Utah's housing boom cools; new home demand at 17-year low

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The news just keeps getting worse for home builders along the Wasatch Front, where demand for new homes in September plummeted to the lowest level since 1990.

Builders took out permits for the construction of 485 homes locally last month, down from 1,191 in September 2006, according to Construction Monitor, which tracks building activity throughout the West. The last time residential building activity along the Wasatch Front was this low was 17 years ago, when builders pulled 396 permits for new housing units.

The drop is especially steep when the state's population is taken into account. In 1990, the state's count was 1.7 million people; today the total is estimated at 2.6 million.

Nationally, new-home construction plunged further than most economists had predicted, to the lowest level in 14 years, the Commerce Department reported Wednesday.

To some extent, Utah has been immune to the nation's home-building downturn. In addition to a growing population, up until recent months the state's housing market had been benefiting from historically low mortgage rates, low unemployment and stellar job growth.

But now, Utah's real estate market, like many others, is being hurt by tighter lending standards put in place after the nation's subprime lending debacle.

Stung by an increase in defaults of risky loans made in recent years, especially to subprime borrowers with less than good credit, lenders are requiring better credit, larger down payments and more cash reserves from borrowers.

Perhaps an even bigger issue is that several years' worth of home-price increases, from Ogden to Provo, have put homeownership out of the reach of Utah families whose incomes haven't kept pace.

With fewer potential buyers, sales for both existing homes and new ones have fallen. And that is causing grief for families throughout the Wasatch Front.

Laura Murdoch and her husband, Matt, said they have been trying to sell their home in Draper since early July. They have lowered the asking price by $50,000, but "barely anyone has even looked at it," Laura Murdoch said.

The problem is that the Murdochs signed in January a contract to construct a new home, which is scheduled to be finished in three weeks. With no buyer for their old home in sight, the couple is facing the specter of two mortgage payments.

The couple is considering further price cuts on the home they are trying to sell. Even better, the couple said, would be if the builder would let them out of the contract of their new home.

"We're even willing to walk away from our down payment," said Laura Murdoch.

Builders say the biggest problem they face is fear among prospective buyers.

"People are afraid to purchase" a home right now, said Jordan Bangerter, a managing member of Bangerter Homes in South Jordan who also is the first vice president of the Salt Lake Home Builders Association. "Everybody thinks prices are going to fall."

And that is a concern for a number of builders in the state, who are grappling with high levels of unsold inventories and layoffs.

"There's a tough adjustment ahead of us," Bangerter said.

"Our population is growing, and demand for housing will be there, the question is just when will it start back up again?" he said.

Rather than languishing for an extended period, the local housing market should turn around again by late next year, according to economist Mark Knold of the Utah Department of Workforce Services. He thinks the state's strong economy will be the market's salvation. But he doesn't believe home prices will continue to increase at one of the top rates nationally, as they have over the past two years.

Utah's outlook, though, appears to be rosier than many states, which economists say could face prolonged downturns in their real estate markets.

The Commerce Department report released Wednesday showed that applications nationally for building permits, considered a good sign for future residential construction activity, fell more sharply than expected.

Only the Northeast - which includes states such as Connecticut, Maine, New Jersey and New York - showed construction gains in September, with activity rising by 45.4 percent in that region. Construction starts fell by 10.1 percent in the West, 11.7 percent in the South and 28.4 percent in the Midwest.

The National Association of Homebuilders also reported this week that its index of builder confidence fell to an all-time low in October.

''Builders are in a panic mode and are trying to catch up with a rapidly falling market,'' said Mark Zandi, chief economist at Moody's Economy.com.

lesley@sltrib.com