A Hot Market Still Heading Skyward

by Carole VanSickle Ellis

In Provo, Utah, the city motto is “Welcome Home.” However, homebuyers report, it is becoming increasingly difficult to actually get to the point of putting out the welcome mat in today’s extremely tight housing environment. Of course, for real estate investors, that just means creative thinking is more important than ever in this market. With homes only staying on market for an average of six days in July 2021 (down from just 17 days in May 2020), buyers able to generate leads on properties before they hit the market have the best chance of getting an investment deal done. 

According to local realtor and investor Roger Jacobsen, the market in Provo is full of opportunities for fix-and-flippers in particular. Jacobsen, who currently has two flips in his sights (one of which is his own house), said local population and economic growth make Provo a particularly good bet for investments right now. “We expect Utah County [where Provo is located] to grow 157 percent in the next 50 years,” he explained, adding, “It will be amazing.”

That population growth will be due, in large part, to people living outside the state moving into the Provo area. In fact, about a half a million Californians were at least browsing the Utah Association of Realtors’ website during 2020—far more potential buyers than the state has available homes. Utah County added 135,000 new residents between 2010 and 2019 according to the U.S. Census Bureau, and the area is burgeoning with pandemic-related population growth as well. With property values skyrocketing upward more than 30 percent year-over-year, buyers from areas of the country with higher costs of living than the cost of living in the Provo area will likely have the best shot at winning a bid and making it to the closing table. In Utah County, the median home price exceeded $450,000 in May of this year. Many local builders say they will be unable to complete construction projects that might alleviate demand because lumber prices are up nearly 400 percent. 

“The frenzy of home-buying and renovation activity in Utah and around the country, driven by consumers throwing off the shackles of pandemic-induced home isolation, skewed the market,” observed Utah InDepth journalist Katie McKellar in May. Around the same time, Wells Fargo economists warned that an “affordability migration” will continue to send more buyers into areas like Provo in search of new construction and existing homes. 

A Perfectly Positioned Emerging Luxury Market

Provo’s geographic location and high quality of life are attracting luxury buyers to the area in droves. In fact, the Wall Street Journal and Realtor.com recently ranked Provo as the leading emerging luxury market in the country based on their jointly produced Emerging Markets Index. Danielle Hale, chief economist for Realtor.com, explained the index is intended to help users identify “good places to buy homes because the housing market is doing well.” However, she went on, “It’s not just about the housing market. It’s about being able to enjoy life there, and that is true for these luxury markets.” Analysts from WSJ and Realtor.com assessed prosperity in 60 markets by evaluating growth in housing supply and demand, median listing prices, unemployment, wages, a cost-of-living measure, small businesses, amenities, and local share of foreign-born residents. 

Provo’s emerging technology corridor, dubbed Silicon Slopes and headlined by a 501(c)(3) nonprofit by the same name, adds a powerful incentive for buyers interested in Provo’s already-attractive luxury real estate tier. Thanks to Utah’s four distinct seasons, proximity to the Rocky Mountains and national parklands, and temperate climate, residents can enjoy skiing, hiking, and rock climbing from any location in the Provo area. With the COVID-19 pandemic continuing to affect every aspect of life and causing more and more businesses to postpone employees’ return to physical offices in part or completely, the allure of Provo’s natural wonders and relatively lower cost-of-living is drawing in many affluent buyers planning to relocate permanently. Local agents and investors report multiple offers on multimillion-dollar properties starting last fall, noting properties with proximity to natural amenities and a good view were particularly attractive. 

Hale warned that trends in the luxury market tend to be more of a “wild card” for investors than in other tiers of the market because buyers have more discretionary income and make choices based on different priorities than more conventional buyers. Investors acquiring properties in the Provo area should carefully evaluate both how the luxury market is performing since those homeowners will directly affect the local consumer economy and jobs market and how the numbers may be skewing values for less-expensive housing. 

“A lot is going to depend on how much those [luxury buyers’] priorities stick with us and how much some of the flexibility people enjoy now becomes the normal way of doing business,” Hale explained. She added that currently markets like Provo that are “a bit more remote and that have a high quality of life” are the most attractive to most homebuyers at all affordability levels. “It is a reflection of how people’s demands have shifted because of the pandemic,” she said. 

Edging Out Utah’s 24-Hour Metropolitan Option

In keeping with the trend of shifting priorities, it appears that Provo’s rental market is also likely to continue seeing substantial growth—to whatever extent local inventory can accommodate it—as Salt Lake City renters join their West-Coast counterparts in heading for the slightly-more-rural areas of Utah. According to ApartmentList.com, more than one-third of renters in Salt Lake City are currently searching for apartments elsewhere, and about one in five of those renters are investigating their options in Provo. Analysts are calling the movement an “urban shuffle” rather than an “urban exodus” since many households are moving to less expensive, more geographically pleasant locations but still prioritize remaining within a reasonable commute of the city. 

Naturally, rising demand for rental properties is driving rental prices up, and some analysts say Provo is rapidly losing whatever relative affordability it boasted prior to 2021. The Utah Housing Coalition (UHC), for example, recently complained that across the state renters were being priced out of both homebuying and continuing to rent in the area. “Even though employers are competing for employees by paying higher wages, this is still not enough for households to afford their housing only paying 30 percent of their income to housing,” UHC spokespeople explained in July 2021. Utah currently has a minimum wage of $7.25/hour, although the average renter in the state earns $15.66/hour. Silicon Slopes director Clint Betts believes that a wide distribution of tech companies across the region will help improve those numbers. His nonprofit is focused on encouraging startups in the area to locate in rural areas in Utah County, where Provo is located, in order to avoid mimicking Silicon Valley’s notorious evolution into a largely unaffordable market even for those who work there. 

Betts said Silicon Slopes hopes to help prevent renters from getting “priced out” of their current homes by the surge of new residents buying and renting in the Provo area. In fact, both Silicon Slopes and Utah County have begun focusing heavily on dispersing tech employees across the state and fueling the growth of companies already in residence. This is good news for real estate investors looking for new markets in the area where competition is not yet quite so hot and for local and national businesses with footprints in the Provo area because that attention could lead to support and growth for the region. 

“There is a sense even outside of Utah that something really neat is happening here, and people are coming to figure out what that is,” Betts said, emphasizing that approving development of new housing options is crucial to the continued economic success of the area. Investors must beware of active and effective “NIMBY” (Not In My Backyard) groups that target specific types of projects, such as one in neighboring Orem that has successfully

shut down multifamily housing projects in local neighborhoods. According to a statewide poll conducted by regional planners at Envision Utah, 32 percent of residents in the state say they are “more comfortable with development in other nearby cities or towns but not in my own community.” 

Utah has long been known as an investor-friendly state, however, which is good news for individual investors hoping to acquire properties for fix-and-flip or rehab-and-rent deals. For example, the state does not prohibit month-to-month leases, which enables landlords to raise rents more often in order to keep pace with local market trends. Also, Utah’s eviction process is relatively quick (between 11 and 28 days pre-pandemic) and comes with consequences for tenants who refuse to move before deadlines or intentionally cause harm to the property, such as owing triple damages. Despite local media coverage of the state’s skyrocketing rental rates, Utah Apartment Association (UAA) president Paul Smith noted that average annual rent increases are about 5 percent, “far less than home prices are rising.”

An Award-Winning Market Keeps on Giving

Provo has been thriving during 2020 and 2021 and appears poised for more growth. According to the LaborIQ Index, it is the ninth-best performing U.S. market as of July 2021. CBRE’s 2021 Scoring Tech Talent Report ranked Salt Lake City (including the Provo metropolitan statistical area, or MSA, in the evaluated “talent pool” for the purposes of the report) 18th thanks to a growth of 33.9 percent in the talent pool since 2015. In fact, the report indicated the area has one of the 30 largest tech pools in the country. “Following the pandemic, the size of a market’s talent labor pool is one of the key indicators of a region’s economic recovery,” CBRE analysts noted. Milken Institute agreed, ranking the Provo-Orem metropolitan area first in its “top-performing economies” list in its annual Best Performing Cities Index and reporting wage growth had risen 11.5 percent over the past 12 months. The city also received recognition from ApartmentList.com as the best city for remote workers in 2021. 

“Provo is a relatively new innovation center but offers high quality of life and amenities in the mountain region,” Milken Institute researchers said, highlighting five “success measures” in which Provo excels: job creation, wage growth, high-tech expansion, housing affordability, and household broadband access. Although the market in Provo is extremely hot right now, all indicators seem to point to continued growth and expanding opportunity for the remainder of 2021 and beyond.

Sidebar 1:

Provo’s Jobs Multiplier Numbers Indicate Plenty of Growth Ahead

Most real estate investors are well aware of the economic impact of a new company or business moving into an area. However, some reports leave out the “ripple effects” associated with certain types of employers that can have an outsized and lasting effect on the growth trajectory and stability of the local economy. One way to quantify these ripple effects is to look at a metric known as a “jobs multiplier.”  A jobs multiplier describes the number of jobs outside the employer and industry sector created by the creation of one job by an employer within a specific industry sector. For example, a chemical manufacturing company bringing 50 new employees to a new plant would not just create 50 jobs. Those 50 jobs and the associated salaries and regional investment might create a total of 200 new jobs in addition to the 50 original jobs, giving the chemical manufacturing plant a jobs multiplier of 5 (one original job creates four additional jobs, or 1 + 4 = 5). 

According to the Economic Policy Institute, “professional, scientific, and technical services,” “information services,” “healthcare and medical services,” and “real estate and rental leasing” are among the best types of jobs for creating additional jobs. These industry groups tend to have multipliers of five or higher. High-tech employers, specifically, may create as many as seven additional jobs per industry position created, and “innovation jobs,” which often are created by startup communities and business incubators, also tend to have a multiplier around five.

Provo’s top employers largely meet these criteria. These are the five largest employers in Provo currently:

1)  Nu Skin Enterprises 

2)  Vivint Smart Home

3)  Novell (software and services)

4)  Brigham Young University (private research university)

5)  Qualtrics (an experience management company headquartered in Provo)