Home buyers in Utah have never had it so good -- record low interest rates; $14,000 in federal and state incentives if they qualify; and some builders, facing competition from rising foreclosures and short sales, have even offered to match the federal incentive to clear their inventory.
But will all this be enough to get buyers off the fence in light of rising unemployment, job uncertainty and the possibility of even lower housing prices?
Apparently it is for some, according to several builders and Realtors in Utah. Add the state and federal incentives, plus an $8,000 match from some builders, and the buyer of a qualifying home purchase can start with as much as $22,000 in down-payment assistance.
Not surprising that as the spring home-buying season nears, more builders and Realtors are seeing higher foot traffic. Inquiries have also grown for a state program designed to entice fence-sitters into new homes and stabilize the home-building industry -- now in a slump because of risky lending and speculation during the boom years and aggravated by the current recession.
Under the "Home Run" program, anyone buying a newly built home may be eligible for a $6,000 grant, unlike an $8,000 federal tax credit, which applies only to first-time home buyers -- or those who haven't owned a home in three years.
Already, 78 home buyers, who will be closing on the purchase of their homes in the next 30 days, have each applied for and received a $6,000 grant under SB 260, since it was signed into law by Gov. Jon Huntsman Jr. on March 20. The $10 million for around 1,600 state grants comes from President Barack Obama's federal stimulus package.
Given the strong interest so far, the funds, which are available on a first-come, first-served basis, could run out in 60 to 90 days, said Grant Whitaker, president and chief executive of Utah Housing Corp., which is administering the Home Run program. "We're getting hundreds of calls per day from potential home buyers, mortgage lenders, Realtors and builders wanting to participate in this program."
To qualify, the home being purchased must be a newly-built home and the buyers would have to secure a fixed-rate mortgage, and they must have an income under $150,000 for a couple, or $75,000 for an individual.
"If a first-time home buyer or move-up home buyer is fully employed, not facing salary cuts, and not concerned about losing his or her job, those people will think this is a good time to buy," Whitaker said.
"There are first-time home buyers with income who are waiting for home prices to come down further. This is an incentive to get them into the market now. That's the group the state grant is targeted at," said Jim Wood, director of the University of Utah's Bureau of Economic and Business Research. In February, Wood provided an analysis of the effectiveness of the Utah Housing Action Coalition's proposed Home Run program in stimulating demand for new homes and jump-starting the economy.
The amended $8,000 federal credit should also work better to stimulate home buying this year, said Lerron Little, 2009 president-elect of the Utah Association of Realtors.
Compared with a $7,500 federal tax credit passed as part of last year's Housing and Economic Recovery Act, which is essentially a 15-year, interest-free loan from the IRS, the amended $8,000 tax credit for first-time home buyers doesn't have to be repaid.
Spring buying expectations
Many builders say they expect 2009 to be a "year of rebuilding" for the industry, where demand will likely be a little better than last year, but won't be as robust as 2005 and 2006 -- the peak of the housing boom in Utah.
"It's a great time to buy a home because of the federal and state incentives, builders' incentives and low interest rates. But there is also a very weak economy and people are uncertain about their jobs. Combined, it's hard to say which side prevails," Wood said.
"But the good news is, we're getting close to the bottom, and these programs should help clear the inventory and set the table for economic recovery at the state and national level over the next year," he said. "By the third quarter, we may see some improvement in building permits drawn, and on the real-estate side, we may see some improvement in listings and sales."
Some builders are also heartened by the timing of the state program, which they hope will help boost buying this spring.
Nate Packer, project manager with Ivory Homes, said the $6,000 state grant alone probably isn't enough to stimulate buying. But when combined with the $8,000 tax credit for those who make qualifying purchases between Jan. 1, 2009 and Dec. 1, 2009, lower home prices and low mortgage rates, that should help make home buying more affordable, he said.
"We had to introduce the state program this year because it will be a really difficult year for the economy. You have to stop the bleeding in construction, which accounts for a significant share of lost jobs," Wood said. "It's one measure that will be helpful. But the national economy has to stabilize before our own economy can turn around."
Salt Lake City-based Ivory, which has 11 housing projects in Utah County, is trying to entice new home buyers with perks like an $8,000 match, mortgage interest rates as low as 4.5 percent, energy-efficient designs and warranties. The $8,000 match can be applied toward upgrades, closing costs and purchase-price reductions, Packer said.
D.R. Horton's Micah Peters said his company also offers incentives including a $6,000 match to cover the buyers' closing costs, upgrades and price reductions. The builder is also offering mortgage rates at 4.5 percent in certain homes and communities in Saratoga Springs, West and South Jordan and Riverton, he said.
Utah's economy has been particularly hard hit by the downturn in the housing market, leading to a loss of 14,000 construction jobs over the past year. Huntsman said the grants are expected to create about 8,500 jobs and eliminate about half of an existing glut of 3,000 brand-new homes in Utah.
"A six- to seven-month supply of new homes is considered healthy. We now have about 12 months of supply," Wood said. "By reducing inventory to a point where builders will start building and hiring construction workers again, that should help stabilize home prices, and in turn, reduce the number of mortgages going under water and reduce foreclosures."
In Utah, 6.1 percent of 440,841 mortgages, or more than 26,000 loans, were at least 30 days past due in the fourth quarter. That's up from 4.15 percent in the same period in 2007, the Mortgage Bankers Association reported earlier this month in its National Delinquency Survey.
Utah's delinquency rate has now surpassed the state's previous high of 5.3 percent -- set in 2003 -- but still remains significantly lower than the national rate of 7.9 percent.
According to Salt Lake City-based Newreach, the number of pre-foreclosure filings in Utah County almost doubled to 730 in the first quarter, compared with 379 a year ago.
More home builders, especially smaller ones in Utah, are in financial difficulties. Many have paid top dollar to buy land two years ago, and now find it challenging to sell homes at a profit in today's market.
"Enough builders are in trouble that banks are more cautious now," Packer said. "Some of the smaller builders have left the market because they built the wrong product type, in the wrong location."
Few builders are now building speculation homes, as they are finding a hard time getting financing unless there is a buyer, said Jason Eldredge, vice president of Newreach. Speculation homes refer to those built before a buyer is found.
As of the fourth quarter, there are 889 speculation homes in Utah County, according to Newreach. About 25 percent, or 222, are selling for under $300,000, and the remainder over $350,000. There were 997 speculation homes in the fourth quarter of 2007, compared with 1,937 in the third quarter of 2007 when the subprime market collapsed in Utah.
Quarterly Home sales and prices in Utah County
(Dec. 2008 - Feb. 2009)
Total Homes Sold: 787, down 10 percent from the same time a year earlier
Short Sales Sold: 106
Median Home Price: $211,000, up 0.5 percent from the same time a year earlier
The most homes sold were in the $200,000-$250,000 price range
¬
(Dec. 2007 - Feb. 2008)
Total Homes Sold: 875, down 40 percent from the same time a year earlier
Median Home Price: $210,000, down 3 percent from the same time a year earlier
The most homes sold were in the $200,000-$250,000 price range
(Dec. 2006 - Feb. 2007)
Total Homes Sold: 1,461, up 7 percent from the same time a year earlier
Median Home Price: $216,950, up 24 percent from the same time a year earlier
The most homes sold were in the $200,000-$250,000 price range
Source: Utah Association of Realtors
Posted in Business on Friday, March 27, 2009 11:00 pm
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