98.0%
86.7%
Utah
$245,900
$229,000
93.1%
82.4%
Weber
$164,900
$160,000
97.0%
84.3%
Source: UtahRealEstate.com
A look at housing prices at the city level shows that in the past year every city has registered solid increases in the median sales price of existing homes (Table 5). South Salt Lake had the largest gain of 26 percent but this is a small city and the only city in the county that didn’t have a price increase in 2012. Salt Lake City was the only other city to have a price increase of greater than 20 percent. Only two cities, Cottonwood Heights and Draper, had price increases below 10 percent. Table 5 Change in Median Sales Price of Existing Single-Family Homes 2012
2013
% Change
Bluffdale
$337,725
$376,559
11.5%
Cottonwood Heights
$307,500
$325,000
5.7%
Draper
$362,900
$397,000
9.4%
Herriman
$267,000
$297,200
11.3%
Holladay
$334,500
$385,000
15.1%
Midvale
$169,900
$195,000
14.8%
Murray
$205,000
$233,000
13.7%
Riverton
$245,000
$278,425
13.6%
Salt Lake City
$196,800
$240,000
22.0%
Sandy
$243,700
$275,000
12.8%
South Jordan
$295,000
$327,750
11.1%
South Salt Lake
$149,500
$189,000
26.4%
Taylorsville
$167,500
$188,750
12.7%
West Jordan
$196,000
$223,331
13.9%
West Valley
$149,000
$172,000
15.4%
Salt Lake County
$212,000
$245,000
15.6%
Source: UtahRealEstate.com
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Housing prices turned positive in the second quarter of 2012 and for the last seven quarters have recorded exceptionally strong increases (Figure 2). It appears that the year-over percentage gain in prices reached a high in the first quarter of 2013 with a 21 percent increase over the first quarter of 2012. Since then price increases have remained very strong—in double digits—but the gains have been decelerating. By the fourth quarter of 2013 prices were up 11.4 percent, well below the first quarter gain.
Figure 2 Percent Change in Housing Prices in Salt Lake County (year-over)
Utah’s Foreclosure Rate Approaches Low Historic Average
The sharp recovery in housing prices over the last two years is due in part to the rapid decline in foreclosure activity. Unfortunately, only statewide data are available from the Mortgage Bankers Association (MBA) but these data show that by the third quarter of 2013 the number of homes in the foreclosure inventory had dropped to 6,000 (Figure 3). That’s a 60 percent decline from the record number of 15,000 in the second quarter of 2010. The homes in foreclosure currently represent about 1.5 percent of the 405,000 home mortgage loans in Utah (loans in MBA’s database). On average, from 1980 to 2007 about 1 percent of home mortgages were in foreclosure in Utah. Therefore, an average foreclosure inventory in 2013 would be about 4,000, a third fewer than the current 6,000-unit inventory. Nevertheless, the market is moving much closer to the historic average and barring any new calamities should reach average levels by 2015. Another indicator of foreclosed properties is Real Estate Owned (REO) sales. Data from UtahRealEstate.com show a significant run-up in REO sales from 2007 to 2011 then a steep decline to 2013 (Table 6). REO sales in 2011 represented 18 percent of all single-family home sales in the county. The distressed and heavily discounted prices of these REO homes put serious downward pressure on prices in 2010 and 2011. But that pressure has been nearly eliminated by the absorption of foreclosed properties. In 2013, REO sales accounted for only 3.7 percent of all home sales in Salt Lake County.
Figure 3 Change in Foreclosure Inventory in Utah
Table 6 Homes Sold as REO Properties in Salt Lake County REO Sales
Total Home Sales
2007
29
11,713
0.2%
2008
156
8,794
1.8%
2009
436
8,904
4.9%
2010
1,276
8,567
14.9%
2011
1,721
9,420
18.3%
2012
1,167
11,062
10.5%
2013
431
11,686
3.7%
Source: UtahRealEstate.com
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REO as % of Homes Sold
Fewer Underwater Mortgages
The number of mortgages “underwater� (negative equity) in Utah has improved markedly with the increase in housing prices. Two years ago Utah ranked 13th among all states in the share of mortgages that were underwater as one-in-five mortgages had negative equity. A negative equity position locks homeowners into their current mortgage and home. By the second quarter of 2013 the state’s ranking had dropped to 34th. Only 8 percent of mortgages in the state were underwater. Fewer negative equity mortgages pave the way for increased housing demand. These homeowners with mortgages previously underwater can now consider moving-up. Rising prices have given relief to an important component of housing demand; the move-up market. In summary, increases in home sales and prices in Salt Lake County in 2013 have been supported by: (1) solid job growth, (2) demographic growth, (3) limited inventories of unsold new homes and existing home listings, (4) low mortgage rates, (5) fewer foreclosures and (6) fewer underwater mortgages.
2014 Outlook: Home Prices to Rise 5-7%; Sales to Rise 7%
Over the past six years the Salt Lake County housing market has experienced historic levels of volatility. From 2007 to 2010 prices plunged 20 percent and sales fell over 40 percent. But in the ensuing three years prices and sales have recovered. Low interest rates helped sustain the surprising price recovery and accelerating job growth supported increases in sales. Now that the recovery has been secured, this year will be marked by a return to normalcy. Price increases will moderate to the 5-7 percent range, just a bit higher than the historic average of 4 percent, and sales of single-family homes will increase by 7 percent to 12,500 homes as improving economic conditions free up pent-up demand for housing.
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