National Economist: Economy Has Hit Bottom

David Wyss, chief economist for Standard & Poor's, shared his insight into the national economy as the keynote speaker at the Utah Economic Forum Thursday at the Downtown Salt Lake City Marriott.

By Kelly Lux

Real Estate News Utah Editor

The housing market and the economy, in Utah and nationally, have reached bottom, according to the chief economist of Standard & Poor's.

"Things are looking up. We think the recession is over," said David Wyss, who has been with Standard & Poor's since 1999. "We've hit bottom."

David Wyss shared this and other insights into the national economy as the keynote speaker at the Utah Economic Forum Thursday at the Downtown Salt Lake City Marriott. Wyss said hitting bottom doesn't mean the economy has fully recovered. It means the economic outlook isn't getting worse and things are stabilizing, he said. But it might be a while before things get back to normal.

As for the housing market, Wyss said housing starts during 2009 were at their lowest level since World War II reaching 570,000 units. On a more positive note, housing sales have been increasing since March, likely due to the federal first-time homebuyer credit. And home prices are increasing.

"Housing is still very depressed," Wyss said. "But it is not getting worse anymore. It is stabilizing."

According to Utah's 2010 Economic Report to the Governor, which was distributed at the forum, Utah's housing market also hit bottom during 2009. Foreclosures increased. Building permits continued to decline. And the number of unoccupied homes decreased.

Signs are pointing to a turn around, Wyss said. However, the recovery is likely to be half speed.

In order for the market to fully recover, Wyss said the mess which was created by the housing market ("We built too many houses at too high a price," he said) must be undone. Home prices must become more consistent with household income and the supply of homes must meet demand. According to Wyss, the United States is starting to repair the housing mess. In the last four years, the country has rid itself of nearly one billion units of excess supply. By the end of 2010, Wyss predicted housing supply and demand will be in balance.

Utah saw some balance with the decline of residential construction at 15 percent in 2009 – a smaller decline than the 53 percent drop in construction in 2008, according to the Economic Report. Residential construction units in 2009 were at 10,150. In 2007, construction units were 20,500.

Nationally, prices have also started to drop. The average cost of a home in 2006 was 3.4 times the average household, Wyss said. Now the average cost of a home is 2.4 times the average household income. In Utah, the value of single-family detached housing was lower in 2009 than in 2008, according to the Economic Report. The decline in home prices helped to stimulate Utah's housing market.

In Utah, "Homebuyers took advantage of record low interest rates, state and federal government stimulus, and declining prices that together created a tremendous improvement in affordability, which is likely to continue in 2010," according to the 2010 Economic Report.

Other areas in the United States have seen home prices fall too. The Rust Belt and the Sun Belt were the hardest hit areas, Wyss said. Detroit has more houses than people, causing a serious depression in home prices. In the Sun Belt, Phoenix, Las Vegas and large California cities, Miami and Tampa, home prices fell dramatically, he said.

Home sales have increased nationally, but Wyss said he believes the recent increase in home sales are artificial due to the federal tax credit. He predicted home sales would decline during the winter months, causing home prices to decline once more. But Wyss believes things can only go up from here.

"The worst of the problem is over," Wyss said. "We are stabilizing, and that is sort of the first step."

Wyss said the good news is that the economy is recovering.The bad news is that it will be a slow, unstable recovery.

"The good news is things are coming back to balance. We see housing stabilizing," Wyss said. "I think housing is bottomed out. But it is going to come up slowly. I think prices are going to be restrained for a considerable period."