Market Report

2021 Salt Lake City Real Estate Investing

The Salt Lake City real estate market has resided at the forefront of the national housing recovery since it began around the first quarter of 2012. Few markets, for that matter, have recovered at the same pace, which begs the question: Is Salt Lake City real estate a good investment? While the answer will vary from investor to investor (depending on their exit strategy and intentions), the answer is a resounding yes. It is worth noting, however, that how entrepreneurs invest has changed over time.

Before the pandemic, the SLC housing market was among the metros with the highest home selling returns. According to Attom Data Solutions, qualifying “cities with the highest average home seller returns in Q1 2019 were San Jose, California (84.1 percent); San Francisco, California (70.9 percent); Seattle, Washington (63.1 percent); Modesto, California (59.7 percent); and Salt Lake City, Utah (56.5 percent).”

To put things into perspective, “the average home seller gain of $57,500 in Q1 2019 represented an average 31.5 percent return as a percentage of the original purchase price,” said the report. That means owners in the SLC housing market who sold in the first quarter of 2019 saw—on average—a return of 25.0% more than the rest of the country.

In the midst of the pandemic, the story remains unchanged. As recently as the second quarter of this year, “the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and from $60,572 in the second quarter of 2020,” according to Attom Data Solutions’ second-quarter 2021 U.S. Home Sales Report.

With the average home in Salt Lake City appreciating 23.3% in the last year, it’s fair to assume local profit margins are growing slimmer and slimmer. As a result, more investors are turning to long-term strategies. In particular, the new real estate landscape created by the pandemic has catered to rental property owners. Now, perhaps more than ever, is the best time to start building a passive income real estate portfolio.

The real estate industry is certainly different after the arrival of the Coronavirus, but the emergence of three indicators has made buy-and-hold investment strategies more attractive:

• Interest rates on traditional loans are historically low
• Years of cash flow can simultaneously justify today’s higher acquisition costs
• The price-to-rent ratio suggests high home prices will increase rental demand

For years, rehabbing was the most prevalent exit strategy used by Salt Lake City real estate investors, but we are starting to see a new trend. Now is the time to start adding to a passive income portfolio because borrowing costs are historically low.

As of July, the average rate on a 30-year fixed-rate loan was 2.87%, according to Freddie Mac. Consequently, While up slightly year to date, the cost of borrowing institutional money is attractively low. As a result, the cost basis for real estate in Salt Lake City is lower than what median home prices suggest. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to pad their bottom line. At the very least, investors will be able to justify the latest bout of appreciation with much lower borrowing costs. Additionally, lower monthly mortgage payments mean landlords will be able to increase cash flow from properties placed in operation. If for nothing else, lower mortgage obligations allow investors to pocket more of their profits each month.

Whereas rehabbers and flippers need to acquire homes below market value to pad profit margins, rental property investors can stand to acquire homes at today’s high prices to pay their mortgages down with other people’s money each month. The cash flow can help offset the higher acquisition costs in as little as a few years while building equity in a physical asset.

Salt Lake City real estate investors should take solace in the city’s 30.16 price-to-rent ratio, as it is currently much more affordable to rent than own. As a result, vacancies will be easier to avoid due to the affordability of renting. Not only that, but listings are harder to come by in today’s market, too. The unique combination of affordability and a lack of listings suggest rental property owners will see plenty of demand for the foreseeable future, at least until more homes are constructed.

Local investors are lucky to have several viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.
 

2021 Foreclosure Statistics In Salt Lake City

According to Attom Data Solutions’ Midyear 2021 U.S. Foreclosure Market Report, a total of 65,082 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) in the first six months of the year. “That figure is down 61 percent from the same time period a year ago and down 78 percent from the same time period two years ago,” according to the report.

Over the same period of time, a total of 447 properties in Utah filed for foreclosure. Year to date, foreclosures in Utah are down 60.79% from last year and 73.60% from 2019. While foreclosures are down, it’s important to note that the latest numbers are more the result of government intervention than the actual financial standing of homeowners. If for nothing else, foreclosure moratoriums and forbearance programs brought about by the Coronavirus kept many homeowners from losing their homes. Unfortunately, however, those safety nets are being taken down.

“The foreclosure moratorium on government-backed loans has virtually stopped foreclosure activity over the past year,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company. “But mortgage servicers have been able to begin foreclosure actions on vacant and abandoned properties, which benefits neighborhoods and communities. So it’s likely that these foreclosures are causing the slight uptick we’ve seen over the past few months.”

The presence of the Coronavirus is expected to cause a spike in foreclosures in the future. While forbearance programs are expected to keep people in their homes for the foreseeable future, homeowners will be expected to become current on their mortgages sooner or later. When that time comes, those who can’t comply may find themselves distressed, and well-positioned investors in Salt Lake City may be able to offer a helping hand.

2021 Median Home Prices In Salt Lake City

At this time last year (August 2020), the median home value in the Salt Lake City housing market sat somewhere around $440,000. However, having benefited from an appreciation rate that exceeds the national average, the median home value in the Salt Lake City real estate market has reached $538,601; that’s a 23.3% increase. To put the last year into perspective, the median home value in the United States is now $298,933 after appreciating by as much as 16.7% in one year.

Since the Great Recession, or at least when real estate in Salt Lake City hit its lowest point (around July 2011), home values have appreciated more than 147%. At that rate, Salt Lake City easily outpaced the national average over the last decade, and certain neighborhoods have benefited more than others. Years of historic appreciation have made these the most expensive neighborhoods in Salt Lake City (according to NeighborhoodScout):

• Foothill
• Foothill Village
• S 1300 E / E 900 S
• S 1300 E / E 3300 S
• Fort Douglas / U of Utah
• Mount Aire / Pinecrest
• Beck St / Davis St
• Foothill Dr / E 1300 S
• Chandler Dr / Tomahawk Dr
• S 2200 E / Stringham Ave

Moving forward, prices are expected to increase in the wake of three prominent indicators: less than a month of available inventory, historically low interest rates, and more competition. Prices will remain high and perhaps even test new highs soon. If for nothing else, the same inventory shortage that served to increase prices for the better part of a decade may be magnified by home builders sitting on the sidelines during the pandemic. Without new builds being brought to the market, it is safe to assume competition will remain high, driving prices up as much as 18.7% over the next 12 months.

Salt Lake City Real Estate Market Trends

Today’s Salt Lake City real estate market conditions are the result of evolving trends. In fact, the strength of today’s market can be tied to a few important trends that are currently taking place:

• Passive income prevails: Home values have gotten incredibly high in recent history, which has eaten into investor profit margins. As a result, more investors are turning to buying rental properties. Doing so may offset high acquisition costs and provide years of cash flow.
• Demand remains intact: Demand in the Salt Lake City real estate market appears to be tied to local unemployment, which has fared better than the national average. As a result, it appears as if there are still plenty of willing-and-able buyers. More importantly, their activity is expected to help the SLC housing market return to normal sooner rather than later.
• Competition remains high: People who were looking to buy before the pandemic appear more eager to buy than ever. It doesn’t look as if the pandemic is going to prevent buyers from looking. If anything, they may appear more eager to buy now than they were in the past, as appreciation has tempered and opened a window of opportunity. As a result, the few homes that are on the market are receiving more activity.
• Low interest rates are proving advantageous: In an attempt to stimulate housing markets across the country, the Fed announced it would keep interest rates near historical lows for at least a couple of years. The announcement has prompted many would-be buyers to take action.

Salt Lake City Housing Market Predictions

While it is still too soon to predict the extent to which the Coronavirus will impact the Salt Lake City real estate market, we are starting to see trends emerge, suggesting the direction the market is heading. As a result, investors need to listen to what the market is telling them at this critical juncture. Here’s a look at some of the Salt Lake City housing market predictions that are most likely to come true over the course of 2021:

• Salt Lake City home prices will increase: Prices are expected to increase sooner rather than later. The lack of housing alone should increase competition. However, record low interest rates and the threat of higher prices have gotten even more people to look into buying. As a result, today’s competition will drive up prices more so than in recent history. Of all the Salt Lake City housing market predictions being made, this one already appears to be happening.
• Existing inventory will prove insufficient: Inventory levels, or lack thereof, has driven prices up in the local market for nearly 10 years. Competition, in particular, has enabled sellers to increase asking prices for years. Inventory levels will remain tight, as builders haven’t been able to work with “shelter-in-place” orders stalling their operations. Therefore, any inventory easement we were expecting in 2021 will most likely be delayed.
• Builders will begin to add inventory: Demand for housing is so big that builders will need to get back to work. News of a vaccine being ready by next spring could mean builders will get back to work soon. If homebuilders can get back to work in Salt Lake City, expect the inventory crunch to alleviate slightly. While the lack of housing won’t be fixed overnight, adding inventory now will help combat today’s higher prices.