The number of completed, unoccupied new houses and condominiums in Salt Lake County jumped 205 percent in the last quarter of 2007 to historic levels, compared with the same period in the previous year.
A report released Wednesday by Newreach, a Salt Lake City-based real-estate research firm found that the county had a record 1,037 new units available in the fourth quarter of 2007, compared to 340 units in the fourth quarter of 2006. As of Dec. 31, 2007, there were 1,605 homes and condominiums under construction in Salt Lake County, a 39 percent decline from the 2,613 residential units under construction in the fourth quarter of 2006.
"There is a huge amount of vacant new home inventory," said Jason Eldredge, executive vice president of sales at Newreach. "The sky isn't falling, but there are areas that are in trouble."
A report by the Construction Monitor found that Wasatch Front builders took out the fewest number of permits in January since 1990. The January 2008 total of 242 permits was a 74 percent decrease from the January 2007 total of 937.
Some of the hardest hit areas are in the southern part of the Salt Lake Valley, according to the Newreach report.
South Jordan had the largest number of unsold new single-family homes in Salt Lake County in the fourth quarter 2007 with 157 units. Herriman ranked second at 121 units, followed by Riverton in third at 110 units. Draper, with 106 unsold units, and West Jordan, with 78 units, rounded out the top five.
Eldredge said one of the major factors impacting the level of unsold new housing is affordability.
"A lot of these homes are 4,000 square feet and are $450,000 and above, and yet there are still a few builders who are bringing them to market," he said. "The lack of affordable new product has forced potential buyers into the existing home market, attached housing units and rental properties."
Since the market has slowed, developers have stopped taking out building permits, which should allow the market to absorb the current unoccupied inventory, he said.
The report estimated that 1,037 completed, unoccupied residential units, combined with the 1,605 units currently under construction, represented approximately a 10-month supply of new housing inventory. If no new homes were built, it would take approximately 10 months to sell all of Salt Lake County's current new-home inventory.
Eldredge said he believes that the unoccupied, completed inventory will increase again next quarter and then level off.
"The good news is that new home permits have been reduced dramatically, and you're going to have to see some price reductions, as well," he said.
The average price of a single-family home in Salt Lake County in the fourth quarter of 2007 rose 1.75 percent to $358,200, compared to $352,024 in the final quarter of 2006, according to Newreach. Eldredge said the best chance to see significant price reductions on new homes could be in the higher-priced inventory above $500,000 or $600,000.
"Builders will essentially have to decide how long they can carry the cost of their unsold inventory before it becomes too much of a financial burden," he said.
The rising levels of unsold new housing inventory have also hit neighboring counties. Utah County had 987 unsold new homes and condominiums sitting on the market in the fourth quarter of 2007, a 256 percent hike from the fourth quarter of the previous year. As of Dec. 31, 2007, there were 2,105 homes and condominiums under construction in Utah County, representing an eight-month supply.
The average price of a single-family home in Utah County in the fourth quarter increased 4.64 percent to $362,690, compared with $346,622 the year before.
Nationwide, housing starts in January remained near their lowest level since 1991.
The Commerce department reported work began on 1.01 million homes, up 0.8 percent from December. Building permits fell 3 percent.
A glut of unsold homes, mounting foreclosures and falling prices could be a signal the housing slump will continue to detract from growth, which may set the stage for more interest-rate cuts. Federal Reserve Chairman Ben S. Bernanke last week said the Fed was ready to act in a "timely" manner to keep the expansion from faltering.
"We don't think housing has hit bottom yet," said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. "Until we get some stabilization in sales or even a mild improvement, it's likely that construction will continue to weaken."
In Utah, Zions Bank economist Jeff Thredgold said builders sitting on unsold inventory typically have more incentive to move their properties. He also said the market will likely produce more price flexibility in new homes than in existing homes, which will help clear the market."If you can get good financing, it is a good time to be a home buyer," he said. "You can be aggressive in trying to get a better value. It's certainly become more of buyer's market than a seller's market."
Contributing: Bloomberg News