Foreclosures in Utah are expected to hit a new record high in 2009 as more residents join the jobless ranks and the number of subprime loan resets increase this year, according to the 2009 Economic Report to the Governor.

About 42.4 percent of all Utah subprime adjustable rate mortgages will reset from now through September, compared with 27.8 percent resetting nationally, according to the governor's report, citing estimates from the Federal Reserve Bank.

And Utah County is among the areas expected to have the greatest concentration of foreclosures in 2009, largely because it saw strong residential construction and a significant rise in home prices during the recent boom years, said Juliette Tennert, chief economist at the Governor's Office of Planning and Budget, which presented the report last week to Gov. Jon Huntsman Jr.

In 2008 alone, the number of foreclosure filings in Utah County soared 239 percent to a total of 2,898 compared with the same period a year ago, according to RealtyTrac report released Wednesday. The Irvine, Calif.-based foreclosure listing report covers filings including default notices, notice of trustee sales and bank repossession notices.

More than 1,100 homes in Utah County were actually repossessed by lenders in 2008, up from a mere 66 homes in 2007, according to the report. Statewide, 4,128 homes were repossessed by lenders in 2008, up 457 percent from 741 in 2007. Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level.

"In the past, people had the option to either refinance to a better loan, or just sell the property. But in this current market, it's much harder to do that. People who are in distress have fewer options to avoid foreclosure," said Daren Blomquist, RealtyTrac's marketing communications manager.

Statewide, the number of Utahns facing foreclosure jumped 99 percent to 14,836 in 2008 from a year ago. "Utah now ranks 13th in terms of foreclosures, compared with 20th place a year ago. Foreclosures appear to be rising at a faster pace now because the housing boom in Utah came later than other states, so the bust is coming later, too," Blomquist said.

Still, there's a silver lining for Utah, Tennert said.

"We have some tough times ahead of us. Even though we're approaching record-high levels of foreclosures, we're still in a better situation than most other states," she said.

Case in point: Only 1.4 percent of all Utah home loans are in foreclosure as of the third quarter of 2008, compared with 3 percent nationally, according to the latest report from the Mortgage Bankers Association.

About 10 percent of all Utah home loans are subprime loans, compared with the national average of 12 percent, and more than 15 percent in hardest-hit areas like Nevada, Arizona, Florida and California, Tennert said.

"Even though we have a lot of subprime loans resetting in 2009, we have a smaller proportion of those loans compared with other states," she said.

Depressed by mounting foreclosures and a glut in housing inventories, home prices in Utah are expected to drop another 8 percent in 2009, Tennert said. "Utah has lagged the nation in terms of home price depreciation. In the fourth quarter 2007, prices rose 9 percent even though prices nationally were starting to slow. We didn't see home prices dropping until the third quarter of 2008," she said.

Median prices of single-family homes in Provo shed 3.1 percent in the third quarter of 2008 from a year ago, while median prices statewide dipped 1.6 percent, according to the governor's report. Excluding Park City, average home prices statewide fell 5.6 percent in the 12-month period ended Sept. 30, according to the Utah County Board of Realtors.

"But we'll recover faster because we have solid economic fundamentals, such as a young, educated labor force and a pro-business regulatory environment, which would attract businesses to Utah even in the downturn," Tennert said.

Mortgage rates driven to record lows by government actions including the Federal Reserve's plan to buy $500 billion of mortgage bonds will help soften the housing slump by boosting demand, she said.

With the weakness in housing apparently spreading into other sectors of the economy, Utah's employment situation is expected to turn negative in 2009, with a forecast drop of 1.5 percent, according to the governor's report. That compares with 0.2 percent job growth in 2008.

"Home prices cannot stabilize as long as consumers are concerned about their long-term employment prospects," according to the governor's report. "Assuming the natural market corrections were to run their course in the next six months, it will be very important for Utah's job market to be strong enough at that time to sustain an orderly recovery in our housing markets.

"However, if we continue to see increase in unemployment leading to further consumer uncertainty, the current housing correction could become extended. This ambiguity in real estate values would continue to make it difficult for local banks to lend into certain segments of the economy, thus the depth and length of the recession would be exacerbated."

For now, Tennert holds to the view that the worst of the recession should be over by the middle of the year. "The drop in employment could peak at the 2-percent range by July for Utah. But job growth isn't likely to return until the middle of 2010."

Retail sales, the backbone of the state's economy, is expected to drop 1.6 percent in 2009, compared with 2.8 percent growth in 2008 and 6.1 percent growth in 2007. That's due to a sharp pullback in consumer spending in the face of rising job insecurity and slower wage growth. In 2009, annual wage growth is expected to slow to 1.6 percent in 2009, compared with 2.8 percent growth in 2008 and 5.6 percent growth in 2007.

But on the bright side, Tennert also expects price deflation in 2009 to offset the effects of slowing wage growth in Utah. "In 2008, there was 3.8-percent inflation because of record-high oil and gas prices. So people felt the effects of inflation eroding their pay. But in 2009, we're expecting 1.5 percent deflation in prices, which hopefully, would help make things easier for most people."

• Grace Leong can be reached at 344-2910 or gleong@heraldextra.com.