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Builders: A Look to the Future

Published August 8, 2022

Noise, spam, clickbait… sensational headlines are everywhere you look: “The Biggest Housing Crash Of Our Generation is Coming”, “A 2008-Style Housing Market Crash is Coming, Senior Economist Warns”… my internal alarm belz (get it?) start going off when I read a ‘feelings based’ article about the future of American real estate.

Fortunately, when it’s time to filter through the fluff, finding reputable sources is simple. Piecing the facts together to make the best decisions on your investments is the hard part. Of the many areas I look for ‘clues’ on the future of the real estate market, I start with looking at builders. Are developers continuing to build? Are permits still being filed? Is there a housing deficit in the regional market?

Researching these questions led me to Freddie Mac’s analysis on America’s housing deficit and what they call the 5Ls: labor, lending, laws, lots, and lumber. These 5Ls are the catalysts Freddie Mac consider to be why the country is running a 3.8M home deficit in 2022 [2]. Yet constant labor shortages exacerbated by the pandemic, volatile lumber prices (among other materials), and restrictive zoning laws, proved to be inadequate headwinds for builders in 2021 as new housing started to boom last year. The true lever pulling down housing appears to be increased lending costs.

New residential construction dropped 6% in June and 8% in May [3]. In total, the first six months of 2022, single family housing slipped 4%, yet multifamily construction jumped 23%. Furthermore, multifamily permits nationwide climbed 13% from May to June [4]. In fact, Utah added 16,100 (14%) construction jobs, the most in the country since February 2020. Residential home builders are finding it less profitable to build single family homes, while multifamily builders continue to find projects profitable as rents nationwide continues to climb to reach record prices.

Salt Lake County has attracted record levels of apartment development, and that trend is projected to continue through 2024 [5]. The sustained housing shortage in the city and surrounding areas exclude many households from homeownership. In fact, the price increase for rentals is just 5.5% compared to an 8.5% increase for single family homes.

This information alone does not prove strong sustained growth for the Salt Lake market, it is however, one of many factors that gives Belz Living the confidence to continue investing in the area.

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