2016 was a great year for the Utah Housing Market. According to CoreLogic, a well-respected source for housing market statistics, the average home in the State of Utah grew at an 8% annual pace over the last year. Further, it states that home values have nearly recovered all of their losses since the Housing Crisis of 2008. This strong report makes Utah one of the top appreciating Housing Markets in the country, which is great news for those who currently own a home.
With interest rates moving higher over the past few months, some are worried that this will have an adverse impact to the future value of homes. Although there is validity in the concern, the longer-term impact of rising rates has often proven to coincide with high levels of home value appreciation. Let’s take a look back on history to help form a conclusion.
The graph below shows four points in time when mortgage rates experienced rapid rates of increase and compare those times with their annualized rates of home value appreciation over the same period. As you can see, not only did home values remain in growth mode, they often experienced attractive improvements to home values. TRUST E D · R E S P E C T E D · LOVED
Traditional economics support the theory that as the cost of a mortgage increases with higher rates, the value of homes will fall to bring the relative cost back into balance. However, when values are rising because of growing incomes and a stronger job market, home values have room to move higher even as rates increase. Given the current strength of the housing market, the current level of wage growth is more than enough to sustain a reasonable rate of home value appreciation. Utah’s Unemployment Rate is currently at 3.2%, which is considered “full employment.” Further, the outlook on the job market is expected to remain strong for years to come; making Utah one of the greatest places to live.
Utah Home Values 2017
Although mortgage rates aren’t anticipated to experience a significant increase in 2017 (see next month’s 2017 Market Forecast), some experts and media pundits are calling for a drop in home values this year. Although we anticipate a slower pace of growth in 2017, we still see at least a growth rate of 4.5%. This is a healthy rate of appreciation and a level that is sustainable for the foreseeable future.
Of course, there is no way to say for sure what will happen, but it doesn’t appear likely that higher rates will have a significant negative impact to home values here in Utah.
High rates of home appreciation provide a tremendous opportunity to increase net worth. If you plan to move-up in the near future, you may want to make the move sooner rather than later. An extra $100,000 in home value, increasing at a rate of 4.5% could add an additional $14,000 to your net worth over the next three years. This could also be achieved by purchasing an investment property or a second home. Also, if you have millennial children, encourage them to become homeowners early in their adult life. Home ownership is a determining factor of long term financial health and security. Starting early is the key.