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Utah home prices set to increase 7 percent even with interest rates rising

(KUTV) Utah home prices have been steadily climbing for years.

The question, as we head into the spring selling season: Will home prices continue their steady climb or reverse as interest rates rise?

To get the facts we went straight to the experts. James Wood, a senior fellow of Utah’s Kem Gardner research Institute with the University of Utah, and Richard Spendlove, senior economist for Zions Bank. Both men know a lot about Utah’s economy and home prices, without having any ties to buying or selling homes.

Most people, these two men said, want to know one thing: Will your home's value continue to grow with possible mortgage rate increases coming as soon as next week?

First up, mortgage rates are currently in flux with many expecting rates to increase late this month with Federal Reserve Chair Janet Yellen signaling federal rates could be on the rise. Which way the numbers go will likely be decided by March 14.

Even with mortgage rates likely on the rise, Utah is in a unique position where housing prices will still keep going up.

Wood has studied Utah’s housing market and economy since 1975.

“The state has had five years where they have gone up and I believe we will get another in 2017,” Wood said. He also said that mortgage rate increases are often connected to a reversal in home prices, but this time that won’t likely be the case.

“I think perspective home buyers should expect higher prices and a little bit higher interest rates,” he said. It is a double whammy for the family budget, but the reality, Wood said, in the current Utah housing market.

“Demand” he said is “high right now” and is “really exceeding supply.” The law of supply and demand means buyers will have to adjust their expectations while searching for the new home of their dreams.

“They will probably be getting a little bit less house or they are paying a bit more.” Something, Wood said, will have to give.

The uptick in housing prices have been seen nationally, but even more so in Utah with a strong economy.

“The number of people moving in to the state jumped to over 20,000 and it increased by over 40 percent last year” said Spendlove. As an economist, he watches where growth is happening. Currently he said there is strong growth within the state naturally, as families expand, but there is also a large migration of people into the state.

Spendlove, who works with the governor’s office, expects Utah’s population growth to leap by 23,000 in the new year.

New homes, both men say, are the solution to the shortage. The problem is that homebuilders can't keep up with demand. And with unemployment rate sitting at percent, there is a lack of skilled labor available. New land to build on is scarce.

“The value of new construction has been going up dramatically. We are back at the levels where we were pre-recession. 2006-2007,” Spendlove said. Many local builders are shifting focus to compensate for low supply and high prices according to Spendlove.

“One of the impacts we have already seen last year was a shift away from single family homes to apartments and condos that are a more affordable option to traditional homes," he said.

Wood, who isn't a realtor, advises now is the time to go online to sites like Realtor.Com and UtahRealEstate.com and start shopping.

"Whenever now is, is the best time to get it, the best way to build wealth. Its' the only way for most households to build wealth. Just don't take a second mortgage. Don't refi."

He said refinancing is the best way to lose financial ground.

“Utah is not an island. We are impacted by national and international trends,” Spendlove said.

Even if there are economic issues nationally, prices likely won’t take a huge hit, according to our experts. The law of supply and demand will remain and Utah is growing -- like it or not. State wide population increases are predicted to be seven to 10 percent in Utah during 2017, though that can vary depending on the city. Homes selling the fastest and increasing the most are median priced homes in cities like West Valley, West Jordan and in the Ogden area.

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