The uncertainty surrounding Utah's topsy-turvy housing market is revealed in the responses to a recent Deseret Morning News/KSL TV survey conducted by Dan Jones and Associates.
Despite the fact Utah's real estate market is still relatively strong compared to neighboring Western states like Arizona, California and Nevada, homeowners and prospective buyers are still fuzzy about what to make of the current market or what the next 12 months will bring.
When asked to peer into their crystal balls, 22 percent of respondents said they believe home prices will probably increase; one-third think prices will remain the same; and 26 percent said housing prices will decrease.
Of those who thought prices would increase, 38 percent said the hike will be 0-3 percent, while nearly half (48 percent) said prices will rise 4-7 percent, with only 10 percent believing prices will jump higher than 7 percent.
For the respondents who said prices will decrease over the next twelve months, one fifth think the drop will be 0-3 percent, 34 percent believe the decrease will be 4-7 percent, 26 percent said the decline will be 7-10 percent, with 10 percent answering greater than 10 percent. For the most part, these numbers reflect the opinions of many analysts who follow the housing market and express varying thoughts where Utah real estate goes from here.
"Right now it is definitely 'change time.' I personally believe (the market) is going to get back to the days we had back in the '80s and '90s a little bit," explained Dave Seiler, an area Realtor with RE/MAX Associates.
He described circumstances in which home prices have been artificially inflated due to out-of-state investors and speculators flocking to Utah, triggering a steep increase in property values for a short time followed thereafter by a sharp decline.
But Kelly Matthews, executive vice president and economist for Wells Fargo, sees Utah's current home market as more stable than other states that saw rapid appreciation and are currently experiencing a literal reversal of fortune.
"Our Utah situation has not deteriorated nearly as much as some of the other places," Matthews said.
Matthews said new home construction fell 20 percent during the period August 2006 to August 2007, while selling prices for homes increased in the double digits for the same period.
"Most of the adjustment thus far has been made in a reduction in construction (of new homes) rather than any cut in pricing," Matthews said. "On average there is no evidence yet that Utah home prices are beginning to fall."
Back in the trenches, Seiler says the evidence is clear.
"When you look at how many investors were in our market two years ago even versus last year the problem is that some of them had done well," resulting in a number of houses being rehabbed and "flipped" for a nice profit, he said. "Everybody had gone to classes, and all these investment seminars were on every corner with signs saying 'Investor needs apprentice.' Everywhere you went around, people were thinking they were going to make big money in real estate.
"If you look at the investors who bought last, they're hurting right now," he added.
Seiler said most savvy investors saw the decline coming and moved on before the slowdown occurred. He said currently there is a high volume of high-end properties that are not selling, creating a glut of homes in the Utah market.
"So you get all these (late) investors in there who now own properties that are sitting vacant, and they're having to start doing whatever they can because it's starting to eat their profits away if they had any," Seiler said.
Looking ahead to the home market in coming months, Seiler is concerned Utah may find itself in similar situations to other states that are experiencing serious housing price corrections.
"Right now the buyers are sitting on their hands doing nothing," he said. "Those interested in purchasing homes already have the sense the market is changing. Many prospective buyers have recognized prices are falling and they could get more for their money if they are patient.
"Everywhere you turn around, you're seeing 'price reduced' signs going up," Seiler said adding that a number of homes are selling for less than the asking price, which also drives down prices overall.
Matthews said he would like to see construction continue at its current pace, but he would prefer that home prices adjust with average sales prices leveling off and eventually declining slightly to make homes more accessible to more potential buyers.
"The housing problems that we usually have are because of high interest rates and a weak economy. Here we have low interest rates and a very strong local economy, yet we still have this problem because of a lack of affordability because housing prices have been up to much," he said.
Pointing to his own market analysis, Matthews said affordability fell significantly from February 2005 to February 2007, meaning home prices increased more than prospective buyers' ability to qualify for loans to purchase them. He predicts a 7 percent drop in the average Wasatch Front home price by mid-2008, which he says will increase affordability, thereby strengthening the overall market."If people can't qualify for loans and the homes aren't selling, at some point (builders and sellers) are going to have to lower their prices," Matthews said.