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Summer Symposium: Residential Market

The number of permits issued for residential homes along the Wasatch Front dropped more than 70 percent from 2005 to 2008, according to the Bureau of Economic and Business Research at the University of Utah. Photo courtesy of iStockPhoto.

 By Ken Holman

Overland Group Inc, President
 
Editor’s note: This article is the final story in a five part series highlighting the five markets discussed at the 2009 Summer Symposium: Mid-Year Real Estate Economic Update. Read the previous four articles discussing the office market, the industrial market, the retail market and the multi-family housing market.
 
From the peak year of 2005 to 2008, the number of permits issued for single-family homes has dropped dramatically, Gary M. Wright of Wright Development Group said at the 2009 Summer Symposium: Mid-Year Real Estate Economic Update held in August at the Grand America in Salt Lake City.
 
The state of Utah saw the number of permits issued drop 73.7 percent from 2005 to 2008, according to a report by the Bureau of Economic and Business Research at the University of Utah. Herriman saw the greatest decline with a negative 95.1 percent change from 2005 to 2008. South Jordan dropped the least with a negative 55.3 percent change during the same years.
 
The collapse of Utah’s home building bubble has wiped out at least $20 billion of real estate wealth; it has eliminated 18,000 construction jobs in Utah; and it has forced several hundred homebuilders out of business, Wright said. But Wright forecasts a shift in the construction industry based on historical data.
 
“We need to keep foremost in our mind that markets change and go up and go down,” he said.
 
Current home prices today are approaching their loan term inflation adjusted pre-bubble equilibrium level, Wright said. The inventory of new homes decreased from 6,430 units in the first quarter of 2008 to 3,465 units in the first quarter of 2009. Homes under construction decreased in the same time period from 3,213 to 1,431, he said. And finished, vacant homes declined from 2,850 to 1,746.
 
“These numbers are a reflection that we are selling and closing more homes each month than are being started and allows for some hope that a bottom of the housing cycle is near,” Wright said.
 
Existing home sales are down in Davis, Salt Lake, Utah and Weber counties, he said. Home sales in Utah County are stabilizing, with the number of sales in the area down 1.82 percent.
 
As affordability rates of new houses in Utah continues to improve, Wright believes the market will attract a number of first-time homebuyers who will purchase homes less than $300,000. Wright said the first-time homebuyer has a “genuine need for housing and shelter” and benefits from a number of state and federal homebuyer incentives. And, Wright credits the Utah culture, which emphasizes home ownership, as encouragement for many first-time homebuyers to purchase real estate. As long as those in this demographic can find a job, Wright believes they will purchase homes.
 
“I believe things are improving and will get better,” Wright said. “But I don’t believe we will see a strong economy and corresponding housing market until we see employment growth and it is replaced with a large share of the jobs we have lost over the last five years. And I think that will take a long time."

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