Utah Housing Market: Will it Remain Hot?

Utah leads the nation in home price appreciation, even as much of the rest of the country ekes out some of the slowest gains in a decade.

Enjoy it while it lasts, Utah mortgage holders.

“It will be difficult for the market [in Utah] to sustain such strong price gains very long into the future,” said Economy.com chief economist Mark Zandi.

Just about three years ago, Utah’s home-price appreciation was the worst in the country, while states such as Arizona and Nevada were racking up some impressive home-price gains.

But today the equation has turned around - in a big way.

Utah home prices rose 17 percent from the first quarter of 2006 to the same quarter this year, according to a report released Thursday by the Office of Federal Housing Enterprise Oversight (OFHEO).

Nationally, home prices rose only 4.3 percent, reflecting a sharp downturn in other parts of the country that has led to a rise in home mortgage loan delinquencies and foreclosures.

Utah’s strong appreciation has made a number of families wealthier, Zandi said, though he did express concern over bad credit mortgages in the area.

“But there’s a concern that [the gains] are undermining affordability,” he said.

Case in point: Utah’s household income last year rose a hefty 6.4 percent. But home prices have risen nearly three times as much.

In addition, mortgage rates are higher and national lending standards are tighter, because of losses stemming from the subprime loan debacle.

Those factors, combined with the price gains are making it difficult to qualify for a home loan, shrinking the pool of available buyers.

That said, Zandi believes when Utah’s real estate market does slow down, the state should fare better than other areas of the country where the real-estate downturn has led to a drop in housing values.

Prices in the Cape Coral-Fort Myers, Fla. area, for example, are down 2.2 percent from the first quarter of 2006 to the first quarter of this year, according to the House Price Index.

Zandi said he expects appreciation in Utah only to kick back into a lower gear, with “high single-digit” increases.

“That is the type of growth a market can sustain over a very long term,” he said.

Gary Cannon of the Salt Lake Board of Realtors said the market is already heading in that direction. “It’s definitely slowing down. Homes are staying on the market longer, and we’re seeing a lot of sellers putting prices out there and having to reduce them in the first 30 to 45 days.”

Any Utah housing market slowdown, however, was not readily apparent in the report released Thursday, covering the year that ended in March.

• The Provo-Orem area had the second-highest appreciation among 282 cities in the survey from the first quarter of 2006 to the same quarter this year, with a 19.7 percent increase in home values.
• It was edged out of top spot by Wenatchee, a small town in central Washington State, which posted home-price gains of 25.6 percent.
• Salt Lake City was No. 3, with a 19.1 percent increase.
• Ogden-Clearfield was No. 5, Logan was No. 30 and St. George came in at No. 117, with appreciation of 4.7 percent.

The southern Utah city saw rapid appreciation until last year, when mortgage applications took a dive and the market cooled off in a big way.

Home-price increases along the Wasatch Front in the past year alone have made it increasingly difficult to find homes - or condominiums - in the Salt Lake Valley that sell for less than $200,000.

In Salt Lake County, the median selling price in the first quarter was $241,000, according to first-quarter data from the Salt Lake Board of Realtors. Utah County’s median was $233,000, followed by Davis County at $218,000.

The most affordable areas are Tooele County, where the median selling price was $192,000 and Weber County, where the median selling price was $150,757.

Strong home value gains in Utah undoubtedly have made it more difficult for some families, especially those with low and moderate incomes, to buy their first home now. But others, especially those that bought before the market took off, have benefited.

Although the market along the Wasatch Front has slowed this year, homes - those with a list price below $300,000 or in desirable areas such as the Avenues in Salt Lake City - still are selling fast.

Matt Stout of Salt Lake City had several offers five days after his Sugar House home appeared a couple of weeks ago on the Multiple Listing Service for $219,900. He expects the home to be under contract by the end of the week.

The Wasatch Front housing market last peaked in the early to mid-1990s, when home sales, buoyed by a strong economy and job growth, rose dramatically and values increased by a larger margin than any other state.

By the late-1990s, though, the market had slowed considerably, and in the years that followed, housing values in many areas of the state barely budged or increased only slightly.

By 2005, home prices began to climb once again as Utah’s economy began to boom. Much of Utah’s current real estate boom has been credited to the state’s strong job market. Job growth in the state is among the highest nationwide.

But the state’s economy and real estate industry goes in cycles, and right now, both appear to be off their peak.

Job growth is expected to slow down over the next year. The real estate market already is. But Realtors tell those in the Utah housing market to keep everything in perspective - the market here is still very healthy, compared with much of the rest of the country.

SOURCE: Salt Lake Tribune