Is there a bubble in Saint George Utah?

[Toby Johnston]

I'm in the market to purchase a short-term rental in Saint George Utah but the market there (perhaps like many places) feels very overpriced.  There are very few high paying jobs in the area (IMO) so most of the high income earners are working remotely for other places.  It's also a huge second home market for Northern Utah.  If you were me, would you be looking to buy now or waiting to see how the higher interest rates and end of the pandemic (hopefully) impact prices?

[Logan McKay Zylstra]

I am very bullish on Utah, but I agree with your takes on St. George. I don't think the economics support those higher prices. I think money can still be made however, I wouldn't be willing to invest there currently.

[Rhet Porter]

Hi @Toby Johnston and @Logan McKay Zylstra, I'm down in St. George. I work in tech but am a small RE investor and keep a very close eye on the local market. 

A unique thing about the St. George market is most of the current transactions are taking place with buyers from OUTSIDE the county. Primarily due to people relocating here. So while local wages are a factor in home prices, local buyers only account for ~14% of transaction volume. The only other county in Utah that's demand profile is similar is Summit county (bc of Park City. Check out this link and select "demand snapshot")

That said, we've since the market cool slightly the last month. It's still white-hot, but not absolutely euphoric like the last year and a half. There's still limited inventory (~1 month supply) and limited new permits. From demand perspective, we had ~9,300 move to St. George from mid-2020 to mid-2021. My estimate is we roughly added <3,000 homes in the same time (average monthly permits x 12).  

Check out these graphics.

[Lane Aakhus]

Quote from @Logan McKay Zylstra:

I am very bullish on Utah, but I agree with your takes on St. George. I don't think the economics support those higher prices. I think money can still be made however, I wouldn't be willing to invest there currently.

I completely agree. I've been looking in St. George for the past couple of years for SFH/STR/and multifamily but the market feels overpriced.

[Logan McKay Zylstra]

@Rhet Porter

What you mentioned about only 14% of buyers being local is a big red flag for me. 

That statistic is an indicator that local industry wages can't hold up to home valuations which is a recipe for disaster in my eyes. Yes, injecting a lot of out-of-state/foreign capital is great and certainly will help boost the economy. With that being said, what happens when homes become unaffordable for everyone else in the area? Labor leaves and there is no economic development in the area. This is exactly what is happening in Idaho.

In my opinion, I wouldn't go so far as to say St George is a "bubble," but I do think it gets hit a bit harder in a downturn. To be clear, I am not saying there are no deals to be had or money to be made from STRs, but St. George doesn't lend to my personal investment strategy at this point in the market cycle.

[Dale Desmond]

We're already seeing good revenue for 2022 in STRs here. With every booking, you have a potential to extend a network. A happy guest tells their friends & their friends, etc...and we're with in 5 hours of LA, SLC, Vegas & Phoenix. That's a lot of potential future guests.

Also, there are a LOT of potential owners waiting to buy a STR as the market softens a little that will swoop in & buy & prevent a crash. "The Crash" has been feared for 2 years & it hasn't happened. These 2nd String buyers that are just waiting for their chance, are ready.

[Chad Rumsey]

Quote from @Logan McKay Zylstra:

@Rhet Porter

What you mentioned about only 14% of buyers being local is a big red flag for me. 

That statistic is an indicator that local industry wages can't hold up to home valuations which is a recipe for disaster in my eyes. Yes, injecting a lot of out-of-state/foreign capital is great and certainly will help boost the economy. With that being said, what happens when homes become unaffordable for everyone else in the area? Labor leaves and there is no economic development in the area. This is exactly what is happening in Idaho.

In my opinion, I wouldn't go so far as to say St George is a "bubble," but I do think it gets hit a bit harder in a downturn. To be clear, I am not saying there are no deals to be had or money to be made from STRs, but St. George doesn't lend to my personal investment strategy at this point in the market cycle.

With all that’s been said, let me throw my comments/questions in the mix. The original post mentioned purchasing a short term rental. Doesn’t that mean if the price of the home works for the short term rental projections then it’s a good deal. I guess I don’t see how the local income level will impact non-local short term renters coming to StG for vacations. The vacation market has always been strong for StG. Almost year-round, visitors come for sports tourneys, outdoor activities, Tuacahn, etc. That's not something that the local StG market will impact, is it?

Further, the outside buyers are moving here, not necessarily owning from a distance. So don’t they (and their jobs) then become part of the market. So that 14% only represents those that are already part of the market when they buy. How many of the other 86% become part of the market once they buy.

[Toby Johnston]

Lots of good comments here.  A couple more:

1) when I run the numbers for the STRs, it seems like the asking prices have not adjusted for the rise in interest rates. I believe your monthly payment is likely up around 50% from the same time a year ago but the amount you can charge for an STR night hasn't increased nearly that much. So if you buy at the current price, wouldn't you expect a much lower ROI than a year ago?

2) I think the wealth effect of the stock market should have an impact on how much out of town buyers are willing to pay for a second home or even a primary home.  If they are selling real estate to fund their purchase, then they may be willing to continue to pay high prices (since the RE market hasn't gone down).  But if they're selling stock or cashing in stock options, they now have 20% to 50% less purchasing power than they did six months ago.  I would think that might start to have an impact.

[Duane Richards]

We've been following listings in St. George for over 2 years now - our first intention to invest was in St. George's STR market - wish we had jumped on it in 2019 when we first started looking! Looking at AirDNA results, my biggest concern is occupancy rates, most of the calendars I look at have large gaps in them, and when you spend close to $500/sq. ft at current prices (in STR-designated areas), your property needs to rent well above 80% or you charge crazy nightly rates.

We've also seen very few property management companies that charge less than 25% there (and 25% is rare), and some STR neighborhoods require you to use their designated PM (Desert Colors only allows Red Rock, and they are at 40% commissions - ouch!). Basically for us, a 10-25% downpayment won't make any of these properties cash flow, let alone cover their expenses to break even. I'd love to get in down there, it's only a few hours away for me, maybe Cedar City has potential? It is starting to look more appealing for the price.

Our STR in Florida is breaking even or profitable most months, even at 10% down for a 2nd home. I'd love to get something closer that could do the same (we paid $725k for.4400 sq ft in August last year, and I just saw a 1600 Sq Ft townhome in St. George list for $799k - wow!)

Unfortunately, LTR in St. George, although the home prices are lower per sq. ft, don't have a high enough going rental rate to cover the higher sticker prices either, at least from what we've analyzed on the MLS. I'm hoping for higher interest rate slow-downs to bring a few reasonable possibilities to the market soon.

[Erik Aybar]

Quote from @Rhet Porter:

Hi @Toby Johnston and @Logan McKay Zylstra, I'm down in St. George. I work in tech but am a small RE investor and keep a very close eye on the local market. 

A unique thing about the St. George market is most of the current transactions are taking place with buyers from OUTSIDE the county. Primarily due to people relocating here. So while local wages are a factor in home prices, local buyers only account for ~14% of transaction volume. The only other county in Utah that's demand profile is similar is Summit county (bc of Park City. Check out this link and select "demand snapshot")

That said, we've since the market cool slightly the last month. It's still white-hot, but not absolutely euphoric like the last year and a half. There's still limited inventory (~1 month supply) and limited new permits. From demand perspective, we had ~9,300 move to St. George from mid-2020 to mid-2021. My estimate is we roughly added <3,000 homes in the same time (average monthly permits x 12).  

Check out these graphics.

I'm also local to St. George and working in tech. I'm new to BP and found this searching St George @Rhet Porter 👋 if you want to connect local sometime!

My career has been completely remote to @Toby Johnston's point for much higher wages than local companies can pay. That is pretty common here from my experience. 

I've seen local tech jobs and wages grow a lot in recent years especially with the latest on Tech Ridge which I understand is going to have a large impact on higher paying jobs local to St George overall bringing in companies to HQ here.

The prices here are too high for me to pursue being new to investing, but with the continued explosive growth such as Tech Ridge, Black Desert Resort nearing completing for the upcoming PGA tour, and so on it seems like a hot market that would pay off for investors with that kind of capital. As a local I'm very optimistic on St George's continued growth.