No second dip happening in Park City
June 25, 2010
News from the U.S. Department of Commerce caused a scare earlier this week when it reported new home sales were down 33 percent the worst dip ever recorded and existing home sales were down more than 2 percent in May.
Analysts say a dip was expected because the federal tax credit for buying a home expired April 30 but not a dip that deep causing many to question the success of the tax credit in jumpstarting home sales.
Park City real estate experts say the news is unlikely to affect local markets.
Mark Seltenrich, president of the Park City Board of Realtors, said the tax credit was little motivation to Park City’s homebuyers.
"Some people took advantage of it, but it was not a big part of our market. It was minor whether there or not, so the effect was minor," he said.
"We’re more affected by the national economy and the stock market than other towns in Utah due to the nature and profile of our buyers," explained broker Jess Reid.
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Reports from the Salt Lake Board of Realtors suggest that area was up 20 percent in May, said Prudential broker Steve Roney.
Comparing May sales of single family homes to the same time a year ago, the Park City area was up 31 percent, Seltenrich said.
Locally, auctions affected month-by-month numbers, putting March and April ahead of May and June, he said. But judging the market by monthly numbers is unwise because of how long it takes deals to close, he added.
For example, everyone considering buying a home in 2010 likely got their deal closed by April 30 to take advantage of the credit, Roney said. It stands to reason that the months immediately following that date would see fewer sales.
"As you move up the price-range scale that becomes less material, but we did steal some demand from sales months like July," he said.
Rather than prompting fear of a second dip in the recession, home sales in Park City are boosting confidence, Seltenrich said.
Sales of all types of property are up 43 percent so far from last year. There’s been a 54 percent increase in condominium sales. The market "hit bottom" in the second quarter of 2009 and recovery has been slow, but steady, since that year’s third quarter.
The 33 percent dip in new home sales nationally points to the struggle residential contractors are in. Seltenrich said that is still a problem locally because the market is bloated with distressed properties offering more house for less price than new ones.
The irony is that new-home construction is actually trailing natural growth. Demand for rentals is quite strong, but there may be a housing shortage soon, he said.
That’s part of the reason Jess Reid sees The Canyons area as the place to watch. It is full of unsold condominium-hotel units that are affecting the market in interesting ways, he said. Those types of units are also the hardest to get loans for, he added.
Seltenrich said he’s estimating deflated prices to persist for the rest of this year and maybe a few months longer until the foreclosure and short-sale properties are off the market.
Reid and Roney both agreed signs of local recovery are irrefutable but frustratingly slow.
During the first part of 2010, Prudential was up 42 percent from the same period in 2009 in gross volume, Roney said.
"We’re seeing movement across the board even in land," he said. "I’d say we’re moderately encouraged."
Roney also suggested slower new-home sales aren’t necessarily a bad thing. It’s a sign that builders are being sensitive to market demands.
"Builders are smarter in this recovery a little more cautious," he explained.
Some of the biggest home builders nationally have expressed optimism for the second half of this year, he said.
One of the most frustrating impacts of the down economy is historically low interest rates, but fewer clients qualifying for loans, the brokers agreed.
"I think people are not fully aware yet how valuable this low interest rate environment is," Roney said.
Changes in the appraisal process have resulted in banks assessing the value of the property to be purchased more closely. It’s like the pendulum has swung too far the opposite direction after the mortgage crisis in 2008, he said.
Reid said some lenders want the financial health of a condo-hotel proved to them before providing money.
Don Rudy, vice president at Park City’s Frontier Bank, said it is strange Realtors say loans are harder to get. They’re just not easy anymore, he said.
During the real estate boom, lenders didn’t ask for proof of income from potential buyers. Now they’re back to doing so. It’s not that banks have changed procedures; they’re just following the old procedures more closely, he explained.
Reid said there’s some truth to that. His clients aren’t being asked to show any documentation that wasn’t common several years ago. The process just takes longer than it used to, and perhaps real estate agents need to do a better job explaining that to clients, Reid added.
If qualified buyers are genuinely having trouble getting loans for good properties, it may be a problem of resource allocation, Rudy said.
Because banks have to do more "homework" before lending, each loan application takes more work and more time. Also, banks are often prioritizing requests for primary residences and taking even more time on vacation property applications, Rudy explained, particularly if the applicant already has loans out on other properties.