St George Real Estate Housing Market Conditions and Projections

As we enter December 2023, we find ourselves approaching the concluding weeks of what has proven to be a somewhat turbulent year for the real estate market. I hesitate to label it a "bad" year; rather, it has been a corrective period, a return to what we might consider normal. Defining "normal" in this context, I'll use the pre-COVID era as the baseline, as the post-COVID period appeared to be the instigator of the anomaly. During the COVID anomaly, we witnessed a sharp decline in inventory, accompanied by a surge in sales, offering a lesson in the principles of supply and demand in economics.

Today, some individuals anticipate the return of what they consider "normal" interest rates. However, this is where it becomes intriguing. The current interest rates are, in fact, the "normal". The 2-5% rates we enjoyed over the past several years were the anomaly. It's doubtful that we'll witness those low rates again. The past is shaping the present housing situation, with buyer reluctance in the hope of the return of low-interest rates. Sellers are divided, with some hesitant to part with their advantageous rates. Some sellers seek to sell at prices reminiscent of a year ago, which is unacceptable to current buyers. Consequently, the market has experienced a slowdown.

Check out this graph. I pulled Greater St George, showing 2019 to the current (November 2023). It's interesting to note that we are quite similar today in "active" and "Sold" listings as we were back in 2019, with one exception...PRICES. Housing prices are still significantly higher today compared to 2019. It took 2 years for that anomaly to increase; I suspect the decline will happen quicker. 

St George Utah Housing Market Condtions

The question arises: How do we restore affordability to the housing market? It won't come from local and state governments. While avoiding diving too deeply into politics, it's essential to recognize that relying on the government to fix affordability is not the solution. Injecting taxpayer money into housing incentives has historically failed to address the underlying problem. Instead, the market needs time to naturally correct itself.

There will always be sellers compelled to sell due to reasons like job transfers or family matters. To ensure a successful sale, sellers will need to price their homes appropriately, and this will not align with the prices seen a year ago. Some sellers will recognize this reality and choose to price their homes more aggressively (on the lower end of comparable listings), triggering a downward price trend (which is currently happening). As prices decrease, more buyers may become willing to accept higher interest rates. The combination of a lower price and higher rates can still result in the monthly payment they desire.

How fast will prices decrease?

For full disclosure, I'm not an actual fortune teller---so the following is my opinion. I've hit the bullseye before, so here comes my expectation.

Numerous variables are at play that could significantly change the trajectory, including global events such as conflicts, wars, and political shifts. While I anticipate that interest rates will likely remain around their current levels, possibly even experiencing a slight increase, housing prices are expected to decrease. However, on a local level, property taxes will not follow suit. In fact, over the next year or two, there's a likelihood that property taxes will increase, partly due to the impact of a bond tax that a small percentage of residents imposed upon themselves, and of course our horrible property tax system, which allows for uncapped increases and virtually no decrease (year to year).

In the past couple of years, homeowners took out Home Equity Line of Credit (HELOC) loans, utilizing the available credit for various home improvements. Now, they are experiencing the consequences of those variable rates, with payments on the rise. Homeowners who bought into the idea of "don't marry the rate" are now feeling the pinch as variable rates increase, affecting some with both their primary mortgage and HELOC loan.

Homeowners who entered the market at its peak with the expectation of falling rates and better payments have seen their payments move in the opposite direction. Rising property taxes, attributed partly to choices like funding "free parks," add to the financial strain. Also, if property values drop too far, many homeowners will not have the ability to refinance. This situation is poised to set the stage for an impending housing storm. Builders, remembering the repercussions of 2006, are uneasy, while some who remain oblivious and continue subdividing may soon feel the sting. Investors, anticipating profits from nightly rental purchases, are likely disappointed and they are witnessing declining values--they are usually the first to unload losing investments. They will likely add to an imminent surge in inventory. 

Homeowners grappling with variable rate increases and economic challenges may face foreclosure, potentially leading to an increase in bankruptcy filings that could, to some extent, slow down the housing implosion. While various factors might mitigate the descent, the overall trend appears to be downward. The degree and pace of this decline remain uncertain, and only time will reveal the true trajectory. If I had to guess, I'd suspect we will get down to the prices we had in 2019. If world events increase, I do suspect the valuations to reduce further. 

If you're considering buying a home for the long term, it's generally a good decision. If you come across a fantastic home, go ahead and make the purchase. While prices are expected to decrease, they will also rebound over time. If your intention is to stay in the property for the long haul, you should be in good shape. However, if your plan involves a short-term investment or flipping, you might prefer to hold off, given the current market conditions.

Paula Smith RealtyPath St George

I am Paula Smith, Associate Broker with RealtyPath of St George. I have been a licensed, full-time real estate agent in Southern Utah since 2006. I have been selling residential real estate during all of the changes in the market and witnessing our St George area become one of the fastest-growing cities in America. I keep my finger on the pulse, paying attention to market conditions. If you're ready to buy or sell, I'm ready to make it happen.

Paula Smith connect with Facebook Find Paula Smith on Facebook