Utah Housing Market Update for 2009

Current Situation…and the CRYSTAL BALL for the future

A week ago we were talking in our office about demand. We have been watching ‘pending’ home sales decline and decline. This is typical during this time of year. Generally 1rst quarter after 4th quarter is where it bottoms out. So we thought, when was the last time home sales have been this low? We can’t find data that goes back that far. We speculated it must be as far back as the 1980′s. It also seems like the demand should be there to buy homes, but where are the buyers? We speculated as well that the demand is there and that it would arise soon. Im not an economist (Im a salesperson, I sell real estate not analyze numbers, we are diffrent breeds) and I dont have the data they do, so I looked forward to hearing what these specialists had to say. Today I had the opportunity of meeting with Wells Fargo Senior Economist Kelly Matthews, the U of U’s department heads, and the National Association of Realtors Regional Economist. All of these people shed some great insight on our thoughts and to what is happening. Most of these men’s charts and predictions were very similiar. They shed some great light on certain aspects of the economy. Here is the nutshell.

Unemployment/Employment in Utah:

Utah has been losing jobs. Our low unemployment rate according to Wells Fargo Kelly Matthews was 2.7% in 2007. In 2005 before the real estate boom Utah was at 4.3%. Kelly’s prediction for first half of 2009 is 4.5%. That is taking us back. We are still well below the national average!

New Construction

Single family Building permits in 2005 according to Kelly Matthews was at 20,912. Now watch this drop and fall out of the sky. 2006 was 19,888 and 2007 was 13,507. The sky is falling number for 2008? Almost 6,000. His prediction for first half of 2009 is 2790. James Wood at the U of U also had similiar numbers.

What is his prediction for new construction? Its a continued shake out till 2010.

What do I see out there happening? There are so many new homes and neighborhoods that are in foreclosure right now. There is also a forced liquidation happening. Im seeing many banks forced to sell their inventory at lower prices to clean their books and get some cash back in the bank. Im also seeing some builders and developers in a cash crunch that are forced to liquidate their lots at pre 2005 pricing. This is very good news. Land is now becoming very affordable once again. Now, this doesnt mean go buy anything. We know where the good deals are and what you can sell them for. There are bad deals and great deals alike out there.

The Good News for those who have Home Equity or Credit Cards tied to Prime.

During 2005 to 2007 Prime was 7.25 to 8.25. Right now Prime has been around 4%. The prediction for first half of 2009 for Prime according to Kelly is 3.5%. The news yesterday announced this just recently hit 3.25%! People are able to save money with the rate dropping in half!

What about Foreclosures?

James Wood also showed us some charts of foreclosure rates. When we looked at the past foreclosure rates typically it peaked out at about 3% whenever we had recessions. Right now our current foreclosure rate is at 1.5%. This data means that we can probably look to having about 3500 homes foreclosed arrive on the market for sale during the next year or two.

What about Housing Affordability in Utah?

Kelly Matthews a year ago predicted the Utah market. He said prices will fall, they have to fall in order for us to have affordability. He stated that we needed appx 20% price decline. If you look at the numbers we had 10% price decline. In the coming months you will see numbers even lower than that once data is gathered. Interest rates are low though. Typically one point drop in interest rates means 10% price affordability. Kelly thinks we are very close if not there for housing affordability once again.

According to our experience in making offers, we are seeing homes have multiple offers in many instances where the homes prices make it very affordable to buy. The buyers are there, but they are cautious to what they are going to buy. It must be priced right.

When is the bottom?

Sell high, buy low is everyone’s motto right? Can you effectively predict the bottom? Maybe. You need to remember though that real estate is local. So for instance, the bottom depends on the area. Example: Washington D.C. rarely has any foreclosures, but as you move outward into the suburbs foreclosures start to skyrocket. What does this tell you? That certain areas and neighborhoods will hold value. So predicting the bottom can’t be done with nationwide statistics or statewide statistics. Also, you have to take into consideration your negotiating skills, the current distress of the property owner, your efficiency at evaluating properties, and how many buyers are looking at the property. Just because you bought a home at the bottom doesnt mean you got the bottom price. I have met many people who paid top price at the bottom of the market. They didnt make anything. I also know people who bought bottom prices but it wasnt near the bottom of the market.

What does this all tell us? That buying at the bottom isnt as important as buying bottom prices according to the neighborhood and area that you are buying in. Now if you were to predict the bottom of the market I would predict 1rst quarter of 2009 but no later than 1rst quarter of 2010. How will we know which one it is? The Numbers for 2nd quarter this year probably will tell us. Stay tuned come July 2009. But by than you might have missed the bottom. But that doesnt matter right? What matters is you get bottom pricing! This past few months have been amazing at getting awesome deals. This year will be awesome as well!

Where are the buyers and the demand?

Our population grows at 2% currently. We have potential buyers that need homes. They are either living with parents, friends, or saving up for a down payment due to most 100% financing loans disappearing. These buyers will come out of the woodworks. Between saving for a down payment and waiting for consumer confidence to rise these buyers are in hiding. These buyers cant stay where they are at for long. They need housing and will be out looking for it. Once the consumer confidence picks up you will see everyone starting to buy. By than though, the bottom has passed. I remember so many people in 2005 that were so upset they didnt buy a year earlier. It sneaks up on you.

Conclusion, according to all these men?

2009 is the bottom, things will start to improve in 2010. This year we will see record amounts of foreclosures on the market. We will also start to see all the buyers in hiding starting to come out of their shells especially by 2010. Our population has to grow. It would be like a 5 year old still wearing 2 year olds shoe. We have to get new shoes. Our economy is very different where our own population feeds our growth. Interest rates could be at lows not seen since the 1960′s. Homes are very affordable and people can actually buy homes under what they would normally appraise for. There are 100% financing programs still and even grant money to buy a home up to $22,500 from the government. All of this is happening right now as we speak. That is exactly why I am having a record month in sales this month. With all the bad news, good things are actually happening!