Homebuilding on record pace

The value of residential construction in Utah for the three months ended Sept. 30 outpaced all other third quarters in the state's history and could lead to a record-breaking year.

In short, homebuilding couldn't be better in Utah thanks to low mortgage rates and a flurry of new household formations.

According to figures from the University of Utah's Bureau of Economic and Business Research, the number of residential building permits reached 7,075 at a value of $920 million in the third quarter, up from $700 million during the same period a year ago.

Residential valuations include the cost of materials and labor, not the cost of land or architectural fees.

James Wood, interim director of BEBR, predicts total residential valuation for the year could top $3 billion, an all-time record even after accounting for inflation-adjusted dollars.

While new job growth in the state has remained stagnant and net in-migration has slowed, Utah has the youngest population in the nation, with a fertility rate of 2.7 children per woman. Large families may be one reason why homebuilding in the state remains strong.

"The only way you can account for it is internal formation of new households, that is, kids coming of age and moving into the housing market," Wood said. "It's the echo-boom, where you have the kids of the baby boomers forming new households."

Neil Ashdown, chief economist to Gov. Mike Leavitt, agrees Utah's unique demographics are driving construction growth in the state.

"A third of our population is under 18," Ashdown said. "As this population moves through college or into their first jobs and they begin to start their families, they also move into the housing market."

Ashdown added that Utah's housing market structure also has shifted from the mid-1990s when an influx of wealthy Californians moved to the state and built large, expensive houses.

"The types of homes that are being built typically are different," he said. "They are not these $300,000 and up homes, they are more in the $150,000 to $200,000 range."

In 2002, residential valuation hit $2.5 billion, an all-time high and up from 2001's $2.35 billion. For the first nine months of 2003, residential valuation totaled $2.32 billion.

Single-family homes accounted for 4,781 of the total residential permits issued, an 18 percent increase over the same quarter in 2002.