Some homes in Provo, Utah received 50 offers at the height of the housing boom. Economists warn of many overvalued property markets

Moving to Utah was obvious for Leola Broussard.

Broussard, who previously rented a house from a friend in the expensive Stanford-Palo Alto neighborhood, told MarketWatch the prices there, “It’s just outrageous.”

In the past two years of the pandemic, many Americans like Broussard have flocked to Utah, seeking larger living spaces and less congestion. It was bittersweet because she loves Northern California.

Yet the tidal wave of Californians, a growing millennial population, and a shortage of home building materials have combined to trigger an explosion in Utah home prices that mostly reflects a national trend.

“I miss some things about California, but I don’t miss the hustle and craziness.”

— Leola Broussard, researcher in the IT sector

“I miss some things about California, but I do miss the hustle and craziness,” said Broussard, a researcher in the computer industry. In Utah, “there is more work-life balance,” she added.

That influx comes at a price: Recent research from Florida Atlantic University and Florida International University suggests that, based on historical prices, properties in several Utah cities, including Ogden and Provo, may be overvalued by as much as at 50%.

The median price of a home in Salt Lake County, Utah was around $512,850 in May 2022, up 27% from a year ago, according to Zillow. That compares to a national median home price of $349,816 in May 2022, up 20.7% from a year ago.

“Near-record mortgage rates have helped fuel housing demand, particularly during the pandemic, and competition for homes has driven prices up. But now the Federal Reserve is raising rates to reduce inflation, and that’s already dampening demand,” said Ken Johnson, study co-author and economist at Florida Atlantic University’s College of Business.

“If we’re not at the peak of the current real estate cycle, we’re awfully close,” he added. “Recent buyers in many of these cities may have to endure stagnant or declining home values ​​while the market stabilizes – and that’s not what they want to hear if they had planned to resell soon.”

Recent research suggests that, based on historical prices, properties in several Utah cities – including Ogden and Provo – have been significantly overvalued by up to 50%.

George Frey/Getty Images

Local experts, however, disagree that home prices in Provo are overvalued and heading for a fall. Instead, they say prices are actually likely to appreciate further given renewed interest in the Beehive state.

But one thing is clear: the market there is cooling down. Dejan Eskic, a senior researcher at the University of Utah, told MarketWatch that instead of a home receiving 15 offers, sellers now receive 3 or 4 offers.

That’s still a significant number of offers, Eskic pointed out. Utah properties stay on the market for a median of 9 days, according to data from Redfin. In Salt Lake City, homes have been on the market for about a week; 5 days in Pleasant Grove.

Eskic said that before the housing boom, homes were on the market between 2 and 3.5 weeks. So “we’ve had about 18 months of price appreciation,” he added, “and we’re still heading in that direction.”

The question is how long prices will continue to rise. Case in point: At one point during the pandemic, Andrew Ford, a real estate agent in Provo, told MarketWatch that it was not unusual for a property to receive 50 offers. “It was crazy to submit the offers to our vendors,” he said.

In fact, he was putting the offers on a spreadsheet “so the seller could go through it and choose the best ones.” Just two or three months ago, he was seeing 10 offers per house. Now he sees ads receiving single-digit offers. The number of people competing for a home is dwindling, but they’re still offering more than the asking price, Ford said.

Provo is the third largest city in Utah, USA.

Getty Images/iStockphoto

Nationally, the US housing market appears to be slowing, in part due to interest rate hikes by the Federal Reserve. Home builders ran out of windows, garage doors; they withstood a spike in timber prices.

Economists from Florida Atlantic University and Florida International University have issued cautionary advice to buyers in other real estate markets they believe are overvalued. These markets include Boise, Idaho, Austin, Texas, Ogden, Utah, Las Vegas, Nevada, all of which they said were overvalued by more than 60%.

The authors add that just because a market is 50% or 60% overvalued based on historical price movements doesn’t necessarily mean it will fall that much, but they don’t overlook a painful wake-up call for buyers. and sellers in these markets.

An ongoing issue that’s supporting prices: Like many of these markets, a shortage of housing materials, combined with a large population of native millennial home buyers, is keeping prices high in Utah’s real estate market, Eskic said .

When asking Utah homebuilders what they’re missing, “over the past year, probably every month, I’ve gotten a different answer,” Eskic said. While supply is lagging, housing demand remains so strong it is creating an affordability crisis, economists say.

“Ridiculous” prices

Last year, the competition for houses reached its climax. “As prices have accelerated in 2021, more than half of Utah households [were] unable to afford home at median price,” Eskick wrote in an October 2021 report. The median annual household income in 2020, according to the most recent data from the St. Louis Federal Reserve, was $83,670. .

Leola Broussard said her experience buying and selling homes in Utah gave her first-hand insight into the local housing market.

Last May, she bought a condo in Pleasant Grove, which is part of the Provo-Orem metropolitan area. When she was selling it in February, she recalled that on the first day it went on sale, her agent got a few calls and 3 offers. In 2 days, they had almost 10 offers in total.

“The price is totally ridiculous,” Broussard said. In April, she moved into her second home in Utah, a three-bedroom house she bought for more than $450,000 on Eagle Mountain, near her family. (In 2021, Google purchased 300 acres in Eagle Mountain for a new data center, The Salt Lake Tribune reported. Facebook also has a data center in the area.)

Rising home prices in Provo during the pandemic sound eerily familiar to Broussard. “It’s almost like I left California to go to California,” she said.

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About Teresa G. Wilson

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