Economists Opinions about 2008 Utah Market
Utah Real Estate Forecast for 2008
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. 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 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.” 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 Utahns 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 Utahns 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
“Reprinted with permission from Utah REALTOR® magazine, copyright 2008 by the Utah Association of REALTORS®, all rights reserved"
Visit the best Utah Real Estate Website on the internet UtahCountyListings.com and search the large database of 20,000 homes for sale in Utah.
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. 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 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.” 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 Utahns 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 Utahns 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
“Reprinted with permission from Utah REALTOR® magazine, copyright 2008 by the Utah Association of REALTORS®, all rights reserved"
Visit the best Utah Real Estate Website on the internet UtahCountyListings.com and search the large database of 20,000 homes for sale in Utah.
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