Utah housing: Braking, not broke

Oct. 6--At first, it looked as though Utah's homebuilders would be able to avoid the sharp downturn in new-home construction that followed the nation's subprime-lending debacle.

But by July, it became painfully apparent that even Utah's hot economy couldn't prevent residential construction along the Wasatch Front from plummeting to 10-year lows. Faced with this turn of events, builders have been forced to make substantial layoffs and offer thousands of dollars in incentives that could benefit anyone in a position to buy a home right now.

"This is going to be a tough year for builders," said Jim Wood, director of the University of Utah's Bureau of Economic and Business Research.

From January through September, builders locally took out permits for the construction of 8,530 single-family homes, down 30 percent from the same time period last year, according to Construction Monitor, which tracks homebuilding activity.

Though sales were strong early in the year, by summer demand for new homes had dropped sharply, with homebuilding activity in August the worst in years.

Mortgage rates remain attractive, and unemployment in Utah is virtually nonexistent. But responding to the rise in defaults from risky loans made to subprime borrowers with less than good credit, lenders nationally and in Utah have imposed tighter lending standards in recent months that have made it more difficult for people to qualify for a home loan.

And several years' worth of home-price increases from Ogden to Provo -- in many cases vastly outpacing wage gains -- have put homeownership out of the reach of many Utah families.

That double whammy is affecting companies such as Woodside Homes. The company took out only 219 permits for the construction of new homes along the Wasatch Front in the first nine months of the year, down from the 432 permits in the same time period last year, according to Construction Monitor. A Woodside employee said the company had no comment because it doesn't talk to the media.

The company, part of the privately held Woodside Group Inc., is offering some substantial incentives to move its homes. Buy one of the houses that Woodside is trying to sell in its Foxboro Exeter South subdivision in North Salt Lake, for example, and you could walk away with $15,000 in free options.

Richmond American Homes, part of Denver-based M.D.C. Holdings Inc., has run ads touting free options and upgrades of as much as $35,000, and up to $3,500 in down-payment assistance. (Not to mention the drawing for a really nice television.)

Richmond American took out permits for the construction of 409 homes along the Wasatch Front in the first nine months of the year, down by more than half from 968 in the same time period in 2006. The downturn has been especially difficult for the company, which had no comment about speculation that it has been forced to lay off a substantial number of its workers in Utah. Just last year, Richmond American was nearly tied with Ivory Homes for the title of Utah's largest homebuilder; this year it is a distant second.

In September, Richmond American took out permits for the construction of only six homes locally, down from 90 in September 2006.

Many builders, such as Utah's Hamlet Homes, say the slowdown came on rather suddenly, in July.

"Suddenly we hit this brick wall," said David Irwin, vice president of sales and marketing. "Sales were down, traffic was down. The initial thought was that it was a temporary blip. But it continued, through August and September."

In the first nine months of the year, Hamlet took out permits for the construction of 118 homes along the Wasatch Front, down from 304 in the first nine months of last year.

Irwin said the company has laid off 11 administrative and production employees representing about 14 percent of the company's work force. And "spec" homes built without a buyer? Like other builders, Hamlet isn't building those types of homes anymore.