Excess of Existing Low-rate Mortgages Continue to Lock out New Homebuyers

By Robert Spendlove, Zions Bank Senior Economist

Thirty-year fixed mortgage rates have been hovering around 6-7% for nearly two years, but most Utah homeowners have locked in a much lower rate. In fact, 72% of Utah homeowners have a mortgage with an interest rate at 4% or lower — the greatest share of homeowners in any state, according to an analysis by the University of Utah’s Kem C. Gardner Policy Institute. One reason for Utah's high percentage of low-rate mortgages is the state’s strong housing market. Surging home values over the last decade helped existing homeowners build equity, allowing many to refinance their mortgages and take advantage of historically low rates. While rock-bottom rates benefited those who were able to refinance or get a new mortgage before rates shot up, the surplus of existing low-rate mortgages has created a lock-in effect in the market.

Current homeowners unwilling to give up their lower rates are freezing up housing inventory, making it more difficult for younger and lower-income families to enter the state’s already- tight housing market.

Utah’s average home value was $522,754 in May 2024, well above the national average of $360,681, according to the Zillow Home Values Index. A Zions Bank analysis of U.S. Census Bureau and Zillow data found that housing costs are taking a much bigger bite of the household budget than they were a decade ago. In 2022, a typical Utah family spent five-and-a-half times their annual income on a new house, up from just over three times their annual income in 2012. The result is that Utah’s housing market is the most unaffordable in our state’s history.

The Beehive State’s homeownership rate dropped from 71.2% to 70.3% from 2022 to 2023, which isn’t surprising given that more than 90% of renter households can’t afford a median-priced home.

To address housing affordability, Utah needs more housing units, more housing density and a variety of housing options, including more multi-family units and mother-in-law apartments. The Gardner Institute projects 153,000 new housing units will be needed by 2030 to meet growing demand and keep the housing market in balance.

Utah also needs more starter homes, and those starter homes need to be less expensive. This will require a reassessment of what homebuyers demand and what homebuilders provide. For example, I bought my first home in 1999, an 1,100-square-foot house with a carport. Today, a young family would be hard-pressed to find a similar cost-effective option along the Wasatch Front.

Housing affordability is a tough issue, but if we don’t address it, it will impact the state’s future workforce. Utah may start losing young families to more affordable parts of the country, or transition away from a home-ownership society to become a rental society like Europe.

Regardless of one’s personal housing situation, affordable housing is foundational to health and well-being, educational outcomes, social stability, and the economic vitality of our communities, state and nation.