| HousingIntelligence Spotlight: Salt Lake City, UT |
| Written by Jonathan Smoke | |
| 11.01.2007 | |
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Discuss this article on the forums. (0 posts) Today I am venturing out west to Salt Lake City, UT, the winter sports haven conveniently located in the midst of some of the most breath-taking vistas in the U.S. Are the housing prospects for Salt Lake as bright as its world-class snow? Salt Lake City ranks 273 out of 361 MSAs on our most recent Housing Prospects Index. That puts Salt Lake City at the very bottom of the third quartile for expected housing market performance over the next three to five years. Two factors contribute the most towards Salt Lake City’s poor prospects: the current state of the housing market and the prospects for future price appreciation. While permits have fallen dramatically in 2007, it was too late into this housing downturn to avoid a pile up of new construction inventory. Based on our Market Equilibrium calculation, it appears that it will take almost all of 2008 at dramatically lower permit levels for much of the current inventories to be worked off. )) Median existing home prices had a good run in Salt Lake City over the last few years, but prices are more likely to decline slightly over the next few and remain at best near current levels through 2010. The prospects for new home sales look fairly limited for the next several years as sales fall in a much lower range than that experienced during the boom. On the positive side, Salt Lake City’s local economy is thriving. Few cities look to be stronger in the next three to five years. Unemployment is low, job growth is strong, median incomes continue to rise, and although bankruptcies are rising they do not yet appear to be a factor. Demographically, this strong economic environment is attracting more households and since housing is still moderately affordable in the market, the impact of credit tightening is not likely to be as severe in Salt Lake City. One of the most interesting factors about Salt Lake City’s housing market is the commanding premium for new homes over existing as measured by the percentage difference between the new home price per square foot over the existing home price per square foot. Over our data set, Salt Lake City’s new home premium has been between just under 20% to over 30% in 2007.  Not only is the premium relatively high compared to the average market, the premium has actually risen in 2007 (through July closings), defying the trend occurring in most markets where builders are discounting heavily to keep new homes moving. As mentioned previously, the market should have significant inventory pressures, but at least through the first half of this year, builders have been able to avoid intense price competition that has resulted in the new home premium disappearing in most markets. This may be because Salt Lake City faces less of a substitution threat from existing homes—by quality, feature, location or a combination of the above. It could also be a reflection of the smaller presence in this market of the large public builders who were very efficient at expanding rapidly in other markets during the boom. While Salt Lake City doesn’t have the brightest prospects for housing, its strong economy and healthy premiums for new homes make it a market that still may be appropriate for opportunistic investments. In which case, location is everything, and having Neighborhood Insights would make those opportunities clearer. 
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