Some homes in Provo, Utah received 50 offers at the height of the real estate boom. Economists are now warning of “overvalued” real estate markets.

Moving to Utah was a no-brainer for Leola Broussard.

Broussard, who previously rented a house from a friend in the expensive Stanford-Palo Alto area south of San Francisco, where the cost of housing, she told MarketWatch, is “just completely outrageous.”

In the two years of the pandemic, many Americans, like Broussard, have flocked to Utah in search of larger living spaces and less congestion. It was bittersweet for Broussard because she loved living in Northern California.

Still, the tidal wave of Californians, a growing millennial population, and a shortage of building materials have all combined to create an explosion in Utah real estate prices that largely reflects a national trend.

What Broussard, an IT industry researcher, doesn’t miss about the Bay Area is “the hustle and the craziness.” In Utah, she said, “there’s more work-life balance.”

That influx comes at a price: Recent research from Florida Atlantic University and Florida International University suggests that real estate in several Utah cities — including Ogden and Provo — could be overvalued by as much as 50% based on historical prices.

“Unless we’re at the peak of the current real estate cycle, we’re awfully close.”

– Ken Johnson, Florida Atlantic University

The median price for a home in Salt Lake County, which includes Salt Lake City, Riverton, Draper, West Valley, West Jordan and other communities, was about $512,850 in May 2022, a 27% increase from last year, according to Zillow. This compares to a national median home price of $349,816 in May 2022, a 20.7% increase over the past year.

“Near record-low mortgage rates helped boost demand for housing, particularly during the pandemic, and home competition has pushed prices higher. But now the Federal Reserve is raising interest rates to curb inflation, and that’s already cooling demand,” Ken Johnson, co-author of the study and an economist at Florida Atlantic University’s College of Business, told a Florida Atlantic news publication.

“Unless we’re at the peak of the current housing cycle, we’re awfully close,” he added. “Recent buyers in many of these cities may have to endure flat or falling property values ​​as the market settles down — and they don’t want to hear that if they had plans to resell them in the near future.”

Recent research suggests that real estate in several Utah cities — including Ogden and Provo — was overvalued by as much as 50% based on historical prices.

George Frey/Getty Images

However, local experts disagree that houses in Provo are overpriced and left to decay. Instead, they say, given the rising interest in the Beehive State, prices may actually continue to rise.

But one thing is clear: the market there is cooling down. Dejan Eskic, a senior research fellow at the University of Utah, told MarketWatch that sellers are now submitting three or four offers instead of one home receiving 15 offers.

Eskic emphasized that this is still a considerable number of offers. Real estate in Utah stays on the market for an average of nine days, according to Redfin data. In Salt Lake City, houses are on the market for about a week; at Pleasant Grove, five days.

Eskic said houses were on the market between two and three and a half weeks before the housing boom. “So we’ve had about 18 months of price increases,” he added, “and we’re still moving in that direction.”

The question is how long? Case in point: At one point during the pandemic, Andrew Ford, a real estate agent in Provo, told MarketWatch that it’s not uncommon for a property to receive 50 listings. “It was crazy putting the offers to our sellers,” he said.

In fact, he put the offers in a spreadsheet “so the seller could go through them and pick the best ones.” Just two or three months ago he was seeing 10 listings per house. Now he sees offers in the single digits. The number of people competing for a home is decreasing, but they’re still bidding above the asking price, Ford said.

Provo is the third largest city in Utah after Salt Lake City and West Valley City.

Getty Images/iStockphoto

The US housing market appears to be slowing across the country, in part as the US Federal Reserve is raising interest rates. Home builders ran out of windows and garage doors; They survived a rise in timber prices.

Economists at Florida Atlantic and Florida International cautioned buyers in other real estate markets they say are overvalued. These markets include Boise, Idaho; Austin, Texas; Ogden, UT; and Las Vegas – all of which identified them as overvalued by more than 60%.

The authors add that just because a market is overvalued by 50% or 60% based on historical price movements doesn’t mean it will fall by that amount, but they don’t anticipate a painful wake-up call for buyers and sellers in them markets.

A stubborn problem supporting prices in Utah: a shortage of building materials combined with a strong native millennial home-buying population, Eskic said.

When he asks builders in Utah what materials they’re missing, “I’ve gotten a different answer for the past year, probably every month,” Eskic said.

And while supply lags, home demand remains so strong that it’s creating an affordability crisis, economists say.

“Ridiculous” prices

In the past year, the competition for houses reached a boiling point. “As prices accelerated in 2021, more than half of Utah households [were] unable to afford the house at the average price,” Eskic wrote in an October 2021 report. The median annual household income in 2020 was $83,670, according to the latest data from the St. Louis Federal Reserve.

Leola Broussard said her experience buying and selling homes in Utah gave her her first-hand insight into the local housing market.

Last May, she bought a condo in Pleasant Grove, part of the Provo-Orem metropolitan area. In the process of selling it in February, she recalled that the first day it was listed, her agent got a couple of calls and three offers. Within two days they had almost 10 offers in total.

“The pricing is completely ridiculous,” said Broussard. In April, she moved to her second home in Utah, a three-bedroom house she bought for over $450,000 in Eagle Mountain, near her family. (In 2021, Google parent company Alphabet GOOG,
bought 300 acres in Eagle Mountain for a new data center, The Salt Lake Tribune reported. Facebook also has a data center in the area.)

The surge in house prices in Provo in the wake of the pandemic sounds strangely familiar to Broussard. “It’s almost like I left California to go to California,” she said.

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