Grace Leong

Despite the ongoing housing and credit market turmoil, and lingering fears of a national recession, the Beehive state will likely hold its own for now because of its uniquely robust population, in-migration growth and diversified employment base, a Wells Fargo economist said Wednesday.

That has the effect of making U.S. exports cheaper overseas.

He sees real gross domestic product growing between 1.5 percent and 2 percent over the next six to 12 months.

While a recession -- which is defined as two straight quarters of negative GDP growth -- isn't a likely scenario for now, Utah will feel the effects of a slowing economy as consumers cut back on spending and the state's job growth slows to around 2 percent this year, he said.

"The housing bubble isn't as bad in Utah as in some other states like Nevada, Arizona, California and Florida. In addition, we have had much stronger job growth than other states and our employment base is much more diversified beyond construction to professional business services, health care, tourism and natural resources," Matthews said.

"Many out-of-state companies choose Utah as a base for manufacturing and their headquarters because of our lifestyle, outdoor recreation, and demographics," he said. "We are one of the few states that have native population growth from an indigenous population and a rapidly growing labor force, in addition to in-migration. The availability and quality of the labor force is a hugely important factor in deciding to do business in Utah. Contrast that with the Midwest where the labor force is actually declining instead of growing."

Affordability concerns

The Federal Reserve's move Tuesday to cut interest rates to 3.5 percent, and the likelihood of further rate cuts should help boost sentiment among homebuyers, Matthews said.

But affordability remains a problem as home price gains still outpace wage growth in Utah. Compounding that problem are more stringent lending standards, which have made it more difficult for people with spotty credit to get home loans, he said.

"We've made a huge reduction in the number of new homes built and homes sold, but we've done little to adjust prices," Matthews said. "Home prices in Utah are still out of line in relation to affordability and income, so these need to drop seven to 10 percent this year, and this should be done sooner rather than crunching along month after month."

Already, the number of builders' permits for single family homes in Utah, Davis, Morgan, Salt Lake, Summit, Tooele, Wasatch and Weber counties plunged 63 percent to 386 in November from 1,048 a year ago. "I wish we would get the price adjustment moving faster and quicker, so that we don't have to see the volume of construction decimated further," Matthews said.

According to the Construction Monitor's preliminary data for 2007, the number of builders' permits for single family homes statewide are expected to drop 31 percent to 9,242 from 13,424 in 2006.

Single family home sales in Utah County plunged 46 percent to 738 in the fourth quarter from 1,360 a year ago, while condominium sales shed 42 percent to 200 in the fourth quarter from 343 a year ago, according to the latest data from the Utah County Association of Realtors.

The average sales price of single family homes is up a hair at $278,260 in the fourth quarter from $275,126 a year ago, while the average sales price of a condo is up 2.13 percent to $172,975 from $169,365 a year ago.

Taylor Oldroyd, chief executive of the Utah County Realtors, said home prices in Utah County in the fourth quarter haven't dropped much because of the strong local economy and employment growth.

"But with less new home construction, that will put pressure on home prices. It's clearly a buyers' market," he said.

'Get the Facts Straight'

In an attempt to counter the onslaught of negative economic news on homebuying sentiment, the Utah Association of Realtors this week launched a statewide advertising blitz on TV, radio, newspapers, the Internet and billboards to help local homebuyers "Get the Facts Straight."

"There's no reason for us to have a downturn in the housing market in Utah. We want to let people know that local economics are different from national economics," Oldroyd said. "If you want to know what the weather is going to be like in Utah, you don't check the national forecast."

He said the association also enlisted the help of Gov. Jon Huntsman, who will be touting Utah's economy in one of the "Get the Facts Straight" TV advertisements. More information about the campaign is available at utahhousingfacts.com.

David Mansell, president of the Utah Association of Realtors, doesn't see home prices in Utah dropping as sharply as those in Nevada, Arizona, California and Florida -- among some of the states suffering the worst from the housing and credit slump.

"Utah didn't experience the kind of spike in home prices in those states. If the house is in the $250,000 or lower price range, you're not going to see a substantial price drop because those homes are still selling well. If you're in the $1 million price range, then you could see a 10 percent reduction," he said.

"It's true that home prices have gone up substantially and wages haven't grown as much. But annual average wages in Utah are rising about 5 percent a year," he said. "We've been through worse in the '80s. The 1987 recession was a serious one, when inflation was in the double-digits, interest rates were around 18 percent for a 30-year fixed rate loan and unemployment was around 8 percent."