At the same time, Jeff Thredgold, economic consultant to
Zions Bank and president of Thredgold Economic Associates,
sees price activity varying depending on the market segment.
According to Thredgold, lower-end properties in the $175,000
to $300,000 range should increase approximately 7 to 10
percent. Some homes in the $300,000 to $500,000 range should
see price gains of about 5 percent while others may see a
slight decline.
The real concern is the market for $500,000 and above
properties; people may have to cut prices, and there may be
areas that have to come down 5 to10 percent, he says. “All
real estate is local,” Thredgold said. “In certain
communities, it will do well, but in some areas, prices may
have to come down.” Affordability Issues - For four
consecutive quarters, starting in fourth quarter 2006, Utah
has had the highest house price appreciation in the country,
with increases ranging from 12.9 percent to 17.55 percent,
according to numbers from the Office of Federal Housing
Enterprise Oversight, the Fannie Mae and Freddie Mac
regulator. But these increases have some concerned about
affordability in the state.
According to a study by Matthews, housing affordability
along the Wasatch Front dropped about 22 percent during the
past two years. Matthews says prices were pushed up through
a combination of lower-than-expected interest rates, a
robust local economy with strong job and population growth,
investor activity, and aggressive financing that allowed
people to purchase high-priced homes.
Together, Matthews says, these factors created a
high-appreciation environment where prices increased more
than they should have. Now that investor demand has
disappeared and aggressive financing has dissolved, Matthews
says people can no longer afford homes at their current
prices based on traditional mortgage standards.
Nevertheless, some affordability pressures may be easing up
as national mortgage problems are resolved and funding
returns. Jumbo loans — mortgages more than $417,000 — saw
their interest rates spike as global investors panicked in
the wake of the credit crunch, causing financing and
affordability problems for those purchasing higher-priced
homes.
Nevertheless, Yun says, investors are now realizing that
prime loans are not subprime loans and they are returning to
invest in mortgages. He says he expects rates on jumbo loans
to continue to edge downward. “Many home buyers in the
high-cost regions who have been frozen out of jumbo loans
will now be able to return to the market,” Yun wrote in a
recent article. Concerns about subprime loans should also be
easing. A majority of the borrowers who were served by the
subprime market should now look to safer FHA loans that have
better interest rates and are expected to be reformed in
2008, Yun says.
Other good news is that there has not been much change in
the lending standards for conventional, FHA and VA loans. In
fact, mortgage interest rates are at historic lows, hovering
around 6 percent. “Affordability is always a concern when
there’s a spike in home prices,” Yun said. “One has to
remember that a market where people want to move into,
that’s implying there’s a greater demand which means there’s
a premium attached to home prices.”
Housing Demand
Read Part 1 of
Utah Real Estate Forecast
Read Part 2
Read Part 3