The real estate blog.

Yesterday we were talking about the potential effects of the stimulus package and the other measures taken by the Fed and lenders to ease the housing crisis. Today let’s talk about how this could affect Utah’s real estate market and how you can position yourself to take advantage.

First of all, Utah’s real estate market has slowed down quite a bit, but prices are remaining high. Certain areas like Northern Utah County have a glut of new homes on the market and prices have come down there, but overall owners selling houses are resistant to lowering prices.

KSL reported Monday - Market analysts say home prices are still high, and few people are buying.

Bingham says fewer than 3,000 homes went on sale in December of 2006, and more than 1,200 sold. Compare that to December of 2007, where nearly 7,000 homes went on the market, and less than 800 sold.

Unlike some markets in the country Utah saw a decrease in foreclosures in 2007 by 25%. Home values have held up and you don’t read about the desperate sellers that exist elsewhere. Just yesterday, Forbes Magazine ranked Salt Lake City as the top real estate market in the country.

“Of the major metros in the U.S., Salt Lake City is adding jobs faster than anywhere. The economic boom in SLC has drawn residents from all over the country. Housing supply has gone up quickly, and there hasn’t been a high rate of foreclosure.”

I suspect this Forbes article was written a while ago because job growth in the area is cooling.

Anyway, the point is the Utah real estate market has stalled a bit, but not floundered. Let’s look at what a shot in the arm through the stimulus packages could do.

First of all, mortgage rates are highly competitive, but borrowers without stellar credit or a significant downpayment won’t get great rates unless they utilize FHA loan programs. One of the packages signed into law yesterday calls for an increase in FHA loan limits. For Salt Lake County, we’re currently at $362,000. Other counties in the state are about $100k lower. The new loan limits have not yet been specifically determined, but call for increases to $725k in high cost areas. Utah is not a high cost area, but could see a bump up. We will have to wait to find this out.

Further, both the FHA and Conforming limit increases are temporary; running from July - December of this year. I think this will set up a rush on the markets nationwide as rates should still be competitive and the window of higher limits will be temporary thus creating a compelling reason to buy or refinance. We should find out whether Utah will benefit from the higher loan limits before the July start date.

It is possible the higher loan limits will push up interest rates as conforming loans become less homogeneous. We don’t yet know how this risk will be distributed to consumers. There is less risk of this phenomenon happening with FHA loans because they are highly insured. It is possible, however, that FHA mortgage insurance premiums could rise. We’ll have to wait and see on both counts.

Strategies for Utah real estate

Given this background, here are my thoughts on real estate strategies -

If you’re keeping your home, look into refinancing to a low fixed rate. With rates as low as they are, it makes sense to refinance into a 15 year loan as payments could only go up a few hundred dollars per month and you’ll have the benefit of a shorter mortgage term. If you have the equity, also examine getting a home equity line for emergencies. You don’t have to use it. Indeed you shouldn’t use it. With some lenders changing loan criteria for these types of programs, it’s smart to get one while the getting is good.

If you’re looking at trading up, after July will probably be the best time, especially if your target price is above $417,000. Of course, if you can find the house you want before then and it fits your price and risk criteria, feel free to make that deal. Just be aware it’s taking longer to sell houses now.

If you’re looking for a first home, or to re-enter the housing market, July will be the optimum timeframe. We’ll have a much better understanding of the mortgage crisis then and the narrow window of higher loan limits will drive demand.

I don’t think we’re going to see a housing crash in Utah. There is a mortgage crisis, but I believe the efforts made by government will alleviate the problem for now. I may not be right. A number of negative scenarios still exist including a slow, extended decline like Japan or an outright collapse. Right now, I believe neither of those is likely. I think July - December 2008 is going to bring a resurgence in the Utah real estate market both for purchases and refinances.