DAILY HERALD | Posted: Friday, June 6, 2008 11:00 pm
Local real estate and financial experts address housing, economic downturn
Grace Leong
What will it take to get out of the housing mess we're now in? Why isn't there more affordable housing available? How can homeowners improve their credit scores and ability to obtain financing? A group of more than 40 realtors, bankers and other business professionals brainstormed possible solutions to those issues at a meeting sponsored by the Utah County Association of Realtors on Friday.
Lax lending practices and speculator buying activity in recent years may have fueled the run-up in home prices prior to the national subprime mortgage meltdown and the ensuing housing slump. But equally problematic is a lack of affordable housing, as well as what some local underwriters describe as a shocking lack of education among Utah home buyers, and even some lenders, about what it takes to obtain financing.
To address housing affordability in Utah County, home prices will have to drop further than they have already because wage growth hasn't kept pace with price gains in recent years, paychecks aren't stretching as far because of skyrocketing gas and food prices, and interest rates aren't likely to drop further for the time being because of inflation concerns, said Kelly Matthews, Wells Fargo's executive vice president and economist, at the 2008 Utah County Summit on Affordable Housing in Provo on Friday.
Compounding that problem is more stringent lending standards, which made it more difficult for people with spotty credit to get home loans, he said. Matthews maintains that home prices, which have dropped between 8 percent and 12 percent in Utah and Salt Lake counties since last July, are still out of line in relation to affordability and income, and hopes to see at least another 10-percent drop by year end.
But while we're not out of the woods yet, Matthews said the current economic situation in Utah isn't as dire as some parts of the nation, despite the latest round of disturbing oil and employment data.
On Friday, Wall Street plunged nearly 400 points as crude oil prices jumped by a record $10-plus a barrel and the nation's unemployment rate notched its highest monthly jump in 22 years by a half-percentage point to 5.5 percent. Already facing high energy prices, weak income growth, declining home equity and rising food prices, Americans now face job-security and recession fears.
Still, Utah isn't in a recession in the technical sense yet, Matthews said.
"Even though our job growth has come off the 4.5 percent levels and is expected to drop to around 1 percent, it's still growing, and that's better than states like Arizona, Nevada and California, which saw zero to negative growth in recent months," Matthews said.
Utah's foreclosure rate rose to 0.55 percent in the first quarter, up from 0.33 percent in the same year-ago period. But the state's foreclosure rate remains the 11th-lowest in the nation and below its high of 1.7 percent in 2003. Nationally, the foreclosure rate was 0.99 percent in the first quarter, up from 0.58 percent last year.
"We're not through with the mess in housing and oil, but we're halfway through it. By the end of the year, hopefully, the housing adjustment will be done," he said.
A recent proposed development in St. George that aims to address a shortfall of affordable houses for the area's teachers, nurses, police officers and seniors clearly illustrates a need for more affordable housing in Utah, said Lt. Gov. Gary Herbert. The project, to be located on 12.5 acres near Little Valley Elementary School, would include 89 homes with a proposed median price of about $220,000.
In previous years, home prices in St. George skyrocketed over a five-year span by 73 percent, making the Washington County metropolitan statistical area among the top appreciating housing markets in the nation. But now, the St. George area is experiencing some of the pain being felt by nearby Las Vegas and Phoenix, where mounting foreclosures, falling consumer confidence and plummeting list prices are taking a growing toll.
"The Hawaii Syndrome, which is where people can't afford housing where they were raised, is happening in St. George. What are we going to do about it?" he asked.
Mike Glenn, director of the Utah Division of Housing and Community Development, said there are state laws that require 149 communities in Utah to have affordable housing plans, but those plans don't adequately address the needs of seniors, the homeless and the disabled.
"We're working with cities to upgrade these affordable housing plans and working with industrial banks to help forecast what consumers' needs are," he said.
One way to address the affordability issue is to increase the availability of workforce housing in Utah County, or housing that's affordable to joint households making 80 percent of the median gross income of $58,850, said Ron Winterton of American West Lending. Only 6.5 percent of single-family homes in Utah County are available for less than $200,000.
But finding adequate financing for would-be home buyers is also a pressing concern because credit requirements have tightened.
"You can't get as many buyers qualified for loans now, and there are all these homes coming on the market," said Al Bingham, a senior loan officer with National City Mortgage. "But Utah isn't going to get to the point that California is at because the price appreciation isn't as bad here."
Compounding the situation is a disturbing lack of education among would-be home buyers about the importance of credit scores and how to increase those scores, said Deon Spilker, senior mortgage banking underwriter with the Utah Housing Corp.
"Many home buyers in Utah don't understand what a promissory note is. They don't understand what they're signing, or agreeing to do," she said.
"Many of them bought something they qualified for, but not what they can afford," she said.
Even more disturbing is an apparent lack of education among some lenders about credit scores, Bingham said.
"The pass rates of Utah loan officers on credit scores in mortgage license exams were in the low 30s," he said. "Some loan officers were even giving bad information to home buyers and hurting their credit scores. To get the housing crisis over, these issues have to be addressed."
And while some in the mortgage industry would like to see the state Legislature introduce laws that mandate the teaching of credit scores in Utah's high schools, they believe more should be done to educate home buyers, especially since credit requirements have tightened, Bingham said.
"The ideal score now ranges between 740 and 850," he said. "For every 20 points under 740, it costs the average household $100 extra per month on their insurance payments, average debt loads."