Many Utahns, especially in real estate, are saying that the sub-prime mortgage fueled real estate mess is going to bypass Utah. The thinking goes that the economy is doing well here and home prices will continue to rise.
Not so fast. Fortune Magazine did a study of major metropolitan areas where they compared the long-term ratio between rents and median home prices (Click here to read the story.)A change in this ratio is a good predictor that home prices are being driven by speculation, and historically, this ratio always returns to normal through depression of home prices. Given this analysis, Fortune predicts that Salt Lake metro will be one of the top 25 areas in the country for loss of real estate value, estimating 22.5% decrease in home values over the next five years.
The so-called booming economy the last seven years has been built on a mountain of public and private debt. More and more economists are recognizing this fact and are predicting a recession to correct the speculative excesses caused by all this debt. This latest study is a warning that Utah will not be spared the pain of this correction.
12 comments:
And you might add that historically Utah has not fared well when recessions hit the rest of the nation. Utah is usually hardest hit, in fact.
Unfortunately it is extremely difficult to predict what is going to happen to the values of homes in Utah because it is just too darn difficult to obtain market data for real estate transactions in our state.
Utah is a non-disclosure state for real estate transactions. There is no requirement that sales prices of homes be reported publicly. That means that the only likely source for Fortune's data could be our local Board of Realtors multiple listing service. The scary thing is that their database only has a fraction of the sales that have actually occured and very few of the home sales in their database are new home sales which have typically been significantly higher in price than existing home sales over the recent run-up in home value.
It seems entirely possible that the rent/value analysis done by Fortune isn't very useful for our state since they couldn't possibly be using a complete enough data set. If anything their study is probably very conservative in its prediction since it doesn't contain many of the most expensive housing sales which have occured.
I'm going to go a bit off topic here but Utah's non-disclosure status is a real problem for Utah's citizens. It is extremely difficult to crack down on the rampant fraud and money laundering taking place in our real estate market because the data just isn't there for authorities to use to catch criminals early enough. Something needs to be done to revise Utah's backwards real estate disclosure laws.
Something should be done, but there seem to be a lot of realtors and developers in our legislature. Might explain why the law lets them get away with non-disclosure.
A 22% reduction will roughly negate the increases of the past 12 to 18 months. This will not have the disastrous effects you are hoping for (in order to blame Bush).
It's a pretty safe bet to say that we can expect a recession in the next year or two because these things tend to occur every seven to ten years.
The economy was heading into recession during the last two years of Bush I. The economy was heading into recession during Clinton's last year, and the economy will probably be going into recession next year, although 2Q GDP grew at a high enough rate (3.9% prelim) to suggest that the economy has enough steam to last a couple of more quarters before tanking.
One of these days Americans will figure out that presidents don't have as much impact on short-term economic performance as we think they do.
Sorry. I meant 3Q GDP grew at 3.9%, not 2Q.
Anon,
Nobody is hoping for a recession.
Your contention that these things occur cyclically ignores the argument made in this post.
Americans have been consuming like crazy because we've been pulling money out of the inflated values of our real estate. Since these values may be based more on speculation than on an increase in the real worth of our property we've have likely been living on borrowed money that wasn't really ever there.
Our problem is a lot bigger than the typical cyclical recession.
Steve,
I think you are crying like Chicken Little that the sky is falling. – It’s not.
The Utah economy is healthy – unemployment is low and will be for some time.
We have affordable housing as compared to the rest of the country – our foreclosure rates are well below the national average.
Wages have gone up in the state – but, we still have a young, educated, motivated, proactive workforce that works for below what the mean national earnings and wages are and companies recognize this.
In the future – Utah’s robust economy will depend more on the global economy and that isn’t slowing down.
Business professors I’ve spoken to at both the U and Y are very optimistic about the future here.
Did someone say "crack down" or "hit hard" or "run up" or "12 to 18"
The Republican vote is going to fall by 22% also.
The mortgage crisis is a myth –
35% of all homeowners own their own homes outright.
95% of all mortgages are paid on time.
85% of all sub prime mortgages are also being paid on time.
There is no mortgage crisis.
The markets are strong and growing.
I don't think there is any truth to the idea that this dire prediction was caused by Ralph Becker's election. Let's put that one to rest right now!
:)
Ever with a 22% drop, we'd still be up about 10% since we bought two years ago. I'm not going to complain about that.
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