As the nation’s economic health plummeted and housing markets crashed at the end of 2008, Utah’s real estate market enjoyed relative stability—it almost seemed Utah was immune to the surrounding economic problems in the country. Some even called Salt Lake City “recession proof.” But, now the recession has caught up to the Beehive State and its real estate market.
A National Problem
Nationally, home prices consistently fell as 2008 drew to a close. According to the National Association of Realtors (NAR), the national median price for all housing types dropped 11.3 percent from the median price of $206,700 in 2007 to $183,300, in October 2008. The median price for an existing single-family home also fell by 11.2 percent, and the average condo price fell to 13 percent lower than the 2007 average.
With every region in the United States suffering, the West faired a little better in 2008. Although home sales continued to slow by 1.6 percent in October, the annual rate of home sales was still 37.5 percent higher than October 2007. However, the median home price ($234,000) was 27 percent lower in October 2008 than in 2007—still higher than the national average.
Despite lower prices, fewer people are buying homes. Lawrence Yun, NAR chief economist, explains that consumers have good reason to be hesitant. “Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,” Yun says. “We have favorable affordability conditions, but we need more than that to give buyers with jobs the confidence they need. This is why a housing stimulus is so critical now to encourage more buyers to draw down the inventory and stabilize home prices. Without home price stabilization, there will not be an economic recovery.”
According to the National Association of Home Builders (NAHB), new housing starts are at their lowest rate nationally since the government started tracking them in 1959. Overall, housing starts declined nationally by 4.5 percent to an annual rate of 791,000 units in October 2008. Single-family housing starts fell for the fifth month in a row by 3.3 percent—the slowest-paced month since October 1981.
Then and Now
In June 2007, Forbes named Utah one of the best “home sellers markets” in the nation. Less than a year later, in April 2008, Forbes listed Salt Lake City as one of “America’s Recession-Proof Cities” citing a low unemployment rate and median home prices up by 2.5 percent. Utah also boasted a low foreclosure rate of 1.23 percent while the national rate was at 2.75 percent, according to the Mortgage Bankers Association. Only eight states have a lower foreclosure rate than Utah; in fact, some states, such as Florida, have foreclosure rates as high as 6 percent.
As 2008 progressed, however, Utah’s numbers dropped. According to the Salt Lake Board of Realtors, homes and condo sales in Salt Lake County were down 26 percent during the first nine months of 2008 as compared to the first nine months in 2007. The median selling price for homes and condos also fell by 1.5 percent comparatively.
Real estate numbers continued to decline during the third quarter of 2008, but there were glimmers of hope. Although sales were down 11.5 percent, the overall median sale price was down 4.3 percent. In September 2008, home and condo sales rose 13 percent compared to September 2007, with the median price down by 2 percent.
Dave Anderton, public relations director for the Salt Lake Board of Realtors, feels the numbers may set unrealistic standards due to the differences in lending standards between the two years. “Last year  was in many ways an artificial environment, where anyone could get a mortgage loan and subprime loans and loose lending standards were commonplace,” Anderton says.
The numbers prove that sales of existing homes have certainly slowed and new residential construction has slowed even more.
“The forecast for this year is that residential construction will have declined by about 40 percent,” says Brad Baldwin, Commerce CRG broker and former president of Bank One, Utah.
Residential construction peaked in 2005 with more than 28,000 new units built. Real estate specialists predict that 11,000 new residential units will be built in 2009, which Baldwin says are historically low numbers for Utah, but still favorable for buyers because the prices are lower and more comparable to renting. The low numbers translate to a loss of 15,000 residential construction jobs in Utah in 2008, Mark Knold, senior economist for the Utah Department of Workforce Services, says. Knold predicts the construction industry, including retail, will lose another 15,000 jobs in 2009.
Rapidly growing communities, such as St. George, Herriman, Saratoga Springs and Eagle Mountain, were hit the hardest. Due to fewer investors and speculators building homes in the once booming cities, some markets are down by 80 to 90 percent from 2007. Conversely, Baldwin says South Jordan, Ogden, Lehi, Midvale and Salt Lake City are the strongest building markets in the state.
So, what’s the difference between then and now? Baldwin believes substantial job creation and low unemployment brought a lot of people to Utah in 2005. He also says that the favorable credit environment made it easier for people to obtain loans.
Baldwin predicts little construction for new office or retail space in 2009, aside from a few major projects such as the 222 Main tower in downtown Salt Lake and a few shopping mall expansions and renovations.
“The retail [new construction] rate could be the lowest in five years,” Baldwin says. “Many retailers are not expanding right now because if employment isn’t growing then the population isn’t growing.”
Economy “On Pause”
Baldwin, Knold and Anderton agree that 2009 may not immediately deliver the economic solutions everyone is hoping.
“2009 will be a very difficult year,” Baldwin says.” The unemployment rate is likely to go up which has only happened in Utah during five years out of the last 50, and that will certainly affect housing.”
Knold predicts a decrease of 19,000 jobs in 2009. However, Knold says with 1.2 million jobs in Utah there is still turnover, which allows people to get new jobs. “It’s definitely going to get worse before it gets better,” Knold says, “Hopefully it will bottom out sometime in 2009, but the rebound will be sluggish coming out the other side, but Utah’s rebound should be better than the national rebound.”
Qualifying for loans will still be difficult due to fewer lenders in the market and stricter requirements related to down payments, income and credit score requirements.
However, while no longer immune to the country’s economic cycles, Utah is still better off than many of its neighbors, Baldwin says. Home price appreciation is down approximately 2 percent, but in markets such as Phoenix and Las Vegas, it’s down 30 percent. Sacramento, Bakersfield, Los Angeles and Oakland, Calif. are seeing prices down by more than 30 percent from 2006.
“Utah’s overall profile is better due to long-term factors like internal population growth and migration,” Knold says. “Sometimes bad, short-term factors overwhelm the market, but eventually our long term factors will give Utah an extra bounce.”
And while home prices continue to fall—a trend predicted to continue well into 2009, according to Anderton—sales are starting to pick up. Anderton also says that foreclosures in Utah and throughout the country are expected to peak by the summer of 2009, which will continue to drive down the median price and then start to recover. Overall, median sales prices are already down by 9.5 percent from a peak in June 2007 and local economists predict Salt Lake housing prices will only fall by 15 to 20 percent—meaning the market is already two-thirds through its decline.
The industrial lease market is still going strong and there is a renewed demand for multi-family/apartment housing. Also pulling for Utah’s success is a diverse economy that doesn’t depend on only one or two industries. With mining, transportation, bio-medical research, universities, an airport, an air force base, major medical centers, agriculture, tourism, technology and manufacturing serving the broader Intermountain region, Utah’s economy has a definite advantage.
“Construction and home building are suffering, but thankfully the economy is larger than that which has prevented Utah from having wilder and larger real estate swings,” Baldwin says.
With softening prices, the future looks brighter for those who have cash and can get a loan—they have the opportunity to obtain a better deal and a higher return for their investment.
In the meantime, the economic and housing crises have prompted many industries to approach the federal government for help. Nationally, in early November 2008, NAHB asked the federal government for an industry bailout valued at $250 billion and in October 2008, NAR announced that Utah Governor Jon Huntsman is planning to set aside $30 million to help Utah homeowners avoid foreclosure.
Though not equipped to solve every economic problem on its own, Knold says the state has prepared itself to help Utahns with unemployment benefits and other social programs. Utah also has a good credit rating should it ever need to borrow money, Knold says.
In spite of the numbers, Utah’s market remains healthier than many states in the nation with local experts confident about the state’s future success despite the situation.
“We are just on pause. The future looks pretty bright,” Baldwin says.