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.

Last year around this time, a common incentive offered by Hamlet -- which sells homes priced from the $200,000s to the $400,000s -- was about $5,000 in free upgrades. Today, the builder is offering discounts of up to $10,000 on certain homes and an option of no housing payments for four months to buyers who obtain a mortgage through an affiliated mortgage company.

Utah's Ivory Homes took out permits for the construction of 765 homes along the Wasatch Front from January to September, down from 973 last year. The builder was not only able to retain its title as the state's largest builder but was able to avoid the steep drop-off in sales that has plagued a number of other builders.

"We are not advertising huge discounts because we did a better job than most at keeping speculative inventory in check in our communities and have also had better sales than most," CEO Clark Ivory said in an e-mail. "There are still home buyers in the market, and we hope to get a larger share of them because of our commitment to maintaining value."

Still, Ivory is feeling the pain. In September, Ivory took out permits for the construction of only 28 homes locally, down from 86 in the same month last year.

Ivory has had to lay off some workers, said Chris Gamvroulas, an Ivory executive, although he wouldn't say how many have lost jobs or what percentage of his work force is out of work.

Gamvroulas said he doubts there are any of the state's homebuilding companies right now that haven't had to lay off some amount of workers to cope with the downturn.

Like other builders, Ivory has seen continued high demand in lower price ranges. When its most recent new-home community, Highbury at Lake Park in West Valley City, opened on Sept. 29, the company said in two hours it sold 15 townhomes priced from $175,000 to $220,000.

Fieldstone Homes Utah, which focuses in great part on first-time home buyers, took out permits for the construction of 387 homes in the first nine months of the year, down from 412 last year -- one of the smallest declines in activity among all builders along the Wasatch Front.

The company is rolling out this weekend a promotion that gives buyers purchasing certain finished or partially completed homes an annual percentage rate of 5.3 percent and only $100 in closing costs.

If buyers purchase a home that will be have to be built, they can select either the low mortgage rate or the "$100 moves you in" option.

Jerry Abbott, division president for Fieldstone, said one of his company's advantages is its price point -- it builds houses in Utah in the $185,000 to $300,000 range. "You really see the downturn the most in the $350,000-and-over market right now."

The good news, Abbott said, is that he doesn't see Utah's homebuilding downturn being as bad as in Arizona, Nevada and California -- or for as long.

"We're very optimistic about the Utah market."

Kristen Nilssen, president of the Salt Lake Home Builders Association, agrees.

"We have a good economy, interest rates are low and we have good job growth," said Nilssen, with Gold Medallion Homes in Midvale.

In neighboring states the residential real estate downturn has been so bad it has turned into a drag on the entire economy. Many construction jobs have been lost as a result.

But in Utah, a surge in commercial construction -- including the massive City Creek development in downtown Salt Lake City being built by The Church of Jesus Christ of Latter-day Saints -- has compensated to great degree for the downturn in the Wasatch Front's residential real estate market.

Those who may lose a job in residential construction, depending on the circumstances, could end up finding work in commercial construction fairly quickly.

"The good news is that we have yet to see any slowdown in construction industry employment," said Wood of the Bureau of Economic and Business Research.

Only time will tell just how much residential construction in the state will suffer, but he has been surprised at the severity of the downturn so far. "My guess is that the builders haven't seen the worst of it yet."

PROFITING FROM THE SLOWDOWN

--It can't hurt to ask for additional incentives beyond what the builder is offering. It could be a washer and dryer or something bigger, such as an upgraded kitchen or three-car garage. "The best-qualified buyers are a pretty hot commodity to the builders right now," said Gary Cannon, president of the Salt Lake Board of Realtors.

--Going with a mortgage lender affiliated with the builder can save money, but don't automatically go this route. Get at least two other rate quotes. Compare APRs -- an annual percentage rate that includes closing costs and other fees -- from each mortgage company.

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