Interest rates are at record lows and home prices are still falling, so the housing market should be hopping, right?
But it’s not. More than two years after the recession ended, demand is still excruciatingly low relative to anything that housing experts would consider to be normal, Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard University, said Wednesday.
Speaking to more than 500 real estate agents, appraisers and mortgage loan officers at the Salt Lake Board of Realtors’ annual housing forecast breakfast, Belsky laid out his view that the Utah and U.S. housing markets won’t come roaring back this year — even though others at the event were more optimistic and the latest signals suggest that the local and national economies are strengthening.
“Even if people have the will [to buy homes], which I think they do or will at some point, the way is much tougher,” Belsky said, noting that lenders are still leery about extending credit and unemployment is still high, especially among people who have reached the age of typical first-time homebuyers. Consumer confidence, while better, is still barely above recessionary levels, he said.
In Utah, the pace of job creation is fourth-best in the nation, but it’s offset by a foreclosure rate that is fifth-worst. Home ownership in Utah has fallen faster than the rest of the country. Banks are demanding high credit scores and big down payments as a precondition for loans. And after years of price declines, Belsky said, close to 20 percent of the homes in Utah are underwater — property owners owe more on their loans than what their homes are worth.
Pushing back against Belsky’s outlook was Jim Wood, director of the University of Utah’s Bureau of Economic and Business Research. Because of rising job creation rates in Utah, he believes sales of single-family homes in Salt Lake County will rise 15 percent this year — and could go as high as 20 percent.
Even so, home values aren’t likely to recover the ground lost since they peaked four years ago. Over the course of the recession and recovery, home prices in the county have fallen about 25 percent. They will probably decline another 3 percent to 5 percent this year, Wood said.
“Prices were under-accelerating pressure throughout ,” he said “A third of all sales of single family homes were either properties [foreclosed by lenders] or short sales. That puts really significant downward pressure on prices.”
Still, Utah’s foreclosure rate is down 20 percent since peaking in mid-2010, a good sign that the economy is mending. What’s more, notices of default — a harbinger of future foreclosures and short sales — have fallen over the past 12 months, he said. At the same time, pent-up demand is building, fueled by a ever-expanding population and job growth.
“We are in very good shape in our recovery,” Wood said
The median price of a home sold in Salt Lake County last year was $198,000, about 3½ times the median household income of $56,000. That means families earning the median county income could afford 70 percent of the 9,300 homes sold last year, he said.
“That is extreme affordability,” Wood said.
There was hope in the reactions of several of those in attendance that 2012 will not be a disaster.
“In December, I had three units with multiple offers, which for a long, long time I hadn’t seen,” said Shane Ashrafi, an agent with North Star Realty in Draper. He said low interest rates and falling prices are finally starting to bring buyers into the market. First-time buyers seem especially numerous.
David Young, a mortgage representative at America First Credit Union, said 2012 seems to be starting off on the right foot.
“It feels like it’s going to get better,” Young said. “I’ve noticed that we are getting a pattern of ‘what-ifs’ questions [from aspiring home buyers]. They are starting to window-shop.”
S.L. County housing market challenges
9,300 homes sold in 2011, up from 8,565 in 2010 but down from about 15,000 in 2005 and 2006.
New-home construction is down by 76 percent since 2005 peak.
Home prices have fallen 25 percent in four years, including 10.3 percent in 2011.
Median price of all homes sold in 2011 was $199,000.
Median price of a short-sale property was $175,625. Proceeds from a short sale are less than the balance owed to the lender.
Median price of a “REO” property was $149,950. An REO has been repossessed by the lender.
Source: Salt Lake Board of Realtors