Real estate in St. George goes down when interest rates go up

St George • Rising interest rates and high prices have slowed dramatically, but not completely, home sales in southwest Utah’s Washington County, which includes the St. George metro area, which is the fastest growing metro area in the country by percentage between July 2020 and July 2021 brought to a halt.

The US Federal Reserve last week raised interest rates for the fourth time this year in a bid to curb inflation. The latest hike dismayed potential buyers Mike and Cheryl Taylor of Kansas City, Missouri, who say higher interest rates have put their dream of moving to St. George out of reach.

“We just don’t make enough money to qualify for a loan,” Cheryl said. “It’s heartbreaking because we’ve wanted to move here since we visited Zion National Park a decade ago.”

The Taylors are not alone.

A year ago, buyers in Washington County secured home loans with interest rates ranging from 2.5% to 3%. But with interest rates more than twice what they were four months ago, buyers who need credit often can’t get one.

“They can’t qualify because their payment exceeds their debt-to-income ratio,” said Allen Holland, principal broker at Red Rock Real Estate. “Before the rate hikes, the payment for a $500,000 house was about $1,300 to $1,400 a month. Now the payment for the same house is about $2,000.”

Joe Langston, co-owner of Keller Williams Realty in St. George, explains that real estate agents have a rule of thumb – if interest rates go up one point, it impacts people’s spending power by 10%. For the 40% of buyers in this market who pay cash, rate hikes don’t have much of an impact.

“Either they want the house and have the money to buy it, or they don’t want it,” he said. “But for people who don’t have enough money to pay for a property in cash and need credit, their purchasing power and affordability have been reduced.”

Added to this are supply bottlenecks, high fuel costs and general inflation.

“All of these factors, combined with higher interest rates, are causing our market to slow down somewhat,” said Brandon Welch, area manager of Citywide Home Loans, whose business has plummeted about 50% in recent months.

Washington County home sales are down 12.5% ​​for the first six months of 2022 — from 2,751 in the same period in 2021 to 2,406 this year, according to Dejan Eskic, a senior research fellow at the Kem C. Gardner Policy Institute University of Utah.

The decline is not only a burden for buyers, but also for builders and real estate agents. Stacy Young, director of government affairs for the Southern Utah Home Builders Association, said the evidence — largely anecdotal at this point — suggests business in the region for home builders is down and cancellations are rising.

“[Builders] looking for ways to hold deals together, whether that’s by buying interest rates or offering discounts or whatever,” Young said.

Holland says some real estate agents are being ousted. Experienced agents who sold 20 homes at this point last year have sold just six in 2022, Holland says. And homes that sold in a day or two at the height of the housing craze during the pandemic are now on the market for 60 days.

To make ends meet, he tells his agents to go back to old-school methods — knocking on doors and making phone calls. He has also told agents to instruct sellers to drop the price by 5% if a house doesn’t sell on the market for two weeks.

Despite such advice, he believes there are some agents, particularly the newer ones, who will retire from the profession.

“I think we’re going to see about a 10% drop in the number of real estate agents renewing their licenses,” Holland said.

Though home sales have declined, home prices in Washington County remain high. According to the Utah Association of Realtors, the average home price last month was just under $577,000, up more than 25% from nearly $460,000 a year ago.

Prices are beginning to stabilize or fall slightly — between 5% and 7% by Holland’s estimate — but real estate experts say the decline will be nowhere near what the market saw during the Great Recession of 2008. The market and the demand for houses are too strong.

Red Rock Realty has a “hot sheet” that comes out every Friday to attract buyers. Typically, the sheet lists about 20 discounts. But last Friday it was 42, which Holland says is extremely high.

A bright spot for buyers is the inventory. Washington County’s inventory stood at 1,441 homes as of July 29, down from a low of 219 a year ago, Holland said. That means buyers have more homes to choose from.

A little history also lends needed perspective to interest rates following recent rate hikes, which Langston says have fluctuated about 5% over the past two decades.

“The rate we have now is actually historically healthy and reasonable,” he said.

In other words, Langston and other longtime real estate professionals say the market is returning to pre-pandemic normalcy from last year’s irrational exuberance.

Welch, who has been in the business for more than 20 years, has a tip for fixed-rate buyers.

“My advice to people is to fall in love with the house, not the price,” he said. “Because rates are always going to fluctuate and later they will have an opportunity to refinance and get out of those higher rates.” Real estate in St. George goes down when interest rates go up

Justin Scacco

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