Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Zions Bank

Front Runner

Utah economic performance continues to rank as the nation’s strongest, a position held throughout 2007. We expect some modest slowing of the state’s economy in 2008. Even so, Utah will likely rank among the top handful of net job creators during the new year.

The Utah economy added more than 52,000 net new jobs during the most recent 12-month period, a growth rate of 4.3%. While the state’s job creation pace has slowed somewhat in recent months, it remains more than three times stronger than the current U.S. job creation pace.

Labor Squeeze
Strong Utah employment growth of the past 3-4 years has led to sharply lower labor availability, contributing to major challenges to be fully staffed for Utah employers of all shapes and sizes. The Utah jobless rate averaged 2.6% during 2007’s first 10 months after averaging 2.9% in 2006, among the lowest rates in the nation.

One critical factor helping labor availability has been a high level of net in-migration. A record 44,250 more people moved into Utah than out during the 12-month period ending in July 2007, according to the Utah Population Estimates Committee. This surge of new residents has been at high levels since 2005, providing needed workers while also boosting demand for Utah housing.

Housing Good
One national media story after another bashes the nation’s housing market, while numerous “experts” suggest further American home sales and home price weakness is in store. The housing story is more mixed in Utah.

Better news finds Utah continuing to lead the nation in annual home price appreciation, as has been the case for some extended time. The latest data from the Office of Federal Housing Enterprise Oversight (OFHEO) noted that the average Utah home (with a conforming mortgage not exceeding $417,000) rose 12.89% during the 12-month period ending on September 30, 2007.

Wyoming, Montana, New Mexico, and Washington completed the top five states. In contrast, the average U.S. home value rose 1.79%, with average prices declining slightly during the third quarter. More than 20 states saw average home prices decline during the third quarter.

The OFHEO data noted the average U.S. home value rose 46.92% during the past five years. The average Utah home value rose 54.36% over five years, suggesting Utah homes are approaching full value.

Provo-Orem (up 14.35% in one year; up 50.61% in five years), Ogden-Clearfield (up 13.95% and 42.02%), and Salt Lake City (up 13.37% and 60.17%) each ranked in the nation’s top five home appreciation markets of more than 380 communities measured. Logan ranked 11th with one- and five-year increases of 9.05% and 31.24%, respectively. St. George, which registered an outsized 81.21% rise over five years, saw the average home value flat during the past year.

Housing Bad
More worrisome news finds Utah’s higher-end housing market out of balance, with simply too many homes priced at $500,000 and above. Such homes on average are unlikely to appreciate in 2008 unless and until fewer homes are for sale, more buyers step up, and jumbo mortgage finance activity returns to more traditional pricing.

In addition, the supply of new homes for sale in all price ranges in Utah has nearly doubled during the past 12 months, leading to a buyer’s market for new Utah homes. Homebuilders will need to be aggressive in clearing excess inventories of new homes in Utah.

Excess inventories of new and existing homes for sale across Utah and around the nation have led to the lowest level of new housing starts locally and nationally since the early 1990s. One bright spot for both homebuilders and those seeking to build and occupy a new home has been the sharp decline in construction material costs in recent months.

Other national measures of home prices indicate sharper declines in current values, especially for new unsold homes, with near-record inventories of homes on the market. It could be another year before U.S. housing markets reach equilibrium between excess supply and realistic demand.

Utah in 2008
Solid growth, impressive but slowing job creation, extremely tight labor availability, and a softer housing market seem on tap for Utah in 2008. In contrast, the state’s commercial real estate sector is doing very well. The state’s long-term economic potential? Second to none.

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