Tag - utah housing market

Is Inflation Going to Get Out of Hand in 2021?

A question on many minds these days: Is inflation about to get out of hand from all of the money the Federal Reserve is creating and all the money that Congress is spending? The ingredients for inflation are active in the economy. There is a lot of fiscal and monetary stimulus as congress and the Federal Reserve work to jumpstart the economy after the hit it took from the pandemic. The Recent stimulus bill amounted to about $5 trillion. There is a lot of pent-up demand from consumers, who have had to defer much of their normal spending during the year, on everything from meals out, to travel, to haircuts, to professional clothes for the office. Already, signs of inflation rising are appearing with rising commodity prices and bond yields. Rising home prices don’t factor into government inflation numbers, but they do affect many people's cost of living. However, the Federal Reserve isn't worried. Chairman Jerome Powell is betting that inflation won't get out of hand and that reviving the economy is more important right now. In fact, he actually wants some inflation…not too much, but something a bit above the traditional ceiling of about 2%. If prices do start to jump, Powell figures the Fed can increase interest rates to restrain inflation sometime down the road. Still, higher inflation is expected in the months ahead. Inflation is roughly rising 0.2% a month, which is a reasonable base assumption. If that is the case, we should see 1.5% inflation in March, but it will quickly rise to 2.1% and then 2.4% in April and May, at that relatively being 0.2% assumption. As you can see the increase isn’t outrageous, but it is high enough that consumers will notice. Inflation should begin to relax as we continue to see the economy opening up. There was a surge of jobs added in March as more businesses get back to normal operations. Schools, food service, hotels and amusement parks made up half of the increase this year already. Construction jobs also increased as the weather continues to warm up across the country. With people returning to work the unemployment rate for the country is down to 6% and should continue to fall quickly, hopefully dropping below 5% by the end of the year. One silver lining of the increase in inflation this year is a bigger cost-of-living adjustment for Social Security recipients in 2022. This year's COLA came in at only 1.3%, largely because so many prices dropped or stayed steady in 2020, when pandemic shutdowns effected the economy. Now, prices of gasoline and many other goods and services are rebounding. Figure a jump of social security benefits of about 3% next January.

*Source: Kiplinger Letter: Vol.98, No.10**

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What to Expect from 2021 Housing Market

It’s safe to say there will not be a lot of people sad to say goodbye to 2020. With new vaccines being developed it seems the days of the pandemic will soon be behind us, while it seems the increasing home prices may be here to stay. The demand for housing and the housing market are expected to remain strong in 2021. Prices are expected to decrease through the spring and summer, and then gradually increase toward the end of the year. Sales of existing homes are projected to increase 7% in 2021. This increase is expected to come from younger millennials who are competing with older members of Generation Z for starter homes, baby boomers who are looking to downsize and many renters are seeking to buy their first home. The demand is being fueled by mortgage rates at record lows, and from the pandemic making many households realize they need more or different housing than what they have needed in years past. We just finished helping a family buy a new 4,400 sq. foot home who was in this same boat. Their previous home was 1,800 sq. feet which was perfect when they bought it 5 years ago. At the time they bought it, it was just them with a baby on the way. Now they have 2 kids and thinking that there could be one more. Prior to the pandemic they felt their house was cramped, but they were rarely in it and it did not bother them that bad. The husband worked days at an office and the wife is a nurse who works nights. The pandemic shifted their life. The husband is now working from home in a cramped corner of his bedroom and kids running around everywhere. Their weekends are spent at home stepping over each other all day instead of being out and about. They decided it was time to sell and buy a new house. They found a bigger house for sale in their neighborhood because they didn’t want to leave their neighbors. They went under contract and then listed their 1,800 sq. ft. house which sold in a couple of days. Their 1,800 sq. ft. house was the perfect starter home for them. They quickly outgrew it but continued living there due to convenience. The pandemic changed everything, and it was no longer convenient to stay in the cramped space. They love their new 4,400 sq. ft. home. They love that they were able to stay in the same neighborhood. They love that the kids have their own play area, and they are no longer stepping on toys throughout the entire house. They also feel with the extra space they can get more serious about having baby #3. If 2020 taught us anything it is that everything can change in an instant. There is only so much we can make predictions about for the new year. If you are in the same situation where your house used to fit your family and lifestyle but due to the pandemic you have quickly realized it does not due to not having a dedicated home office or enough space to stay sane with everyone being in the home, give us a call.
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Impacts of the Second Wave

It has been just over 6 months since the first case of COVID19 was reported in Utah. Now that 2020 is almost over and we are dealing with the impacts of the Coronavirus, the question is what can we expect from the rest of 2020? It is predicted that a second wave of increased cases could bring about another tough hit to the economy. Many say the second wave is already affecting Utah, as daily reports of positive cases are increasing and many schools have switched back to online distanced learning after less than 2 months of being open. Unemployment skyrocketed in the United States at the beginning of the pandemic due to continued stay-at-home orders, business closures, health concerns, and reduced demand for products and services. As a whole the country’s unemployment rate has seen little signs of improvement, but when you look at state levels, Utah is doing extremely well. Utah currently has the second lowest unemployment rate in the country at 4.1% according to the U.S. Bureau of Labor Statistics. Utah’s rate is less than half of the national rate of 8.4%. This means many of those who were furloughed or laid off at the beginning of the pandemic are getting to return to work. The Salt Lake Chamber reports that weekly unemployment claims in Utah have steadily declined for the last 16 weeks. “Utah’s economy continues along its path of improvement,” reports Mark Knold, Chief Economist at the Department of Workforce Services. “The unemployment rate dropped in August and remains one of the nation’s lowest. It speaks to the energy and prospects within the Utah economy.” Utah’s economy has done a lot to recover, but it still has a long way to go. Travel and tourism, as well as restaurants took a hard hit in Utah and are not expected to recover for years to come. While some industries are struggling in the pandemic economy others, like the housing market, are doing quite well. When the pandemic first hit in April there was a big drop in real estate transactions, but the market has since recovered.

The graph below illustrates how the real estate market started out strong in early 2020, and then dropped dramatically at the beginning of March when the pandemic paused the economy. It also shows the strength of the recovery since the beginning of May. **Graph from realtor.com

Housing Market Recovery Index 2020

The current market is an insane seller’s market. Historically low interest rates and a shortage of inventory has kept the housing market moving this year. There was an unusually high demand from buyers during the homebuying season. Buyers are wanting to move faster to beat out other buyers and lock in a low interest rate. There has even been an increase in new construction home sales. Utah’s construction industry increased by 7.4% and continues to be Utah’s fastest growing industry over the past 12 months, as reported by the Salt Lake Chamber. The housing market is thriving so far this year, but what could the second wave mean for the market? Well we can make a few predictions from what we know. The Federal Reserve has said interest rates are expected to stay low for the next few years. With low interest rates still fueling the purchasing fire, the demand for housing is expected to remain strong for the rest of 2020. Due to the extreme buyer competition and shortage of homes for sale, home prices have begun to rise and could continue to rise further. In August, the median home price in Utah was $362,000, which is $37,000 more than 2019. When a market has low inventory, people are willing to pay more for a home in order to beat out other buyers competing for the same home. Sellers are finding the ball in their court in this market, as they are able to price their home competitively to get the best price for their home. The high demand from buyers and low inventory is expected to continue so we can expect to see home prices move up. With the pandemic continuing to put many people out of work we can also expect to see an increase of homeowners that will default on their mortgages and be forced into foreclosure. Although foreclosures are not expected to reach anywhere near the level we saw in the 2008 Great Recession, we can still expect to see a few people affected. And let’s not forget we have the impending presidential election this November. We all know the political climate can greatly impact the housing market, so it will be interesting to see which direction the election goes and how that affects the housing market moving forward into 2021. If the coronavirus pandemic has taught us anything it is that life can change at any moment. Although we don’t know exactly what to expect from the rest of 2020 by understanding the current trends and economic climate, we can have a better prediction of what’s to come.
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The Cost of Waiting

Interest rates have been at historically low levels this year due to the COVID19 pandemic. Many people have taken advantage of these great rates by purchasing a bigger or more expensive home with the same or more affordable payment. And even more people have taken advantage by refinancing their loan into a great low rate. However, even with rates at extremely low levels there are still many people wondering if it's a good idea to wait and see if rates get better before purchasing a home or refinancing. One thing that is not often considered when it comes to playing the waiting game with interest rates is the amount of money you could be saving while you wait for interest rates to lower.  Even if rates do improve in the future, the money that could be saved during the waiting period may be significant. A few hundred dollars saved per month could add up to potentially thousands before a lower rate opportunity arises. The forecasted appreciation is 2.0% in just the next  months. This means a home worth $350,000 today would be worth $7,000 more in 6 months. If you are playing the waiting game you are missing out on the potential appreciation and ammonization of your home. It could take many, many years to recoup the money you have lost. While it is true that we don’t know if rates are going to go lower, we do know that they will eventually go higher. Why risk the chance of missing out on a great low rate and savings each month?  It could take a long time for the savings of a lower rate in the future to make up for all the money that was lost by waiting for interest rates to lower again.  And remember, there's no guarantee that rates will go lower. Besides should rates drop significantly, we can always refinance you in the future. It's important to weigh the individual options for your situation and I'm here to help you do that. If you have any questions on a home purchase or refinance give me a call, 801.206.4343. I would love to answer any questions you have and discuss the best option for your specific situation.
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