Grace Leong

Even though new home construction in northern Utah County has slowed dramatically, it could take longer for Lehi, Saratoga Springs and Eagle Mountain to get rid of their glut of unsold new homes because of a significant slowdown in sales in the first quarter, according to a report released Monday by Newreach, a Salt Lake City-based real estate research firm.

"Lehi, Saratoga Springs and Eagle Mountain had the lion share of homes under construction. The sheer amount of developable land in northern Utah County meant it has been a haven for builders. But as the market started to slow down, home sales also plunged in those cities," said Todd Cook, Newreach's vice president of research.

The number of new homes sold in Utah county plunged to 739 in the first quarter, compared with 1,322 new homes sold in the same period a year ago, and 1,235 units sold in the fourth quarter.

That 44 percent plunge in first-quarter new home sales, combined with the existing glut, means it may now take nearly a year to get rid of Utah county's new home inventory, assuming no new homes are built, the Newreach report said. In the fourth quarter, the group projected it would take about eight months to sell the county's new home inventory.

These northern Utah County cities are leading the state with the most unsold homes, largely because builders had flocked to build in what were then considered the fastest growing areas in the last few years, and at a time when lending requirements were "lax and fast." But when credit standards tightened last summer in the wake of the national subprime lending crisis, and those buyers got shut out, the building was already under way. Compounding the problem further was a drop in affordability as home prices rose faster than wages in Utah.

A double whammy of slow home sales and oversupply should continue to put pressure on prices of both existing homes and new homes, said Taylor Oldroyd, chief executive of the Utah County Association of Realtors.

The median asking prices for all existing residential types in March fell 12.7 percent to $289,900, from $331,913 a year ago, while median sale prices in March rose to $224,850 -- up from $217,900 -- according to the Utah County Realtors.

New home sellers also recognize that pricing is an issue, and are making adjustments accordingly, Cook said. "We're seeing price reductions of between $10,000 and $50,000 of new homes in the $400,000 to $1 million range in Lehi, Saratoga Springs and Eagle Mountain. Lower-priced new homes in the $250,000 and below range may see a 5 percent drop in prices by this year end."

Builders, who have turned skittish because of poor home sales, took out permits for the construction of just 289 homes in March, down a whopping 74 percent from the number of permits taken for the building of 1,101 new homes last year, according to data from Construction Monitor, which tracks home-building activity throughout the western United States.

"The decrease in new home starts is good news for the building industry and the overall real estate market," said Jason Eldredge, executive vice president of sales for Newreach. "We are more likely to avoid the drastic pitfalls that our neighboring states are dealing with. While there still are some problem areas, it could have been much worse had builders continued to pull permits based on speculative purchasing."

Meanwhile, the Federal Housing Administration last week denied the request by Utah County Realtors to raise the limit on FHA-backed loans, or loans typically used by first-time homebuyers to $729,750. Utah County's FHA loan limit is currently at $323,750.

"They didn't say why they denied us but asked for more information on median sales prices of new homes in 2007, which isn't reflected in the Wasatch Front Multiple Listing Service data, and all the housing stats, median list and sales prices countywide," Oldroyd said.

The Utah County Realtors plan to discuss this issue further with the U.S. Department of Housing and Urban Development in Washington, D.C., at the annual convention of the National Association of Realtors in May.

The group argues that Utah County's FHA loan limit should be raised to $729,750 because the median sale prices of new homes sold in 2007 was $425,000, which exceeds the county's current FHA loan limits.

"We want the residents of higher-cost areas in Utah County to have the same right to obtain an FHA-insured mortgage as residents in other higher-cost areas of our state. The new limit benefits only a portion of our county, while those living in higher-cost areas are being excluded," Oldroyd said.