Getting Real

3 things to understand about the local real estate market

When Matt and Mindy Orr bought their two-bedroom home in Orem seven years ago, they had one child and plenty of room. Since then, they’ve added another child and the accessories that accompany a family of four.

“We outgrew it,” Matt says. “We needed more space, and our son and daughter each needed their own space.”

With reports of a national slowdown in real estate and “crashes” in Las Vegas and Phoenix, Matt and Mindy were understandably worried about selling their home. Throw in the fact they placed their house on the market Dec. 10 — a traditionally slow time for home sales — and the concerns were justified.

But their starter home in Orem sold in less than a week.

While the Orrs’ experience may not be typical, it illustrates that Utah Valley isn’t suffering from a real estate drought — just an adjustment period.

During the “adjustment,” there are three things every buyer and seller should know about the local real estate market.

1. This is a correction in the market.
“It’s more of a market correction,” says Kenny Parcell, a real estate agent with RE/MAX Results Realty in Spanish Fork and the president of the Utah County Association of Realtors. “The market was never supposed to be what it was a year and a half ago.”

In May 2006, 601 single-family homes were sold in Utah County. In December 2007, that number dropped to 211, according to the Multiple Listing Service.

While the number of homes sold has fallen from its peak in mid-2006, home prices are not plummeting. The median price of a home sold in May 2006 was $205,000. In December 2007, it was $223,043.

“We’re just starting to see some values flattening out,” says Jerry Taylor, UCCU’s staff appraiser who appraises about 400 homes a year. “The real difference we’re seeing is the length of marketing time.”

Eighteen months ago, homeowners might have sold a home in 30 to 60 days. Now the home might take six months.

Longer marketing time has led to more supply. Again, going back to May 2006, 2,660 single-family homes were for sale. In December 2007, 4,015 homes were on the market. Basic economic principles explain that doubling the supply leads to a lower price, even with strong demand.

“Job growth is good and the local economy is strong,” Kenny says. “The buyers are still there. You just have to be more competitive in your pricing and more effective in your marketing.”

2. Mortgage lenders are more conservative than they once were.
With the “sub prime” hit delivered to mortgage companies across the country, lenders are being more careful with the loans they offer.

“Utah County has taken less of a hit than some other areas, but things have changed,” says Ally Kitchen, mortgage loan officer and processing supervisor with UCCU. “The programs are scaled back from what we saw a few years ago.”

Namely, high-risk loans aren’t as available. Lending programs are more conservative. However, for those well-qualified buyers, rates have continued to stay relatively low. Plus, with fewer borrowers, lenders are more competitive and you can find deals with lower fees and closing costs.

For first-time homebuyers and low-income buyers, the Federal Housing Administration has developed additional programs to assist in securing funding.

Mortgage lenders still need to lend money to earn their livelihoods, but they have become more conservative in who they lend to and how much they provide.

3. Home prices are all relative.
When you’re selling your home, you worry about the current residential real estate market. Will it sell? Will I get the price I want?

But as soon as you sell the home — even if it’s for less than you could have 12 months ago — you love the current state of the buyer’s market.

“People need to understand that it’s all relative,” Kenny says. “If you sell your house for a little less than you could have, understand that you’re probably going to buy your new house for a little less than you would have.”

Throw in the competition mortgage lenders face and you have the chance to go on offense.

The fact is, land is still an increasingly rare commodity in Utah Valley and the economy is strong, with low unemployment and healthy industries. Buyers are here. And, right now, they’re in control.

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