Real estate market bubble? As the market cools, when will prices really drop?

Home price increases continue to be mind-boggling, while high mortgage rates are just beginning to cool the market, according to the latest spring data for Utah and the nation’s housing market.

But that doesn’t mean prices are going to fall anytime soon, so don’t think a bubble like the one in 2006 is about to burst.

These are some of the main conclusions of the current real estate panorama, both locally and nationally:

what’s going on in utah

  • The median price of a single-family home in Salt Lake County rose to $630,000 last month, up 22% from April 2021, according to the Salt Lake Board of Realtors.
  • Price increases continue to rise not only for single-family homes. The median price for all home types in Salt Lake County was $550,000 in April, up 26% from a year earlier.
  • The typical Salt Lake County home is still selling after just five days on the market, just like last year.
  • In the Salt Lake City metro area, rising mortgage rates have raised the cost of financing a home nearly $1,000 from a year ago. The typical monthly home payment is now $2,583 on a 30-year mortgage with a 20% down payment, which is $992 more than last year, according to Zillow estimates.
  • And buyers continue to pay beyond asking prices. In the Salt Lake market, 66% of homes sold above their list price in March, which is the latest data available from Zillow.

the american market

  • Nationwide, US home values ​​continue to grow at a record pace, up 20.9% from last year, according to Zillow’s April Housing Report released Thursday.
  • The combination of rising prices and a rise in mortgage rates means that the monthly mortgage payment on a typical home is 52.5% higher than it would have been a year ago, Zillow reports.
  • Still, rising costs have yet to ease competition. “Houses are selling faster than ever, after just seven days for a typical home, and nearly half of homes are selling above their list price,” Zillow market analyst Nichole Bachaud wrote.
  • However, there are signs that the US market is beginning to “rebalance,” including growing inventory and an increase in listings that have seen price cuts. Zillow economists expect the market to start to cool off this spring as rising costs push out potential buyers long enough for inventory to begin to catch up with demand, “but it’s not quite there yet.” point,” Bachaud wrote.
  • Also noting what RE/MAX called in its latest housing report a “flattening of the spring seasonal increase,” home sales last month rose less than 1% from March and fell 12.8% year over year. in all 53 metro areas in the report. .
  • That, combined with an 11.5% increase in new listings from March to April, resulted in a 24% increase in US inventory month over month, according to RE/MAX.
  • Nationally, the median US home sales price was $420,000, up 3.4% from March and 15.1% higher than April of last year, according to RE/MAX.

What does a ‘cooling’ market mean?

As housing market watchers watch national headlines about cooling US home sales amid high interest rates, many are likely wondering: Does this mean a bubble is about to burst? or that prices are about to drop?

Not so fast.

Remember, today’s real estate market is not the same as it was in 2006, 2007 and 2008, when risky lending practices combined with excessive housing construction led to the subprime mortgage crisis and global meltdown we all know as the Great Recession.

Experts today say they see signs of a new kind of bubble forming as US home prices break away from market fundamentals, but experts say demand is real, especially for high-growth areas like the West and Utah that are dealing with a housing shortage.

So when economists say the market is “cooling off,” that just means tight inventory and high mortgage rates are causing potential buyers to turn away and no longer be a part of the housing market frenzy that kicked off amid of COVID-19.

“Overall, it continues to be a strong real estate market, with sales happening quickly and demand easily outstripping supply,” said Nick Bailey, RE/MAX president and CEO.

“We are starting to see a cooling off in sales, which is not surprising given the record 2021 results and the recent increase in interest rates. That should create more of a balance over time, countering the hectic seller’s market that we’ve had for so long,” Bailey said. “Driven by generational demand, rising rental costs, and still relatively low interest rates, 2022 could still rank as one of the best years of the last decade.”

When will prices drop?

Utah isn’t immune to what appears to be the beginning of a cooldown. Sales slowed again in April, which was the 11th month in a row year over year, Dave Anderton, a spokesman for the Salt Lake Board of Realtors, told the Deseret News on Friday.

“Sales are down 16%, and I think that’s because of 5% interest rates, higher prices, so we’re hearing people can’t qualify now,” Anderton said. The jump in rates from 3% to now more than 5% means “hundreds or thousands” more mortgage costs per month.

“So I think high prices and high interest rates on mortgages are catching up and are causing a lot of people to back off. They just can’t afford it,” Anderton said.

As sales fell, Salt Lake County’s housing inventory “increased” by about 3% in April. “That’s not a huge increase,” Anderton said. “But it’s not down. We’re used to seeing him knocked down.”

Eleven straight months of falling sales is not something Anderton has seen since the Great Recession.

Some, but not all, sellers are starting to lower their prices slightly, but that’s not yet reflected in the housing data, Anderton said.

So will that start to have an impact on prices?

“Oh yes, he will,” Anderton said. “If we have 18 months of sales decline, and now we’re at the year mark, you’ll see prices start to come down a little bit.”

Maybe then Utah won’t continue to see price increases as large as 25% year over year. In the last two years alone, home prices in the Salt Lake area have risen an astonishing 50%, according to the Salt Lake Board of Realtors.

“It hasn’t slowed down yet, which is scary. We could see another year of price increases,” Anderton said. “But interest rate hikes and falling sales tell me we’re about to turn around.”

But that doesn’t mean prices are going to “collapse,” Anderton said, especially as Utah continues to experience a housing shortage amid its booming economy and population.

“I don’t think (prices) will go down significantly unless we start to see massive layoffs, like we did in the Great Recession,” Anderton said. “When people start losing their jobs and then they’re out of a job, we see home prices go down. But right now the job market is pretty good. The best it’s been in a long time.”

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