Is Utah Housing Overbuilt?

Utah's economy in 2007 is poised to record, for the third consecutive year, very impressive growth.  The national economic environment should remain generally supportive of the state's economic expansion.  A softening national housing market should persist throughout the year and is expected to reduce Real GDP by 1 percentage point--to a still-respectable 2.75-percent range.  Core inflation near 2.5 percent is declining and crude-oil prices are approaching $50/barrel, which will help offset a 25 percent drop in national housing starts.  Through it all, short-term interest rates should remain unchanged, with bond and mortgage rates fluctuating near current levels.

Utah's 2007 expected job growth at 4.5 percent, or 54,500 new jobs, is just slightly below a year ago and will be constrained by limited labor availability.  Single-family permits through most of this year will likely drop 10 to 12 percent below last year.  Despite some obvious softness, Utah's housing market is not overbuilt.  Historically, the current growth relationship of 2.5 people and 1.7 jobs per additional new dwelling unit is both desirable and sustainable, and it does not signal excess housing supply.

Utah's current housing congestion has not been caused by rising interest rates or job-related demand weakness.  An investor-induced speculative demand has accelerated home-price appreciation and helped push average prices up 15 to 20 percent annually.  Utah's average home price at $250,000 in the second halft of 2006 was up 43 percent from 2003.  With mortgage rates over that period up 50 basis points to 6.25 percent, typical mortgage qualifying income for that same period jumped 50 percent, while average taxable income rose less than 25 percent.  The housing affordability ratio, which compares qualifying income to taxable income, thus declined a very significant 15 ratio points by the end of 2006.  Accordingly, Utah's housing weakness is really an affordability issue.

Written by:  Kelly K. Matthews, Economist, Wells Fargo Bank, N.A.

If you have any questions about Salt Lake City Real Estate, please contact The Bryant Group.

• Rate this Post!

  Select Your Rating:

  • 5 Stars (Excellent!)
  • 4 Stars
  • 3 Stars
  • 2 Stars
  • 1 Stars (Poor)

• Share this Post

  Share With A Friend:

  Your Name Your Email

  Friend's Name Friend's Email

  Optional Message

  Send

• Print
• Social Bookmarking

  Add to Bookmarks: