Housing boom may be cooling off in Utah
Permits decline 4.5%, but Utah County still hot
By Dave Anderton
Deseret Morning News
The number of building permits issued for new houses, condominiums and apartments is falling across Utah, but in Utah County permits are skyrocketing, according to a new report.
Scott G. Winterton, Deseret Morning NewsNew homes in Herriman. Building permits are down this year in Salt Lake County. Residential permits issued across the state from Jan. 1 through Sept. 30 fell to 20,387, down 4.5 percent from 21,347 permits handed out during the same nine-month period in 2005, according to the University of Utah's Bureau of Economic and Business Research.
The turnaround began in August, when new residential housing permits fell 15.3 percent for the month. That was followed in September by a 13.7 percent drop.
Many Utah cities have seen the number of residential permits issued this year drop dramatically. Permits in St. George fell 43 percent in the first nine months of 2006, compared with that period in 2005. In Herriman, permits fell 50 percent. West Jordan was down 31 percent, and Riverton was off by 10 percent, the report noted.
Counties also saw declines. Salt Lake County was down 12 percent in the first nine months, compared with the same period last year. Davis County saw a 10 percent decrease. Tooele County dropped 13 percent.
Utah County appeared to be the exception, with permits there rising by nearly 21 percent.
"It's just exploding down there," said James Wood, director of the U. bureau. "Utah County will be the leader in new residential construction this year. They have roughly a 600-unit lead on Salt Lake County through the third quarter. I don't think that there is any way Salt Lake County is going to catch them."
The rise in new permits in Utah County was driven by record home building in Lehi, which led the state with 1,361 permits issued from January through September. Also, Eagle Mountain and Saratoga Springs — at 640 and 508 permits, respectively — showed strong increases in the number of residential building permits issued this year.
Deseret Morning News graphic Yet Utah County's gains were not enough to put the state ahead of where it was last year at this time. And with a slowdown looming, the question becomes how long and how severe the pullback might be.
Chris Gamvourulous, president of Ivory Development Co., Utah's biggest homebuilder, said Ivory likely will build more houses in 2006 than it did in 2005. In 2005, Ivory pulled 1,058 single-family home permits.
However, Gamvourulous said, the company remains concerned over the "investor presence" in the Salt Lake market. In October 2005, Ivory Homes began making its buyers sign an agreement, promising that their house purchase would be used as a "principal or secondary residence" and also agreeing to not sell the property for at least one year. Violators are subject to a $25,000 penalty.
"We think in our communities we are going to be OK, but it just depends on how individual builders and developers deal with it in their individual communities," Gamvourulous said. "If they refuse to sell to speculators and investors, then their communities will probably be OK."
Gamvourulous said the slowdown in residential permits does not indicate the sky is falling.
"We're optimistic, but we are very cautious," Gamvourulous said. "Just because things are transacting doesn't mean they are real. It could be speculators. There are recisions."
Richmond American Homes, Utah's second-largest homebuilder, reported its before-tax net income for Utah and Colorado dropped to $25.2 million in the first nine months of 2006, a 49 percent decrease from $49.5 million in net income in the same period of 2005.
But while Richmond American was discounting houses it sells in Virginia by $30,000, the company noted a $95,000 increase in the average selling price for its house closings in Utah during the third quarter, compared to the same quarter in 2005, according to a filing with the U.S. Securities and Exchange Commission.
Richmond's price gains in its Utah communities helped to offset fewer closings. The company said closings on Utah houses were down 14 percent in the third quarter, compared to the same period last year. For the first nine months of this year closings fell 9 percent.
"We believe that prospective homebuyers have been delaying home purchases during this period of uncertainty," the company said in its SEC filing. "We continued to respond to the increased cancellation rate and the uncertainty in the homebuilding market by increasing incentives and offering limited time sales promotions, with the objective of improving our sales velocity."
Companywide, nearly half of Richmond American's home orders were canceled during the third quarter, up from 26 percent in the third quarter of 2005.
Kelly Matthews, executive vice president and economist at Wells Fargo in Salt Lake City, said he expects the number of single-family home permits in Utah will drop by 7 percent in the second half of this year, compared to the last six months of 2005. And he expects another 7 percent decrease in permits handed out for single-family homes in the first half of 2007.
"We're still not building too many houses relative to the population and the numbers of jobs that we have," Matthews said. "But we have to be cognizant that clearly what's going on nationwide and what's gone on in Phoenix, Las Vegas and even St. George probably will have some bearing here along the Wasatch Front."
The number of permits for single-family homes in Utah dropped to 15,614 in the first nine months of the year, down 2 percent from 15,938 permits handed out during the same nine-month period in 2005, the U. report said.
Multifamily permits saw the biggest percentage drop, a 12.7 percent decline to 4,185 units compared to 4,795 units a year ago.
The total value of all residential permits in the first nine months of 2006 reached $3.8 billion, up from $3.5 billion during the same period of 2005, according to the U. report. Residential valuations include the cost of materials and labor but not the cost of land or architectural fees.
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