Should You Be Worried About a New Housing Bubble?

Belladonna Riso Real Estate Video Blog

If you’re concerned that we might be looking at a new housing bubble, here are some market statistics to put your mind at ease.

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Are we looking at a new housing bubble here in Utah?
It’s a question a lot of people are asking because—in case you didn’t know—home values in Utah have risen 48% in the last five years. That is absolutely unprecedented, and it has some people worried.
The good news is that according to renowned economist James Wood, there is no sign of another housing bubble happening in Utah anytime soon. Why? There are a couple special characteristics of a housing bubble that aren’t present in Salt Lake County and Utah County.
That first is a rapid rise in household debt. For example, in the three years preceding the great recession of 2008, household debt rose 35% in our state. That rise was primarily due to the refinancing of existing mortgages, taking out home equity lines of credit, or picking up a second mortgage. There is currently no sign of that happening here. Our debt load is very healthy.

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There are many indicators that prove we’re nowhere near a housing bubble.

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The second characteristic of a housing bubble is a lack of affordability. To determine affordability, we look to the Housing Affordability Index. For a frame of reference, if the index is at 50, that’s considered a nice, healthy market. Right before the market crash, the affordability index in Utah was at 30, which is well below a healthy mark. As of the end of 2016, our affordability index was a whopping 70, which is one of the best in the country.
There are two more indicators specific to Utah that prove there’s no bubble in sight.
The first is the fact that we’re experiencing a housing shortage. We have a larger number of households in Utah than actual housing units. In other words, there are more people who want homes than there are homes available. This is quickly driving up prices for both homes sales and rentals. However, we’re still well within affordability limits.
The other indicator is the condition of our state economy. From 2000 to the middle of 2016, the entire country had a job growth rate of 11%. In Salt Lake County, our job growth rate was 33%. In Utah County, the job growth rate was 35%.
I hope that puts your mind at ease. If you’re looking to buy or sell or you have any more questions about this topic, please don’t hesitate to reach out to me. I’d be happy to speak with you!