January 1, 2013

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Just Got Real

Utah’s Residential Real Estate Market May Finally Be Getting Back to Normal

Brad Plothow

January 1, 2013

“Just as the bubble artificially inflated home prices during the boom, all these foreclosures and short sales have been artificially holding down prices ever since,” Curtis says. “They’ve almost worked their way through.”

At the start of 2012, about one-third of homes on the market in Utah were in foreclosure, Musselman says. In October, that number had dipped to one in 10. It was a similar story in Salt Lake County, where the foreclosure rate was 3.5 percent to start the year before settling at 1.9 percent in October, according to Pozzuoli.

Moving on Up
There was a time not so long ago when buyers held all the leverage in a sale. That’s not the case anymore, especially for homes in Utah priced less than $300,000.

Kidd saw homes go under contract the day they hit the market during the latter part of his search. His was one of five offers made on the Orem home he contracted to purchase, and he wasn’t originally the high bid. If not for an investor pulling out at the last minute, Kidd would still be on the prowl in what has once again become a highly competitive market for buyers.

“I’ve found that if you don’t have the inside track on a home, you’re probably not going to get it,” Kidd says. “In this price range, at least, there are still a lot of homes that need work or updating, so you have to be ready to go when you find a home that’s move-in ready.”

In Kidd’s case, his “inside track” was that he lived near the home he contracted to buy and got news that the family of the recently deceased owner planned to put the house on the market. This gave Kidd an advantage in getting his offer together—just the kind of advantage buyers need again.

The combination of low interest rates, rising employment and a generally more optimistic mood has led to rising home sales, rising sale prices and reduced inventories. These forces are also combining to initiate a shift away from a market stacked heavily in a buyer’s favor to a more even playing field, with sellers holding more cards in lower price points. The natural result is increasing competition among buyers.                       

“We are starting to see multiple offer situations again, which is a good sign and something I haven’t seen in a long time,” Musselman says. “For the past eight months, we have been seeing offers above list price.”

That competition is driving up prices, albeit not at the unsustainable trajectory before the recession. Statewide, prices appreciated by 3 percent overall between January and October of last year, which is actually quite stark considering Utah started the year down 32 percent compared to the first month of 2008. It’s the first time Utah has seen an overall increase in home equity since before the Great Recession. In 2013, Musselman expects price in Utah to incease about 3 percent as well.

Price increases aren’t happening equally across the state, though. The greatest gains have been in Salt Lake County, where the median price jumped from $186,000 early in the year to $194,000 in October. “The wave goes out from there,” Musselman says, with Utah and Summit counties showing strong gains in pricing and Washington County benefitting from a reduction in delinquencies, seeing its median price rise to $168,000 from $159,000 a year ago.

“You have to reduce that glut of inventory before prices will increase again,” Curtis says.

Trimmed inventories are telltale of fewer distressed homes in the pipeline, but they are also indicative of a healthier market overall. Market experts suggest that six months is a healthy “absorption” target—how long it would take, at a normal sales rate, to clear off all existing inventory. As of October, the state as a whole had exactly a six-month inventory, with Washington County at the same mark after a recent high of more than eight months. Salt Lake County edged into seller’s market territory, with a mere five months of inventory.

Return to Normalcy
In real estate parlance, “normal market” could mean whatever you’re accustomed to, which is hard to pin down after the last decade of ups and downs. For now, normal seems to mean equilibrium—a time when there isn’t a marked amount of craziness and unpredictability in the market.

“We are at that rare time when it’s a good time to buy and a good time to sell,” Musselman says. “Interest rates are low, the affordability index is favorable but buyers still have a solid inventory to choose from.”

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