Home-price decline has good side, bad side

A sign for a newly-constructed home advertises a financing rate in Chagrin Falls, Ohio, in October. Home prices nationwide rose slightly in September, the fourth straight monthly increases and a clear sign that the housing market's recovery is continuing. In Utah, however, the prices went down. (Amy Sancetta / The Associated Press)

Utah had the fourth-worst percentage drop in home prices among all states over the past year, which has improved affordability but also pushed more homeowners "underwater" on their mortgages.

Two reports out Tuesday illustrate that the nation's housing downturn has hit Utah hard. Home values, which had appreciated at rates among the highest in the country just three years ago, dropped 10.5 percent from the third quarter 2008 to the same period this year, according to the Federal Housing Finance Agency, which tracks values based on appraisals made during home purchases. Only Nevada (-24.5 percent), Arizona and Florida had worse one-year declines.

By comparison, U.S. home values declined an average of 3.8 percent in the one-year period, according to the agency's House Price Index report.

Utah first began feeling the effects of the housing downturn in 2007, one or two years later than many other parts of the country.

"Late to the boom and late to the bust," is how Andrew Leventis, senior economist with the Federal Housing Finance Agency, describes the Utah's housing market.

As a result, many Utahns who purchased homes in the past two years now owe more than their properties are worth. In all, an estimated 18 percent of Utah borrowers are "underwater," according to another report released Tuesday by First American CoreLogic.

By comparison, states mired in steep housing downturns for a longer period of time have a significantly

The upside to falling home prices is that affordability in Utah and other states has increased, Leventis said. In fact, lower home prices combined with federal incentives and historically low interest rates have created a rare opportunity for buyers such as Christian Waters of Salt Lake City.

Waters and his wife, who are scheduled to close on a home near downtown at the end of the month, stand to benefit from declining costs, super-low mortgage rates and the $8,000 tax credit designed for anyone who hasn't owned a home in the past three years.

"We were thinking of buying three years ago, but we thought prices were too high then," he said.

Like many buyers, Waters believes the market is probably at or near bottom. A number of economists agree, and add that with the low mortgage rates (which are forecast to rise as the U.S. economy improves), homes in Utah may not get any more affordable than they are now.

"If we're not at bottom, we are darn close," said Ryan Kirkham, president of the Salt Lake Board of Realtors.

There are several factors, including Utah's rising rate of foreclosures and its deteriorating economy, that could push home values in the state even lower.

Although Utah's decline in home values over the past year is worse than most other states, many have seen some type of decline over the past year. Nationally, only seven states -- Nebraska, Vermont, Kansas, Iowa, Oklahoma, Mississippi and North Dakota -- had home-price gains in the period that ended Sept. 30, according to the House Price Index report.

Because the housing downturn started later in Utah, the state is still is positive territory when it comes to home values over a five-year period. Prices are still up nearly 24 percent, while by comparison Nevada's values are down more than 36 percent, with Arizona and Florida down 5.6 percent and 13.7 percent, respectively.

Among 366 metro areas nationwide, St. George was ranked No. 285 in home values, with a one-year decline of 14 percent. Provo-Orem was No. 264, at 10.8 percent, followed by Salt Lake City at No. 243, 8.4 percent. Logan ranked No. 106, with only a 1.1 percent decline in home prices over the one-year period.

Nationally, the House Price Index and another report released Tuesday suggest that home prices are beginning to stabilize. Although home prices were down 3.8 percent in the one-year period, they did increase a slight 0.2 percent from the second quarter to third quarter.

"Given the headwinds facing markets, including high unemployment rates and continued high levels of delinquency and foreclosures, the longer-term view remains uncertain," Edward J. DeMarco, acting director of the federal Housing Finance Agency, said in the report.

According to the Standard & Poor's/Case-Shiller home price index, prices rose slightly in September, the fourth straight monthly increase and a sign the housing market recovery is continuing. The index of 20 major cities -- Salt Lake City is not included -- rose 0.3 percent, to a seasonally adjusted reading of 144.96 in September. Prices rose month-over-month in 11 metro areas, a weaker showing than in recent months.

Industry experts still worry that rising unemployment and foreclosures could undermine any rebound in prices.

The Associated Press contributed to this report