Artist Credit: Holli Yoho
Homeownership is An Investment
Homeownership Nebraska native Warren Buffet, who also happens to be the 7th wealthiest individual in the world, has said “a home is one of the most important assets that most people will ever buy.” In addition to fulfilling our basic need of shelter, homeownership has become not only a source of wealth but a means to securing long term affordable housing. The Census reported approximately 65.8% of Americans own their homes. The net worth of these homeowners is nearly 40 times more than the net worth of a non-homeowner. Let that sink in. is An Investment
If you are a homeowner who made the exciting but nail-biting decision to purchase in the last two years or before, congratulations. The National Association of Realtors (NAR) chief economist reported across the US, homeowners have accumulated on average $75,000 of housing wealth in the last two years, and up to $155,400 plus in the last five years. Note the exact number varies among each state, as well as zip code. Utah experienced the hottest year of home sales recorded in 2021, which attributed to these home equity gains.
In 2022, Salt Lake City was predicted by multiple sources to replace Boise, ID as the number one hottest housing location. As an aviator’s wife I am all too familiar with the saying “what goes up must come down.” This June, Salt Lake County reported pending home sales were down by approximately 26% compared to a year before. Bloomberg, CNBC, Forbes, and even our very own Desert News have published articles ping ponging between verbiage that raises more than just eyebrows. Individual perspectives impact how we make decisions logically and emotionally. So, is it a housing crash or is it a market correction?
If you only read the headline of the latest Goldman Sachs forecast published by FORTUNE you would have seen “Housing Downturn Worse in 2023.” If you read the full article, you would learn they are predicting home values to appreciate. Yes, as in, home prices going up another 1.9% next year. According to CoreLogic, home values have appreciated at a record breaking pace, a pace that is simply not sustainable for first time home buyers to have the opportunity for the American Dream. In order for each to have their piece of the pie, it is imperative we redirect to a more balanced real estate market.
A healthy real estate market, simply put, is when there are an equal number of buyers and sellers. One key data point to measure if we are in a healthy or unhealthy market is to look at the Months Supply of Inventory. Just as it sounds, this term is the number of months it would take for the current listings to be sold. Various sources cite a healthy market is between a five to seven month supply. As we watch more For Sale signs installed in our neighbors’ yards it’s important to note that in July the Months Supply along the Wasatch Front was 2.2 months. This statistic shows the pendulum has been–and continues to be–in favor of Sellers in Utah. Without getting into the semantics of what has been coined “the Covid hangover” or how our country’s international affairs impact our housing market, below are a few key factors currently impacting the Beehive state’s unbalanced market.
- Utah’s Topography. Development permits have been shrinking in Salt Lake County since 2007. According to the Kem. C. Gardner Policy Institute, this “reflects the availability of developable residential land.” The biking, hiking, skiing, and the majestic mountain views that attract locals and tourists alike are also geographically constricting for expanding housing.
- Growing Population. The Census Bureau reported 56,291 individuals relocated to Utah between 2020-2021. This ranks Utah 7th in the country for numeric growth. In addition, Salt Lake City has become the number six choice for Millennials. Another report by the Kem C. Gardner institute estimated at one point 160 new residents were moving to Utah each day.
- Building Material Cost up 42%. Residential construction permits in Utah and Washington Counties reached a record shattering 40,000 in 2021. This reduced the housing shortage by approximately 31,000 homes. However, with the increased cost of building materials reported by the Commerce Department additional challenges have been presented.
- Work from Home. Historically, there was a massive migration from the East Coast to the West Coast during the 1800s fueled by the Gold Rush. After WWII, a second shift occurred from rural farming to factories located in the city. We are now witnessing trends of more and more individuals working from home, thus making the leap from renting to homeownership.
Based on the supply and demand for housing, the market is also seeing an increase in rent. Rent jumped up approximately 20% from January of 2021 to January of 2022. Zillow reported rent has jumped 43.9% since 2018. With 100% interest and no tax benefits, homeownership is looking more and more favorable even if it isn’t a forever home but viewed as an investment.
For individuals wanting to get on board with Mr. Buffet’s homeownership values, look on the bright side. Numbers talk and they have spoken. At this moment there are fewer multiple offer situations, fewer listings selling above asking price, and fewer offers waiving due diligence. While it is neither a balanced market nor a buyer’s market, for those serious buyers there is a lot of potential to begin your journey to securing both long term affordable housing and wealth. And if you are sweating those 6% interest rates, just ask your parents what they paid on their first home.
Kerry Harding is a Realtor with Niche Homes, specializing in Military Relocation and the Avenues neighborhood.