Posted: March 19th, 2008 | Author: Nathan Blair | Filed under: Utah economy, Utah real estate | Tags: 2008 utah real estate forecast, utah economic forecast, Utah real estate market | No Comments »
For those people who will be home buyers or sellers in 2008, an understanding of Utah’s market projections is absolutely essential. For this reason, I’m encouraging everyone to read the forecast for 2008. You can view it below.
As people in Utah are quick to point out these days, real estate conditions are local first. Unfortunately, many buyers and sellers here listen to the national media and assume that Utah fits all the descriptions that the media gives. This is a big mistake, and every Utahan needs to focus on what is happening HERE first.
Read the report carefully, and use it as a tool to clear up potential misconceptions that your friends and family might have about our real estate market. Everybody will benefit from a united effort to understand the realities of our market.
2008 Utah Real Estate Forecast
While the nation weathers storm after storm of housing-related problems, real estate markets in only a few states are holding out with partly cloudy or sunny skies. Lucky for us, Utah is one of those states.
“Utah is one bright spot compared to other parts of the country that are in severe pain,” said Lawrence Yun, chief economist for the National Association of REALTORS®. “It’s the shining star so far if one wants to say which market is hot.”
But that’s not to say Utah real estate will be completely free of cloudy conditions in 2008. Despite Utah’s strong economy, housing sales are still expected to slow in 2008 and some markets may face affordability challenges.
To help REALTORS® prepare for these changing times, Utah REALTOR® magazine talked to five economists, both local and national, who gave their forecasts on Utah’s real estate market in 2008.
Sales and Price Activity
After seeing record years in both sales and price growth, each of the economists interviewed agreed that Utah real estate will see some stabilization in 2008.
Yun says he expects Utah sales activity to slow or moderately decline next year, but also says sales may stabilize in 2008 after problems in the credit markets have been resolved and funding returns.
“In Utah, you’re going to see home sales at a lower, more sustainable rate, but they aren’t going to falter,” said Jeannine Cataldi, senior economist for economic forecasting firm Global Insight.
She expects activity to pick up once people know the full extent of the mortgage crisis, which is expected to peak in 2008. “Once we know how that plays out, people can make decisions and move forward,” Cataldi said.
The more debatable subject is what will happen with home prices. Some economists expect to see single-digit price growth in 2008 while others expect slight price declines.
Yun says he wouldn’t be surprised to see Utah prices rise 7 to 10 percent in 2008 because of the strong job and population gains in the state.
“Utah is clearly the out -performer in 2007 in price growth,” Yun said. “I think that momentum will carry into 2008,” but the current rates of price growth won’t be sustainable over the next year.
Cataldi agrees. She says she expects prices to continue to rise but at a reduced rate.
Some local economists, however, see a slightly different picture.
Mark Knold, chief economist for the Department of Workforce Services, says he predicts prices will probably come down a little because he thinks, “prices are flirting above what this market can afford even in the face of good wage gains.”
Kelly K. Matthews, Wells Fargo’s executive vice president and senior economist, also says Utah has an affordability problem, which is why he expects prices to be down 6 to7 percent in mid-2008.
“I believe we are so far out of equilibrium, I do not believe we can avoid some reduction in prices.”
At the same time, Jeff Thredgold, economic consultant to Zions Bank and president of Thredgold Economic Associates, sees price activity varying depending on the market segment.
According to Thredgold, lower-end properties in the $175,000 to $300,000 range should increase approximately 7 to 10 percent. Some homes in the $300,000 to $500,000 range should see price gains of about 5 percent while others may see a slight decline. The real concern is the market for $500,000 and above properties; people may have to cut prices, and there may be areas that have to come down 5 to10 percent, he says.
“All real estate is local,” Thredgold said. “In certain communities, it will do well, but in some areas, prices may have to come down.”
Affordability Issues
For four consecutive quarters, starting in fourth quarter 2006, Utah has had the highest house price appreciation in the country, with increases ranging from 12.9 percent to 17.55 percent, according to numbers from the Office of Federal Housing Enterprise Oversight, the Fannie Mae and Freddie Mac regulator.
But these increases have some concerned about affordability in the state.
According to a study by Matthews, housing affordability along the Wasatch Front dropped about 22 percent during the past two years.
Matthews says prices were pushed up through a combination of lower-than-expected interest rates, a robust local economy with strong job and population growth, investor activity, and aggressive financing that allowed people to purchase high-priced homes. Together, Matthews says, these factors created a high-appreciation environment where prices increased more than they should have.
Now that investor demand has disappeared and aggressive financing has dissolved, Matthews says people can no longer afford homes at their current prices based on traditional mortgage standards.
Nevertheless, some affordability pressures may be easing up as national mortgage problems are resolved and funding returns.
Jumbo loans — mortgages more than $417,000 — saw their interest rates spike as global investors panicked in the wake of the credit crunch, causing financing and affordability problems for those purchasing higher-priced homes. Nevertheless, Yun says, investors are now realizing that prime loans are not subprime loans and they are returning to invest in mortgages. He says he expects rates on jumbo loans to continue to edge downward.
“Many home buyers in the high-cost regions who have been frozen out of jumbo loans will now be able to return to the market,” Yun wrote in a recent article.
Concerns about subprime loans should also be easing. A majority of the borrowers who were served by the subprime market should now look to safer FHA loans that have better interest rates and are expected to be reformed in 2008, Yun says.
Other good news is that there has not been much change in the lending standards for conventional, FHA and VA loans. In fact, mortgage interest rates are at historic lows, hovering around 6 percent.
“Affordability is always a concern when there’s a spike in home prices,” Yun said. “One has to remember that a market where people want to move into, that’s implying there’s a greater demand which means there’s a premium attached to home prices.”
Housing Demand
With one of the best economies in the nation, there’s definitely demand for housing in Utah. New households are being formed, people are moving to the state and Utahans have the jobs to support home purchases.
According to estimates from the state, 2007 had record annual growth of nearly 85,000 people, which translates into about 25,000 to 30,000 new households. With the state expected to add another 84,000 people to the population in 2008, the growth is
forecasted to continue into next year and beyond.
“The key point is that a huge number of 20- to 30-year-olds are trying to find their way into the labor and housing markets,” Knold said. “That demographic push is going to be the entire decade. You can have short-term hiccups, but demographic pressures
seem to say that can’t last very long.”
Strong job growth and low unemployment in Utah are also supporting real estate in the state. The most recent numbers from the Utah Department of Workforce Services report that October job growth in Utah was up 4.3 percent compared to U.S. job growth of only 1.2 percent during the same time period. This translates into about 52,500 new jobs that were created in Utah over the past year.
“The job growth is a plus for housing because it can attract people in from other parts of the U.S.,” Knold said.
Although Utah job growth is expected to slow to the high 3 percent range for 2008, Knold says it will feel about the same as this year, and he still expects Utah to have the best job growth in the country.
“The job market is not a drag on housing this year and it’s not going to be next year,” Knold said.
Not only are jobs being created, but wages are on the rise, which further enables Utahans to buy homes. Over the past year, wages and incomes have been growing between 5 and 10 percent, and the state forecasts that wages will continue to increase in 2008 and 2009.
Utah also has a low unemployment rate. Over the past year, Utah unemployment has averaged about 2.6 percent, nearly twice as good as the U.S. average of 4.6 percent, according to data from the Utah Department of Workforce Services.
Each of these Utah-specific factors — the growth in households, the increase in jobs and wages, and the low unemployment rate — signify strong economic fundamentals in the state which ultimately support a stable real estate market.
“The Utah economy is absolutely the strongest economy in the country right now,” Matthews said. “The No. 2 economy isn’t even close to us.”
Click on the image to make it bigger
Construction Forecast
During the past couple months, a number of media outlets have reported that new single-family home construction has seen a slowdown this past year. Hitting its peak in 2005, single-family construction saw its sharpest drop-off in September, possibly the result of August’s credit crunch, says James Wood, director of the Bureau of Economic and Business Research at the University of Utah.
The good news is that economists like Kelly Matthews, Wells Fargo executive vice president, say Utah is not overbuilt like other areas of the country. In fact, Matthews says we actually need as many homes as are being built because of the state’s strong demand for housing. Matthews suggests a decrease in home prices would clear out excess inventory and allow builders to resume single-family construction, which Wood expects to happen in the spring of 2009.
Aside from single-family construction, the commercial sector is actually in the midst of a boom. According to the September issue of “Utah’s Economy,” nonresidential construction in Utah is expected to increase by at least 25 percent for 2007.
“Nonresidential construction usually lags behind residential construction by a year or two, and that’s exactly what’s happening here,” Wood told the Deseret Morning News.
The multi-family market is also booming, according to Wood. He isn’t sure how long the growth will last but says the fundamentals are favorable. There could be a retrenchment, however, if buyers are unable to secure loans when large condo projects are completed.
But Lawrence Yun, chief economist of the National Association of REALTORS, remains optimistic about the availability of financing and says most credit problems are being felt in the subprime arena while other mortgage sectors are stabilizing. Conventional loans are readily available, FHA loans are becoming popular with those with less-than-perfect credit, and even jumbo loan rates are edging downward.
This report was originally published in Utah REALTOR magazine, 3rd/4th Quarter 2007. This author takes no credit for the research or findings.
A word to Salt Lake City residents – our city is not doing as bad as the media would like you to believe. We have recently been named one of the country’s top 10 recession proof cities, according to a study done by Forbes.
