Articles
8 February 2012

The Home Truth

Will residential real estate improve during 2010?

by Tom Haraldsen

08 February 2012—

 Anticipation. Enthusiasm. Cautious optimism.

Those four words describe the feelings of many realtors and industry analysts regarding the 2010 Utah residential housing market forecast. That was evident at the Little America Hotel in Salt Lake City on January 11, when the Grand Ballroom was packed for the Salt Lake Board of Realtors’ annual housing forecast breakfast. 

“There is now pent-up demand for tens of thousands of new housing units,” stated Chris Nelson, director of the University of Utah’s Metropolitan Research Center during the event. “Combined with continuing growth in Utah, [that] will lead to a robust housing market starting in the middle of this year, but [actually] taking hold by 2011.”

But his actual message to everyone in the room was this: have patience, perhaps two or three decades of it.

Nelson says that over the next 20 years, as Utah’s population continues to grow faster than any other state, the demand for housing will grow with it. By 2030, Utah could add another 1.5 million residents to its current 2.7 million, and 700,000 new jobs could be created. He also says that along the Wasatch Front, 450,000 units ( residential and commercial combined) would be needed. That’s 50 percent more real estate than what’s available in Utah today.

Citing a handout prepared by James Wood, director of the University of Utah’s Bureau of Economic and Business Research, Nelson says Salt Lake County can expect about a 3 percent growth in home sales this year, or just more than 9,000 units. That would mean the recent downturn in the residential housing market was short-lived, only lasting a couple of years. However, he also expects housing prices will fall about 3 to 5 percent more this year before they bottom out and start to rise again in 2011.

Incentives to Buy

Bill Heiner, president elect of the Salt Lake Board of Realtors, says the first quarter of this year will likely show a rise in residential housing sales due to the Obama administration extending tax incentives for first-time home buyers and existing home owners. After incentives expire though, he feels things could flatten out again for a while.

“I don’t see the confidence I have in the past,” he says. “There doesn’t seem to be the motivation for buyers—at least not yet. I think they are still being a little bit cautious. What we all want to see is steady sales after those incentives end.”

The university study calls for examining the past in order to predict the future. 

In the 1970s, Utah housing sales declined 55 percent, which is less than the 42 percent decrease in 2008 sales from an all-time high of 15,300 units in 2006. The values of those homes exceeded $4.1 billion, and real estate commissions generated about $250 million. In 2008, home sales dropped to 8,800, value of sales fell to $2.3 billion and commissions equaled $138 million.

As for last year, only 900 new single-family homes were built in Salt Lake County, the lowest number since World War II. The news could have been worse, but Dan Christensen, manager of Coldwell Banker Residential Brokerage in Utah, points out that “bargain hunting in the entry level segment, in addition to federal and state housing credits for first-time buyers,” benefitted the market. The upside of 2009’s slow activity, Wood’s report states, is that “existing homes make up a disproportionately large share of the ‘for sale’ inventory available for would-be home buyers, which should work to the advantage of the real estate industry in 2010.”

 

Around Utah

In Utah County, optimism is also high. Paul Magleby, president of the Utah Valley Home Builders Association, says, “There are a lot of good, sound buyers with the resources and collateral to make purchases. It’s hard to really determine how the year is going to go when we’re still in the beginning of it, but I think the desire and ability to buy homes is there.”

Realtors in Southern Utah also heard words of encouragement during the Washington County Economic Summit in January. Most of the speakers conveyed optimism about 2010. After hitting rock bottom during the first quarter of 2009, the region’s job market is showing signs of improvement, an important factor in driving up home sales.

“We will continue to see those losses get smaller and smaller until you see growth again,” says Lecia Langston, economist for the Department of Workforce Services. “The worst is definitely over.”

Perhaps the bigger issue this year will be how banks react to the demand. With Utah becoming the fifth highest state in the nation for foreclosures in 2009, lending institutions are more cautious and stringent in their loan practices than ever before.

Salt Lake realtor, Sheri Stevenson, says her experience as a seller and a buyer of real estate the past few months has left her a bit cynical.

“We recently tried to refinance loans on several of our personal properties,” she says. “We have credit scores in the 800s, which used to pretty much guarantee that financing would be readily available. But even though we were refinancing properties we were already paying for, we had to jump through a lot of hoops just to refinance. It’s crazy.”

Fellow realtor Rick Manning agrees.

“I think we all felt the message in the economic stimulus and market bailouts of 2009 was that banks were being encouraged to lend money, to make it easier for homebuyers to get those loans,” he says. “Well, the banks took the money and the advantages, but I don’t see them passing them on to potential borrowers. If the banks aren’t there to help, it won’t matter how much housing is in demand.”

“Unless the banking industry loosens up a bit, then even buyers with resources can’t utilize them,” Magleby adds. “It seems all of the federal regulations that have been imposed are really hurting the small banks, the hometown banks that have traditionally worked with buyers in their communities. I don’t know what the solution is to that. And it’s hurting not just those who want to buy homes, but also renovations and remodels.”

 

Still a Buyer’s Market

Despite the challenges of getting loan approval and securing funding, Christensen feels potential home buyers need to realize that though “the market is a little schizophrenic right now, it is probably the time to buy … you may see that in certain markets, we’ve had lower prices and decreasing numbers of available homes for sale. The problem is that if you wait a year, you’re probably going to run up against a lot of challenges—increased interest rates, increased buyer demand and decreased housing inventory.”

How this all plays out in the next year is yet to be seen, of course. But for realtors and homebuilders, there seems to be more of a glimmer of hope than in 2009—hopefully radiating from the porch lights of homes finally sold to their new occupants.  


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