Homeowners gleefully watched the value of their homes skyrocket last year. Now one of the state's leading economists says it's good for Utah that those values are falling back to earth.
And we should root for them to fall a bit further, Wells Fargo vice president Kelly Matthews said Friday.
That caught my attention as I prepared to moderate a panel discussion after Matthews and Lt. Gov. Gary Herbert spoke at the Utah County Summit on Affordable Housing.
We love how much our Provo home has grown in value since we bought it eight years ago. Why would I want to see some of that value disappear?
The reason is that housing stock in Utah County is too expensive and that's bad for families and the economy.
A friend of mine in the real estate business has a daughter who is beginning to look at buying her first home with her husband. My friend is worried the couple will start looking outside of Utah because the math for first-time homebuyers in this state just doesn't add up.
Realtor Matt Barton said he regularly gets the same call: Help, my married children are living in our basement because they can't find a home on their income.
"They can't afford Utah anymore," Barton said.
Take a teacher, for example. The median sales price for a home in Utah County is about $250,000. How many young teachers do you know who make the $70,000 or so that is necessary to afford such a home on one income?
But when young workers or others with lower incomes go looking for homes in this valley, they find very few that cost less than $200,000.
For a while, the solution was lenders making risky loans to buyers who couldn't afford the homes they were buying. Matthews called these lending practices obscene and crazy.
A strong economy kept pushing prices up, and so did investors who came in and flipped homes to make a profit.
A market correction was inevitable.
Now, Matthews said, "Prices have outstripped income so people cannot buy, afford or sustain their mortgages."
If you know a contractor, you know things are bad. Building permits for construction of new homes are down 50 to 70 percent along the Wasatch Front so far this year.
"We basically have stopped building new homes in any meaningful sense," Matthews said.
So how does this get better?
Well, Utah continues to be fertile ground for new jobs, even though job growth has dropped from a high of 5.4 percent in June 2006 to 2 percent this past April.
Matthews said job growth will drop to 1 percent, which is still healthy. And job growth requires construction of more homes.
But housing prices do need to continue to slip. They're down 8 to 12 percent this year. Matthews said Utah can reach a place where affordability is sustainable if home prices are down 20 percent by the end of the year.
"We all hate the idea of falling home prices," he said, "but we have to realize it's an affordability problem. We're not going to get incomes rising any faster than they are or interest rates that are any lower."If home values do reach a 20 percent drop, homebuilders can start building homes again, "hopefully," Matthews said, "homes we can afford to buy."
Utah County Bureau Chief Tad Walch lives with his wife and five children in Provo, their home for the past 21 years. E-mail email@example.com.