HOUSE PRICES: UP, UP, UP, UP, UP!

HOUSE PRICES:  UP, UP, UP, UP, UP!

Every once in a while, I will take a moment to check in on market statistics to see if what I am experiencing day-to-day in the field matches what is happening across the county.  Once again, my suspicions have been confirmed.

The chart you see represents the median price per square foot for homes sold in Weber County.  Using price-per-square-foot as our guide helps us get a better feel for the overall value of homes when stacked side by side.  Using this measure in the overall market shows us trends in value.

 

Homes in Weber County have nearly returned to their 2007/2008 peak value.

Homes in Weber County have nearly returned to their 2007/2008 peak value.

 

As you can see, the trends are pretty obvious.  Prices were flat from 2001-2005 and then began a tremendous surge upwards.  They peaked in late 2007 and early 2008 and then gave up nearly all their gains by early 2011.  Since that time, prices have marched upward at a brisk pace and we are now seeing median sales prices almost eclipsing their peak in 2007/2008.

The major difference between house prices in 2007 and house prices today is that mortgage underwriting guidelines are much more restrictive.  In 2007, banks asked borrowers to fog a mirror and lie about their income to justify huge loans.  On top of that, loans payments were not paying principle down.  They were paying interest only, or worse, less than interest owed.  These speculative loans increased the loan amounts that could be borrowed by buyers on limited income.  This fast and loose lending arrangements flooded the market with buyers and artificially increased purchase capacity.  Bidding wars ensued and house prices skyrocketed.  The market at that time defied economic laws.  Nature then took its course.  The market corrected, then over corrected, as the natural order of economics and lending were restored.

Today’s market is much different from then.  Mortgage guidelines follow traditional laws of economics.  Buyers are constrained by their ability to afford a mortgage.  In light of this, why are house prices increasing?  They are increasing because incomes are increasing.  Right now, Utah has a 3.7% unemployment rate.  That is beyond what we would call ‘full employment’ of the work force.  People with jobs earn wages, wages pay for mortgages, and the more wages someone earns, the more they will be willing to spend on a mortgage payment to buy the house they want.  Our house price increases are a reflection of our good economy.  You can see how house prices correlate to improvements in employment in this chart:

 

Weber Unemployment Rate - 1990-Present

 

So where do house prices go from here?  Well, as long as jobs and wages keep increasing, house prices will follow.  The question then is when will jobs and wages stop increasing?  Right now, that is anyone’s guess.  A jobs recession may be around the corner, or it may not.  Time will tell.  Until then, it appears to be a seller’s market.

So, if you are looking to buy or sell a home and want to know the best strategy given current market conditions, CONTACT ME, and let’s put together a plan that will accomplish your goals.