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2010-04-19 08:58:10
Deseret News Feature - Utah's Housing Prices

Utah's housing market: Good time for buyers, but for how long?

Special Feature in Deseret News | Published: Sunday, April 18, 2010 1:04 a.m. MDT by Chuck Gates and Jasen Lee

Spring has sprung, and with it arrives plenty of questions about the state of Utah's housing market. This Deseret News special feature details where housing prices have come from, and more importantly where they might be headed.

MURRAY — After walking a pair of reporters through the World War II-era brick cottage, Bill Heiner is questioned about whether the home's $209,900 price point might still be too high given the renovations and upgrades the property requires.

The affable 30-year real estate veteran says he doesn't think so and that the current price tag, down almost 10 percent from the initial listing, is close to the sweet spot for this fixer-upper that literally stands a stone's toss away from Fashion Place mall. Confirmation, he said, could come soon in an offer he's awaiting on the home, which is part of an estate being liquidated by family members.

In the decade before this Murray home was constructed, Winston Churchill described pre-World War II Russia as a 'riddle, wrapped in a mystery, inside an enigma.' If only the Utah housing market circa 2010 were so easy to characterize.

Wary buyers and weary sellers appear the fidgety youngster, who after riding too long in the family car on vacation impetuously asks, 'Are we there yet?' Might the tortuous ride down from the bubble years of 2006-07 finally be over?

As Utah enters another spring selling season, no one can say for certain. A divining rod may prove just as effective in correctly predicting when the Utah housing market reaches its bottom as stacks of historical data being analyzed with complex algorithms.

'For Sale' signs are popping up like crocuses and daffodils dotting front-yard landscapes. Some of these newly planted signs are carrying addendums in the lexicon of the day: 'Short sale' or 'Bank owned' adding to an already complicated matrix of supply and demand and price and equity.

Churchill did go on to say the key for Russia was its national interest, but if there's a key to discerning the future of local residential real estate prices, somebody went and lost it. Prices are marching lock step downward; sales are climbing. News of the economy grows upbeat. Federal and state governments seek to keep the market levitated with attractive tax incentives and appealing interest rates. Buyers are circling; sellers don't know what to think or do, except to maybe pop another Valium.

National Housing Prices Graph

Location is supposed to be everything in real estate, but price is what's generating sales these days.

Evidence, anecdotal and otherwise, suggests price is the one elixir still able to turn house-hunters into homebuyers these days. In deals involving short sales, bank-owned and other right-priced listings, local agents are usually fielding multiple offers. Activity remains sluggish across the remainder of the retail market, although there may be early signs that things are starting to stir there, as well.

The median price of a single-family home in the Salt Lake Valley has fallen to $219,000 — down $37,000 from the peak, according to Dave Anderton, communications director for the Salt Lake Board of Realtors. The good news is that correlates with more homes being sold. Anderton said more than 5,200 homes and condominiums were sold during the six months between Oct. 1, 2009, and March 31, 2010, compared to less than 4,000 for the same six-month period in 2008-09 — a 31 percent increase.

But the next time someone tries to make the argument that recent plunges in price are an aberration, you might want to cover your ears as chances are that the real aberration was the jaw-dropping run-ups in valuations over the past decade. Despite strongly trending downward of late, the median price of a single-family home in Salt Lake County still stands $45,000 higher than what it did at the start of 2005.

Salt Lake County condominium prices, meanwhile, have shown surprising resilience in holding on to their gains. The median condo in Salt Lake County sold for $150,000 in each of the past two quarters, down from a peak of $162,000 midway through 2009.

But file this next nugget away for future reference. Nationally, only twice in the past 116 years have home prices risen and been able to sustain those increases. There have been plenty of surges in price over that time, but every other increase, save the two mentioned, was met by a decline, or stagnant, or whipsaw pricing that eventually saw them return to zero, according to data published by Yale economist Robert Shiller, author of the best-selling book, 'Irrational Exuberance.'

Shiller, no longer bearish on housing as he was several years ago, has recently publicly questioned housing's short-term prospects, however, amid so many rosy scenarios being painted by others.

One Realtor said workable offers for distressed properties (short sales and foreclosures) have been coming in within 1 percent or 2 percent of the listing price. Motivated private sellers, meanwhile, are accepting deals up to 8 percent to 10 percent below what their home is listed for.

In one extreme short sale-turned-foreclosure, a 4,300-square-foot home with an asking price of $270,000 has drawn five bids, including four of more than $300,000. Shades of back in the day. The bank, which now owns the property, is said to be mulling a top offer believed to be in the vicinity of $325,000 — more than $50,000 above what the property was listed.

Through mid-April, 17 percent of Salt Lake County's listings, active and under contract, were short sales, Above and beyond that number are bank- and credit union-owned foreclosures.

Some of these units have been placed on the market by their respective financial institutions; others fall into the squishy designation of 'shadow' inventory. Shadow inventory means the properties are being withheld from market for any number of reasons. What's important to understand is that this shadow inventory isn't currently being reported among the state's available housing stock.

While falling prices inflict pain on current owners, they're regenerative in that they open the door to new buyers previously priced out of the market. Throw in near-historic low interest rates, along with federal and state tax breaks for purchasing a home getting set to expire, and Utah residential real estate could be getting primed for a run.

'I know this sounds like a Realtor talking, but there has never been a better time to buy in my 30 years in the market,' extols Heiner, who also wears a second hat as president of the Salt Lake Board of Realtors. Using recent sales data, Heiner lays out a compelling case that the rebound is already under way — led by improving affordability. While some might dismiss his clarion call as coming from the industry's head cheerleader, Heiner doesn't believe his pom-poms are getting in the way of his objectivity. He's confident the sales numbers he's seeing over the last few months indicate a rebound in the offing.

Radar Logic's monthly Residential Property Index, a composite of 25 major U.S. markets, shows there's been a flurry of sales activity induced by price reductions. The index was up two-tenths of a percent covering November to December of last year, which was significant because it marked the first November-to-December increase shown by the index since 2004.

Such numbers have convinced the analytics company that much of the gloom and doom calling for further steep declines in residential housing prices in 2010 are exaggerated. Radar Logic, in fact, argues that this stronger demand could spur a mini recovery in prices.

But Utahns shouldn't be holding their breath anticipating such an uptick. In his January report to the Salt Lake Board, Jim Wood, director of the U.'s Bureau of Economic and Business Research, still calls for price erosion of 3 percent to 5 percent between now and the end of the year. The economist does see things starting to turn positive in 2011.

Utah League of Cities and Towns economist Doug McDonald is reading similar tea leaves. McDonald also sees housing remaining difficult through 2010, calling for a nearly 9 percent decline in residential construction values. But like Wood, he sees a reversal coming next year and is optimistically forecasting a robust 6 percent increase for housing prices in 2011.

If recovery is under way, for the moment, it's one-sided. Sellers are being reminded daily what it feels like to be on the catching end of a game of Whack-a-Mole.

Kelly Erskine tells of watching her immaculate, well-appointed Riverton two-story home languish on the market since late September, taking nearly as many price reductions as they've had showings.

When she and her husband, Greg, sat down with their Realtor to first price the home at $319,900, Erskine felt that was fair for what a buyer would be getting considering a plethora of upgrades, including an eye-catching mahogany plank floor and the home's better-than-new condition.

She and her husband have since waged a silent, losing pricing battle with the subdivision's developer, D.R. Horton Inc., which has utilized its deep pockets to move several larger homes within eyesight of Erskine's by offering superior price-per-square-foot deals. It's not that the Erskines have been reluctant to whack away at their asking price. The couple recently lowered it to $289,900, but that hasn't seemed to attract buyers.

'It's discouraging. (The house) shows well and offers a lot of upgrades,' Erskine said, explaining they want to downsize. 'But no one's looked at it — maybe 10 people.'

At its current price, deducting for improvements made, the Erskines stand to lose between $45,000 and $50,000, essentially wiping out the equity they brought with them into the deal from selling their previous home. So they don't see much more room to lower their price.

'I'm realistic. I'm not mad about the market,' Erskine said stoically. 'If it doesn't sell, we'll just stay here.

Judy and husband Jeff (not their real names) share a similar story of seller angst, only theirs stretches over a much longer period. This will be the third spring the couple have tried selling their lovely Tooele County two-story home, currently on the market as 'For Sale by Owner.'

It's the second attempt by the couple to sell the house on their own. They initially listed the home with a real estate agent, but after that proved fruitless, they chose the FSBO route the first time. When that also failed to produce results, the couple turned to another real estate agent, again to no avail.

Judy maintains that her house offers good value for the right person at its current asking price of $265,000, which is down about $75,000 from what the couple sought when they first brought it to market in the waning months of Utah's housing bubble.

'Buyers aren't just satisfied having your flesh. They want your bone, too,' offers Judy with a tinge of bitterness in her voice. 'No one seems to be looking for some place to make a home. They (buyers) all want a bargain.'

CAUTIOUS BUYERS

Buyers are being very cautious too, notes ReMax Associates David Seiler, who considers the current market one of the most intriguing he's seen in his 25 years as a Realtor. 'A lot of them were worried a year ago if they were even going to have a job. They're also watching prices continue to adjust, so they don't feel a real hurry (to purchase).'

Seiler is finding the growing 'undercurrent' of short sale properties also posing a major challenge to the market. 'Until (the banks) address these short sales and come up with a plan of what they're going to do (to reduce inventory) the market is in rough shape.'

A lot of potential buyers are also having credit issues — especially younger ones who might not have the means to purchase a home on their own, Seiler said. 'They don't have the ability to qualify and now that they all have to have 'skin in the game' (a downpayment) ... a lot of them don't.'

In the past, some of these younger buyers might have had parents willing to chip in part or all of the downpayment, Seiler said, but because of the economy they're not in a position to help now. 'When they got hit in the stock market last year, they're a whole lot less apt to give their money away.'

Impossible to overlook is Utah's foreclosure rate, ranking among the highest in the country. A total of 16,000 Utah homes were foreclosed on in 2009, flirting with historical highs. For the first quarter of the year, Utah foreclosures ranked a dubious fifth, trailing only the Four Horsemen of the housing apocalypse — Nevada, Arizona, Florida and California, according to latest numbers published by RealtyTrac.

Wood believes foreclosures pose a 'growing threat to any rebound in home prices and could force prices lower.'

And to think Utah only toyed with the housing bubble and didn't go 'all-in,' as did neighboring southern Nevada, which continues reeling from foreclosures feeding its unprecedented housing bust.

Through-the-roof foreclosure rates are also dogging the housing recovery nationally. JPMorgan Chase, the nation's second-largest bank, predicts a larger number of homeowners whose mortgages it services will default compared to a year ago and that this additional distressed inventory will put further downward pressure on home prices as it makes its way to market.

A senior officer for Bank of America, which currently forecloses on 7,500 homes a month nationally, said the bank will be increasing that monthly number to 45,000 homes by the end of the year. New York-based ratings agency Moody's Investor's Service is cautio

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