I attended the 2012 Salt Lake Housing Forecast Meeting this morning. The two presenters this year were Eric Belsky, Managing Director of the Joint Center for Housing Studies at Harvard University and James Wood, director of the University of Utah’s Bureau of Economic and Business Research. While Mr. Wood's remarks were pointedly local, Mr. Belsky's report covered the state of the housing market nationally, with concluding remarks to show where Utah stacks up among the states.
The expectations? Cautiously and realistically optimistic. Realistically meaning that while there were no bold statements of certain recovery, the outlook is that things are more likely to get better than worse based on the indicators. A remark made by Mr. Belsky sums it up well: "If someone keeps hitting you in the head and they stop, it feels good." Barring any "unpleasant surprises," Utah is poised pretty well to begin a slow recovery.
While everybody knows that economics primarily deals with supply and demand, there are many factors that influence both suppliers and consumers. This is true in every industry including real estate.
I noted 16 influencers referenced by the economists that play a part in housing decline or improvement:
- Job Growth (New Jobs)
- Unemployment Rate
- Consumer Confidence (Spending)
- Household Growth (# of households needing independent housing)
- Home Prices
- Price to Income Ratio
- Price to Rent Ratio
- Household Debt relative to Income
- Homes Sold
- Housing Starts
- Mortgage Interest Rates
- Mortgage Availability (Underwriting Rules)
- Foreclosures and Distressed Properties
- Underwater Homeowners
- Buyer Urgency
I'll try and talk about each one briefly.
1. Job Growth
According to Mr. Wood, Utah is adding 30,000 new jobs per month. Utah is #4 in the nation in new job growth. This is positive for the Utah housing market.
2. Unemployment Rate
While not the best in the country, Utah is doing better than many states regarding unemployment. A national problem which hinders a recovery in the housing market is that the unemployment rate for people in their 20s is double that of the unemployment rate for others. This leads to many fewer first time buyers, who traditionally help fuel growth in the housing market.
3. Consumer Confidence (Spending)
Consumer spending is rebounding, but the question remains whether it is sustainable. Disposable income is falling for many Americans.
4. Household Growth (# of households needing independent housing)
Household growth has slowed due to "doubling up" and a slowdown in immigration. It is believed that there are 2.5 million homeowners "doubled up" instead of buying or renting. There are signs of household growth improving, especially in Utah as more people are moving in than are moving out.
5. Home Prices
Home Prices are down in Utah... 25% from the peak! Mr. Wood expects an overall decline of another 3-5% across the state, with some areas doing better and some doing worse. Mr. Belsky noted that home prices grew more than incomes from 2000-2006, but the falling market has corrected both pricing and available units for sale.
6. Price to Income Ratio
Mr. Wood said that the median home price is only 3.5 times of the median income in Utah. While economists would like to see the median home price closer to 3 times the median income to indicate a healthy market, affordability in Utah is pretty good. A buyer with the median income could have afforded to buy 70% of the homes sold last year according to Mr. Wood. Nationally, the median existing home price to per capita income is currently at record lows dating back to 1975 when data started being collected.
7. Price to Rent Ratio
As homeownership costs get closer to the costs of renting, more people will opt for homeownership. It was stated that rents in large apartment properties are on the rise at a rate of about 4%.
8. Household Debt relative to Income
Household debt is falling relative to income, but there is still "a long way to go".
Inventory is on the decline in most areas of Utah. An average of about 4-6 months supply. That's pretty healthy and better than many states.
10. Homes Sold
Mr. Wood expects a 20% increase in the number of homes sold for 2012 over 2011. This would be an estimated 11,000 homes sold in 2012, down from the "unsustainable peak" of 15,000 homes sold in 2006.
11. Housing Starts
Building permits are up. 1300 new homes were sold in 2011 and it looks like more will be sold in 2012. Builder's unsold inventory is virtually non-existent. (spec homes)
12. Mortgage Interest Rates
Mortgage interest rates are very low. Under 4% for most buyers. I've pointed out before, however, that unless a buyer has a large down payment, increased mortgage insurance premiums erase some of the savings.
13. Mortgage Availability (Underwriting Rules)
Mortgage guidelines have tightened significantly either scaring buyers out of the market or literally shutting them out. Down payment requirements are higher, credit score requirements are higher, applications are being underwritten with more scrutiny. Neither economist expects this to change anytime soon.
14. Foreclosures and Distressed Properties
Utah is still up at the front of the pack in percentage of foreclosures. Delinquencies are slowing... notices of default fell 28% in 2011, but Utah is #5 in the nation with number of mortgage delinquencies. Foreclosed and distressed properties put downward pressure on home prices.
15. Underwater Homeowners
Move-Up buyers create inventory for first time buyers. With 19.7% of owners in Utah underwater, this puts a drag on housing recovery.
16. Buyer Urgency
Only 39% of renters said they were likely to buy in the next 3 years. Still, 70% stated that owning makes more sense than renting and 55% stated that now would be a good time to buy. The issue for most: the timing isn't right, they aren't sure if they would qualify for a mortgage or they don't have the sufficient down payment saved up yet. So long as they have an alternative option, many buyers will keep doubling up or renting until THEY are ready or until they feel like if they don't move soon, the opportunity may pass them by.
If you would like a pdf copy of the Housing Forecast or of Mr. Belsky's presentation, just call or shoot me a message.
- Are you thinking about buying a home in the Salt Lake City, Utah area?
- Do you have excellent credit?
- Do you plan to purchase a $250,000-$750,000 home within 90 days?
- Do you have a good down payment, or are you paying cash for your next home?
If so, you deserve someone on YOUR side of the transaction!
Call us at (801) 969-8989 or contact us via the link on this page for the best in representation for buyers of residential real estate.
©2012 Homebuyer Representation, Inc. - "The Real Estate Agents on the Buyer's Side" TM
Salt Lake City, UT - Exclusive Buyer Agents (EBA)
All Rights Reserved
For more information, or if you are relocating to another state, visit GetYourOwnAgent.com