These are strange times. But still our lives go on, and for many of our clients the question of whether or not they should buy or sell their home is a question that looms large in the wake of the COVID-19 pandemic. While we would like to give a straightforward answer and bold assurance that things are not as bad as they seem, that would be disingenuous. No one knows what is going to happen next because we’ve never been here before. What we can do is offer our perspective on what is happening and the potential impacts of COVID-19 on the Salt Lake real estate market.
WHAT WE KNOW ABOUT THE SALT LAKE MARKET
Since 1996, home prices in Utah have more than doubled. While Salt Lake home prices dropped 20% during the Great Recession (2008–2011), economic recovery outpaced other comparable cities, and prices rose to pre-recession levels by the end of 2014. Over the last two years, home inventory levels have dropped to historic lows, driving prices skyward in every Salt Lake neighborhood. Our booming population along the Wasatch Front is projected to grow even more rapidly over the next thirty years to exceed 5 million by 2050. In January of this year, the Kem C. Gardner Policy institute forecasted that the median sales price of a single-family, Salt Lake metro home would rise 5% in 2020. The Gardner Institute has since stated, “The fundamental drivers of Utah’s demographic growth remain, even with the imminent short-run disruptions [of COVID-19].”
LESSONS FROM CHINA IN 2020
China’s economic recovery from COVID-19 may provide some insight into what we can expect over the next few weeks. China is currently six weeks ahead of our COVID-19 outbreak according to the Harvard Business Review. Reports indicate supply chain congestion is up 62% from the worst part of the epidemic and overall consumer confidence is climbing. They also cite that while real estate transactions fell to an astounding 1% of 2019 levels during the height of the crisis, they are already back up to 47% of pre-virus transaction volume.
LESSONS FROM CHINA IN 2003
Experts are looking to other recent pandemics to contextualize what will happen to the US real estate market next. A recent NY Times piece, Hong Kong Flat Hunters Cite SARS Lesson: Buy the Outbreak Dip, offers statistics revealing a swift market rebound. During the Hong Kong SARS epidemic, between March and July of 2003, housing prices sharply fell 7%. Transactions also dropped an astounding 50–75% but quickly rebounded to pre-SARS levels by October with housing prices since rising 500%.
HOME PRICES DURING A RECESSION
If the US economy avoids slipping into a depression, home prices are much more likely to stabilize over the next year. Historically speaking, home prices are astonishingly resistant to market pressures during recessions. Over the course of the last five recessions in the United States, home prices declined an average of 2.7 percent in every recession except for 2007.
EXPECT SOME SLOWING—Over the next six weeks, the Salt Lake real estate market will most likely slow down. Homes currently under contract will close, but most buyers are not interested in touring (and sellers showing) homes with CDC social isolation guidelines in place.
LOOK FORWARD TO A STRONG SUMMER SEASON—If the US follows the same trajectory as China in containing the virus, we can expect consumer confidence to begin rising at the beginning of May. Spring’s big real estate season will shift back six weeks and transaction volume should rebound by the end of the summer. Pent-up demand and a strong local economy will hopefully counteract other macro market forces, driving prices dramatically down. Setbacks would include if the U.S. extends social isolation guidelines beyond the 6-week period we saw in China.
TEMPORARY PRICE DECREASES MAY BE AHEAD—We can draw parallels between Hong Kong’s real estate market in 2003 and our current Salt Lake market: two robust economies with a steep growth trajectory setback by a pandemic. A 5–10% temporary home price decrease would be reasonable in a recession scenario, and possibly more permanent in the case of a national depression.
LONG-TERM GROWTH IS UNDETERRED—Expect Salt Lake real estate to be a sound and solid investment for the long term. Any setbacks over the next weeks and months will be temporary. If real estate prices grew 200% over the last 24 years, imagine what the next 24 years will bring with the predicted steep growth curve along the Wasatch Front.
Our advice to Salt Lake sellers is to stay positive. If you have owned your home for more than two years, you are still in an advantageous position. Longtime Salt Lake homeowners should congratulate themselves on their sound investment. For buyers, the next few months offer an excellent value with interest rates near zero and some potential price reductions.
Niche Homes is a boutique real estate agency specializing in Salt Lake neighborhoods and enclaves. Contact us if you are interested in buying or selling a home.