Builder blasts speculators

Speculative real estate investors could ruin Utah's happy housing market, sending home prices nose-diving, according to Clark Ivory, chief executive officer of Ivory Homes, Utah's largest homebuilder.

As recently as early 2005, Salt Lake City was ranked among the most undervalued real estate markets in the nation, according to National City Corp. But word of Salt Lake's discounted prices spread like wildfire, with investors snatching up homes and hoping to flip them for a quick return.

Today, Salt Lake City is considered an overvalued market, with home prices in the first quarter carrying an 8 percent premium on average, according to a recent report by National City Corp. Yet Salt Lake's overvaluation is far from the premiums other U.S. cities are carrying.

In fact, 173 metro areas out of 317 were saddled with premiums higher than Salt Lake City.

Behind the soaring prices, which are pushing homes beyond the reach of many working families, are speculators, Ivory contends. And he is blunt when it comes to homebuilders selling out to speculators, saying their motives amount to "short-term greed and thoughtlessness."

"I basically have let my people know that if they sell to an investor and they knowingly do it, they are going to have trouble with management, and that means their job," Ivory said. "That's how serious it is to us."

Last October, Ivory Homes began making its buyers sign an agreement, promising that their home purchase would be used as a "principal or secondary residence" and also agreeing to not sell the property for at least one year.

Violators are subject to a $25,000 penalty.

"I just think we ought to be careful and not let our market become artificially inflated so that we then have to see adjustments," Ivory said. "If we do the right things now, we can have stability in this marketplace."

While there remains disagreement over the legality of such provisions, Ivory said the agreement has deterred speculators.

Richmond American Homes, Utah's No. 2 builder, makes buyers sign a similar contract.

Ivory concedes there is no way of knowing how many speculators are out there. However, it is true that total unsold new housing inventory in the greater Salt Lake region is climbing. In the second quarter, unsold new housing inventory rose to 12,102 units, a 29 percent increase from 9,418 units in the second quarter of 2005, according to Metrostudy, a Houston-based real estate research firm with offices in West Jordan.