Utah housing market challenges builders, favors buyers

Second in a two-part series.

CENTERVILLE — If hearing is believing, Utah's housing market is in the midst of recovery. Check out all those rebound sounds — nail guns popping, chop saws whirling and hammers banging — emanating from a new subdivision near you.

The incentivized truth, though, is that those are really only the sounds of the federal and state governments working mightily to keep the sickly homebuilding industry on respirator. It turns out nearly all new construction taking place in the first quarter of 2010 was spec in nature as builders have been bolstering inventory to cash in on the last-minute rush by people taking advantage of expiring federal and state tax incentives.

In its advertising, Ivory Homes is touting that it has 100 homes "ready for move-in" to accommodate stimulated buyers as both the $8,000 federal First-time Homebuyer tax credit and Utah's $6,500 Move-Up/Repeat Home Buyer Tax Credit expire April 30. Absent further tinkering by Congress or the Utah Legislature, residential construction in Utah will then have no choice but to begin standing on its own two wobbly feet.

One homebuilder who won't miss federal and state incentives when they go away is Bill Perry Sr., CEO of Perry Homes. He sees the stimulus doing as much harm as good, artificially propping up the market.

Kennecott Lands president Don Whyte sees it differently. "I would like for the programs to (continue) because they are a very effective tool for putting people to work building homes, but realistically, our industry has to operate as though they will not."

While some home purchases have been motivated by available tax credit and subsidies, Whyte said, most homebuying decisions are related to a move for work or change in family status. People are still dealing with those forces and federal programs are not going to stop those changes from happening, he said.

David Stiff, chief economist for Fiserv, a global information manager and provider for the financial services industry, does see short-term weakness once government stimulus efforts are curtailed or eliminated.

With or without government subsidies, homebuilders are of the mind that they're not going to be able to sell houses for much less than they already are. "We're not going to lower prices. There's no more room to go. We're at our bottom. The only way for us to lower our prices is if we could find cheaper lots, but that's becoming difficult," said Perry, who has snapped up a few land bargains over the past year that he'll be repurposing for market.