The real estate market in Washington County is slowing. Is the sun finally setting on one of the fastest growing markets in the country? In this article, I’m going to shed light on the state of the market and provide answers to some tough questions:
Why is the market slowing? Why aren’t prices falling? Are prices going to fall? Will the market crash? When will it crash?
In our community, the Covid Pandemic is a distant memory; the only reminders of which are the few random souls who still choose to wear a face mask inside a Maverick gas station. With life returned to normal, so follows the real estate market.
But, let’s face it, life in the St. George area was never really disrupted; not compared to the rest of the nation. Our kids completed an entire school year (2020-2021), while many schools across the country never opened. During the pandemic, we still had a big County fair, large gatherings were happening all over the State, and dining at restaurants continued as if there never was a global health crisis. As we were enjoying a relatively quiet life in the country, people in cities were forced to stay home, forced to homeschool their children, and at times were under a strict curfew. They were not allowed the same freedoms we were enjoying. Yes, in our little slice of paradise, life was pretty good, and the rest of the world noticed.
Suddenly, the Covid pandemic and its effect of shuttering downtown offices, combined with a high-speed technologically connected society, granted people the freedom to work from anywhere. Many people, deciding they didn’t want to live in restrictive cities began an exodus of biblical proportions, escaped major urban areas, and headed straight for the safe haven of Southern Utah.
In March of 2020, at the beginning of the pandemic, we had approximately 1,200 homes on the market in Washington County, representing about 3.5 months’ worth of inventory.
Over the next 12 months we would see many potential home sellers postpone their plans for moving, shunning the idea of opening their home to strangers and cringing at the possibility of exposing their home and themselves to potentially deadly viral contamination. With homes hitting the market at a slower rate than normal, and masses of people fleeing to our relative nirvana, inventory dropped and prices skyrocketed, climbing over 30% in just 1 year!
Fast forward to April 2021; during that month, there was an average of 310 homes on the market at any given time, representing an absorption rate (a measure of inventory or how long it will take to sell all the homes on the market if the rate of sales remains the same and no new homes are listed) of less than 3 weeks’ worth of inventory. And there were days where I saw as few as 206 homes on the market for all of Washington County! Considering that we have a population of approximately 200,000 and over 70,000 households, it’s no wonder multiple offers were common on virtually every transaction. Sellers of homes priced under $500,000 were receiving dozens of competing offers, and tales of homes selling for $25,000, $50,000, $100,000 or more over asking price were commonplace.
Now, here we are at the end of Summer. Much of our population is vaccinated against Covid and life is nearly back to normal across most of America. The rate of sales is slowing, and the rate of new listings hitting the market is increasing. To see a summary of the current market statistics, please click here. As of the end of July, the supply of available homes has climbed to 551, representing a 78% increase in inventory in the last 3 months!
Traditionally, May, June, and July see the most sales of any month. Yet, this year, a peak of home sales came in March, and the summer months saw fewer sales. I believe this is due to the simple fact that there were virtually no homes available for people to purchase.
Yes, inventory is increasing, the average days on market is going up, sales are slowing, and the market is cooling. Yet, prices are still going up. At the end of July, the median sales price in Washington County for all single-family homes, including townhomes and condos, climbed to a record high of $480,000, up from $370,000 just 1 year prior.
The big questions: Will the market crash? When will prices fall?
The market is not going to crash. There is more cash and more wealth in our community than ever before. Many of my transactions the last year were sold to cash buyers. Anecdotally, the word on the street was that it took cash to buy a house, to be successful against dozens of competing buyers. I was curious, and I’m kind of a nerd, so I ran the numbers. YTD, 37% of all homes sold went to cash buyers. During that same period in 2018, 29% of all homes sold for cash, and in 2011, only 20% of all buyers paid cash. Where did all the cash come from? Americans have benefited from a strong economy, a 13-year run up in the stock market, and repeated injections of cash from the federal government. Oh yeah…and remember all those people who are moving here from big cities (think Southern California)? We’ve all heard the story of the guy who sold his tiny house in So. Cal. For $1M and bought a mansion in St. George for a fraction of the price. Cash is everywhere.
If prices fall, if the whole economy collapses, if people lose their jobs, the people who own their house out right, who paid cash for it, can weather the storm and will not be forced to sell. This is a fundamental difference between the run up in the market before 2008 and today’s skyrocketed home values.
But…with inventory climbing and sales slowing, won’t prices fall? No. Sales may be slowing, but look at it from a historical perspective. For the last decade, home values have steadily climbed, and for most of that decade, we had an absorption rate of about 4 to 6 months. Today, with 551 homes on the market, the absorption rate indicates a 1.15 month-supply. Even though inventory is climbing and sales are slowing, demand is still relatively high, supply is relatively low, and home owners should continue to enjoy modest price appreciation into the foreseeable future.
Remember, interest rates are low. Mortgage rates are still hovering under 3% on a 30-year fixed rate loan, and even though prices are at record highs, people can still afford their mortgage payments.
What do I expect? I expect inventory to continue to climb and I expect prices to stabilize. Unless the new Delta variant of the Covid virus returns our country to a state of lock down, creating a second exodus from urban areas, our real estate market should return to a place of normalcy, where we have 3 to 4 months’ of inventory and we can expect our homes to appreciate around 5% to 7% annually.
Call me and let’s chat about your unique situation. With low interest rates and more homes to choose from, it’s a great time to buy, and with record high prices, it’s a great time to sell. If you made it all the way to the end, thank you for your time. I sincerely appreciate you, your friendship, and your business. Buying or selling a home is an adventure. Let me be your guide.
Principal Broker and ‘Southern Utah’s Home Adventure Guide’