Even though there are still many uncertainties in the housing market, there are a number of reasons to be optimistic about the future, according to speakers at the annual Ivory Institute conference held Tuesday at the University of Utah. Clark Ivory, CEO of Ivory Homes, spoke on the six factors affecting the state of housing in Utah and special guest speaker Eric Belsky, director of the Harvard Joint Center for Housing Studies discussed the future of housing in America.

Ivory explained that employment and income, population and demographics, supply, qualification and credit, affordability, and confidence are the six factors that determine the health of a real estate market.

In the first category, Utah's unemployment rate is elevated but is low compared to neighboring states and the U.S. as a whole. In fact, many prominent companies are locating to Utah because of the state's young, educated workforce, low corporate and income taxes, and fiscally minded government. In fact, recent Forbes articles have recognized Utah metropolitan areas as being the best for business and careers. 

Utah is also doing well in the second category, leading the nation in population growth. The state also has positive in-migration, which means more people are moving into Utah than are moving out. Under normal circumstances, these conditions would point to 16,000 new households being created in 2010, but in reality, the number is much lower because many people are doubling up as they wait for the economy to improve. Once confidence is restored, these buyers are expected to support strong growth in home building and real estate sales.

The second speaker, Eric Belsky, also explained that future housing demand will be supported by the large echo-boomer population, a group that will be key to the first-time market. Another group that will support housing is the aging baby boomers who will demand new housing options for their active lifestyles. In the U.S. as a whole, there are more than 3 million households that are part of the pent-up housing demand, he said.

The third factor is supply, which can put downward pressure on home prices if there is too much inventory on the market. Today's excess supply is being driven by foreclosures and short sales, rather than new construction which is significantly down. According to data presented by Ivory, foreclosure filings have not yet peaked in Utah but will hopefully begin to come down in 2011. As this supply decreases, home prices should hopefully bottom out in those areas that have not yet seen price stabilization.

Fourth, consumers must have access to financing. Since the days of lax lending, the requirements to get a loan have been tightened, and now nearly one-third of the population doesn't have strong enough credit to buy a home. Ivory said he predicts credit will continue to remain tight in 2011, which is why his company has created a program to help consumers improve their scores.

The fifth factor, affordability, is determined by home prices and mortgage rates. Currently at historic lows, interest rates are expected to rise gradually through the end of this year and into next. A video of Arthur C. Nelson of the University of Utah was shown during the presentation, and Nelson said renters should consider “taking the plunge” because of the positive factors like interest rates. He advised potential buyers to consider properties that would minimize risk, including homes close to transit and within walking distance to amenities.

Finally, confidence plays a significant role in whether people are willing to buy a home. Although confidence may be down, Utah is actually one of the most optimistic states in the nation, which bodes well for the future. Belsky explained that once we get the all-clear signal, many people are likely to come back to the market. In fact, surveys conducted by the Joint Center for Housing Studies indicate people still believe homeownership is a safe investment and want to be homeowners.

While home sales will likely be slow for the short term, according to Belsky, there will be a brighter day ahead and future home sales will be driven by a diverse group of echo-boomers as well as by the baby boomer population.

Of course, home-buying conditions will be different for every city and neighborhood. To learn more about the real estate market in your area, contact your local REALTOR®.

By Lerron Little, CRS, GRI
Appeared in the Salt Lake Tribune and Deseret News November 6, 2010