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Ravell Call, Deseret News
Tishanne Stout's home in southern Utah appraised for $370,000 a year ago and now can't be listed anywhere near that.

ST. GEORGE — For the past few years, the summertime heat of Utah's Dixie has been matched by the area's scorching hot real estate market. Mortgage brokers and real estate agents in Washington County had more than enough work, as buyers and sellers kept pumping more money into the market.

Home prices increased over a five-year span by an astounding 73 percent, making the St. George metropolitan statistical area among the top appreciating housing markets in the nation. Plenty of folks, from all ends of the real estate spectrum, were making a lot of money.

But late last summer, that trend came to a screeching halt.

"I think it was the 12th of August. Foreclosure rates came in for subprime loans at 11 percent, and immediately the market dropped," said Melody Knowlton, a local mortgage loan officer with Envision Lending Group. "Everything was shut down, except for conventional loans. There was no notice at all on subprime loans. They were just gone."

The St. George area is now experiencing some of the pain being felt by nearby Las Vegas and Phoenix. According to data released May 22 from the U.S. Office of Housing Enterprise Oversight, southern Utah's largest metro area ranked 235 out of 292 markets, with sales prices decreasing 3.65 percent from the first quarter of last year to the same period in 2008.

St. George's housing fortunes changed so drastically and so quickly that in March, the area was declared a "declining market," following two consecutive quarters of home-sales price decreases, according to the federal housing-oversight office.

That distinction led the country's leading mortgage-insurance companies to include St. George on their list of areas that require stricter standards for issuing loan insurance.

Unlike northern Utah, where home prices have held relatively steady, the Washington County market and nearby Las Vegas have been swept along in the national mortgage crisis, where mounting foreclosures, falling consumer confidence and sellers slashing their asking prices are taking an increasing toll on the market. Las Vegas had the third-highest foreclosure rate in the nation during the first quarter of this year, with one in 44 households receiving a foreclosure filing.

Many St. George-area homeowners with subprime loans have either defaulted or are poised to lose their investments. Many of those people find it a difficult subject to discuss.

One local business owner worried that his customer base would erode if those people knew he was losing his home to foreclosure. A police officer agonized over breaking the coming news of an imminent foreclosure on his home to his wife and in-laws. His plight, he said, made him "feel like a big loser."

Knowlton said her customers are suffering in today's market, and there's very little she can do to help many of them.

"Before, I could qualify nine out of 10 applicants. Now, I can qualify one out of 10," she said. "You have to have a big down payment and really good credit to qualify for a loan now."

Knowlton said she tried to help Jaime and Tishanne Stout refinance a beautiful home they had built in Washington city but found it was an impossible task.

"Their home isn't worth as much as they owe on it now," she said, adding the house appraised for more than $370,000 a year ago and now can't be listed anywhere near that price. The house sits on a quiet hillside street with other high-end homes, overlooking the green farmland that still exists in Washington city.

"It's my dream home," said Tishanne Stout. "We built another house, and I guess we should have stayed in that one instead of selling it and building this one."

The Stouts are like many other couples who work in the construction trade here, building a home and selling it to cash in a nice profit before building another house that is even bigger and better than the last one.

There are a lot of houses like the Stouts' home with a "For Sale" sign planted out front, but there are even more listed with no one living in them. Only six of the homes in the Stouts' neighborhood are occupied, which can lead to a sort of eerie feeling for those who do live there. Entire subdivisions throughout the county are dotted with signs that beckon buyers, but there are few takers.

Stricter lending standards

Because St. George is now deemed a "declining" real estate market, Radian Group requires a larger down payment for homebuyers there who are seeking mortgage insurance. Radian Group is the parent company of Radian Guarantee, which provides mortgage insurance for lenders nationwide.

Scott Theobold, chief risk officer for Radian, said that in the past, his firm's eligibility standards required borrowers with the best creditworthiness to have a maximum loan-to-value ratio of 97 percent, meaning they would have to put 3 percent down. But since the St. George area is now considered a declining market, Radian now requires a 5 percent down payment before it will provide insurance.

Those changes, said Theobold, are considered permanent, "at least until conditions are such that they compel that we should rethink them."

The area's mortgage difficulties have placed mortgage-insurance companies in a difficult financial position, said Wells Fargo economist Kelly Mathews.

While St. George was riding the wave of spectacular economic growth also seen in neighboring Nevada and Arizona, construction of residential homes became a major factor driving that economic prosperity, he said.

Now that the market has softened, the housing market is "seeing the most stress," Matthews said.

In 2005 and 2006, in what many people in Washington County now refer to as the "boom years," appraisers and loan processors worked at a frenetic pace, trying to keep up with the demands of a real estate market that consistently brought fame to the county as a top 10 of one sort or another.

The number of building permits issued in Washington County increased from 1,561 in 2001 to 3,479 in 2005 before taking a tumble in 2006. That year, building permits dropped by 47 percent to 1,845 — with another 23 percent drop in 2007, when just 1,422 permits were issued.

Allan Carter, developer services director at Southern Utah Title Co., said that so far this year, building permits are continuing their downward slide and are estimated to finish the year another 56 percent off the previous year's mark, with only 600 permits expected. That's less than half the number of permits issued even in the tamer market years in the late 1990s.

But Carter said he thinks the worst is yet to come.

"The typical homeowner's house is worth a lot less now than it was a year or two ago," he said. "People can buy a foreclosed home for so much less than new homes. They're priced 20 percent to 30 percent less than what you can buy it for new."

Declining prices

Lori Chapman, president of the Washington County Board of Realtors, said the amount of inventory in the sub-$400,000 price range is beginning to "level off" and is being absorbed by the market. But the higher priced properties are not selling nearly well as they were just a year ago.

"We went up so far and so fast that it was really unsustainable," she said. "We've been in the adjustment period, and we still are, because of the supply and demand issues."

Chapman said homebuyers in the St. George market likely would have to be willing to stay in the market for at least three years to realize a gain on their property investment.

Data from research firm Metrostudy shows that the median sales price for new homes in St. George began declining in the third quarter of last year. Median prices fell from $421,100 in second quarter 2007 to $418,900 in the third quarter, following nine consecutive quarters of sales price increases.

The median new home sales price declined again in the fourth quarter of 2007 to $399,300 and went down to $385,000 in the first quarter of 2008.

Developer Garret Bangerter of Bangerter Homes said the current southern Utah market is flooded with undeveloped lots and new home inventory, which is also helping to drive down prices in the area.

Much of that decrease is due to the reduction in land prices, Bangerter added.

"When everything went crazy a couple of years ago, everybody got into a frenzy and thought they were going to get rich developing lots," he said. "Everybody jumped in and bought land, and now the Metrostudy group is telling us there is going to be an eight-year supply of lots available."

Bangerter said just three years ago, lots to build homes on were scarce, and the demand was extremely high. Now that situation has reversed itself. He attributed the change to the aggressiveness of seasoned developers and speculators trying to make big money in the hot real estate market.

"Everybody thought there would be no end to the demand, and now we have an oversupply," Bangerter said. "Prices have definitely been coming down as developers realize there is an oversupply."

Slow recovery

Even with the decrease in prices, the area's tighter loan restrictions make it difficult for many consumers to purchase a home, Knowlton said.

"I have a lot of customers who used to have excellent credit, and that's gone now," she says. "They either bought too much house and can't make the payments, or they can't get a loan refinanced. Their credit is ruined. People don't know what to do."

Tishanne Stout said she feels luckier, in a way, than many of the people who, like her husband, work in construction.

"My husband has had work. There are many people who didn't have any work for months at a time," she said.

But the work her husband has been able to obtain has sometimes been far from Washington County. Most recently, he worked at a job site in Beaver, staying there for several days at a time and only coming home on weekends.

"We've been lucky, though," she said. "It never fails. Every day, there are two or three people who ask my husband for work, and he says he already has his crew."

For those who can afford to buy a home in Washington County and qualify for a loan, there are bargains galore, according to Carter.

"There is honestly not a better time, in the past 10 or 15 years in Washington County, to buy a home right now," he said. "The problem is, not many consumers can do it."

Knowlton said prices are likely to go down even more during the next year or so before the market stabilizes.

"A lot of people are trying to work something out with their lenders to avoid foreclosure, but there's not a lot being done for them," she said. "It's really devastating for a lot of people. It's going to take them a long time to recover."

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