Thursday, January 22, 2009

Understanding Housing Prices

I recently read a real estate research paper that analyzed factors that contributed to house price fluctuation. Give the slaughter that is occuring in other markets, its no wonder that this is a subject of interest. The paper concluded that overbuilding and employment were the biggest factors that consistently predicted price changes in homes.

Lets review the family of fundamental variables that determine prices and see how our market stands up:

1. Employment Growth - Jobs drive the economy. If you have a job, you can pay for your own place to live. If you have a job and don't want to live in your parent's basement your whole life, that is exactly what you do. You leave. This drives up demand for housing which affects price.

2. Population Growth - This is another supply and demand issue. More people moving into one given space pushes up demand for housing and therefore price. You would hope that that everyone that moves in does so with a job. Nevertheless, you don't necessarily need job growth during a period of population growth to push up prices. EXAMPLE: Iraqi refugees left in droves during the early days of the Iraq war. They went to Damascus, Syria. Rents (and it's corollary prices) in Damascus increased by over two fold for a time due to the huge population pressure. Home building is the natural result of population growth. Overbuilding occurs when builders overestimate population growth.

3. Income Growth - People bid for homes based on what they can afford. The more they earn and therefore can afford as a group, the more they will pay for a given home as they compete with each other for the desired home.

4. Construction Costs - If a home costs "X" dollars to build, the contractor will charge you "X+some profit" to build the home. If he just charges you "X" then he has no incentive to build. At some point, building will stop if "X" gets too high, but construction costs cannot be ignored in pushing home prices up.

5. Real Interest Rates - This is a little complicated. Lets just say that people factor in inflation and given mortgage interest rates when making purchase decisions and these have an affect, albeit minimal, on prices. If rates are high right now, it may signal upward increases in price later as lower interest rates translate into lower payments which means people can afford to pay more for a house and keep their payments the same. Inversely, if rates are low now, it may signal a decrease in price later as the opposite happens. Regardless, this factor happens to have a very small impact on pricing because people typically make purchases as a hedge against inflation. In essence, inflation and interest rate moves cancel each other out over the long run.


1. Employment Growth - Utah just got over a binge of job growth. We are now going to let go of some of those jobs as unemployment likely reaches 5.5% for the state. That will be the highest it has been in 25 years or more. That WILL have an impact on pricing. Salt Lake will be affected more than Weber County or north Davis County. How this manifests itself in the pricing arena is in bank owned or wholesale pricing. When people lose their jobs and stop paying mortgages they give their homes back to the bank. The bank doesn't want the home so it discounts it at sale to get rid of it. This gets factored into the average price you hear reported. Keep in mind that despite this coming softening in overall prices, we will continue our general plateau that is consistent with the Utah cycle .

2. Population Growth - Utah just got over a huge growth spurt in population. Like The Hotel California, Utah has this weird quality of people moving in but really never leaving. Part of it is the family-centered culture (ask my wife what happened when I tried to move her out of state). Another aspect is the overall quietness of the culture combined with an excellent climate and great outdoor recreation. The point is that the population here is not and likely will not decrease. It will increase even if we are losing jobs. (We should also consider that a jobless man spending TOO much time at home with the Mrs. will spur population growth...if you get my drift.) This is probably the stabilizing factor that keeps our prices from softening very much when they do soften.

3. Income Growth - This will likely soften as jobs are lost and some folks are put on part time rather than full time. I see this being a mild force affecting prices.

4. Construction Costs - For people wanting to build a home, they can do so very cheaply right now. Construction materials have declined considerably. Also, all the under-employed construction workers are competing for scarce jobs and are working much less than they were 18 months ago. If you can qualify for the financing, you can build a larger home than you could afford last year.

5. Real Interest Rates - Rates are as low as they will be for the next 40 years in my opinion. This makes homes, for those who qualify, the most affordable they have been or will be for some time.


If you know where you are in the real estate cycle, you can plan accordingly and end up where you want to be. Now is always a good time to buy real estate, the key is DOING IT IN THE RIGHT WAY. The right way depends on your goals and where you are in the real estate cycle. The reassuring thing is that if you buy the right way with your goals in mind, you will always come out ahead. Let me show you how it's done.

Wednesday, January 21, 2009

Back to the Future: Historic Restoration Before and After Videos

Some folks have asked me to put my experiences with restoration into a format that is enjoyable and easy to access. Here for your enjoyment are videos for four of the projects I have worked on recently. There are more coming.

2670 Jefferson Ave.

465 20th Street

2223 Jefferson Ave.

638 28th Street


Monday, January 19, 2009

Video of the Day: MLK Day Sampler

The family and I took a drive looking for a place to sled today. Our search took us up Ogden Canyon.

That's when we saw these people para-skiing on the frozen surface of Pineview Reservoir:

After cruising around Trapper's Loop, we got lunch and ended up in North Ogden. Prime sledding real estate can be found just north of 2600 N. on 1050 E.

This video proves that the last run of the day is often the most treacherous and also that I am not afraid to humiliate myself on my own blog:

Thanks to my daughters for being such good troopers.

Friday, January 16, 2009

Ogden Development Stymied by National Economy

The national economic slowdown is starting to reach into our local Utah economy. Several headlines over the last several days show that commercial development is entering a state of suspended animation as lending tightens and project viability is drawn into question:

  • The Ogden River Renniasance Project, a vision of Gadi Lesham's, is now on hold as the funding source for the project is now in bankruptcy. Gadi used his Cover All flooring business to fund his developments. Subcontractors in the housing business are very slow right now. This is an example of how the national housing crunch is affecting us here despite our own relatively resilient local housing market.
  • The Ice Tower, proposed for the corner of 25th and Kiesel, is back to the drawing board as sufficient funds have not been collected to move forward with the project this year. The ice tower is a great idea, we just need the right economics to get it built. It may be a few more years before its done.
  • The Aston Square site, brainchild of Stuart Reid, is now in the hands of Property Reserve Inc. This is not a bad thing since Property Reserve Inc. has a great track record in downtown and owns much of the surrounding land. Apparently, the housing bust affected sales to the point that the project could not be financed.
As the national commercial real estate bust gets underway, we will see the same thing that happened to residential start to happen to commercial property. Look for recent speculative investments in commercial space to foreclose. There is a lot of vacant office space everywhere in Utah.

Wednesday, January 14, 2009

Ogden Rising: Stunning Victory for Gentrification

Yesterday night's marathon city council meeting was an amazing moment for the future of the East Central Historic District neighborhood. Many of us from the community were there to voice our opinions on the proposed rezoning of commercial areas within our residential neighborhoods.

Beside the zoning ordinance itself, there were several important variance issues on the table:

1. Do we disallow drive through windows for businesses in the zone?
2. Do we mandate oversight on construction materials used in all new development in the zone?
3. Do we impose restrictions on maximum parking allowances?
4. Do we manage building placement and orientation on a lot and how it appears from the street?

The new code for NC-1 and NC-2 zones is designed to keep with the historic integrity of the EC Historic District and to make small commercial areas work well in residential areas.

The exciting part about this was that the room was filled with folks from the neighborhood. Each of us took a turn speaking in support of the zoning.

Here is the link to the audio of the meeting.

The meeting was three and a half hours so let me help you skip to the interesting parts:
1:25:00 - Chairperson Amy Wicks opens the meeting up for comments
1:30:25 - Planning Commission speaks on supporting the ordinance
1:38:00 - Bob McConnohey speaks on supporting the ordinance
1:41:50 - Shalae Larsen speaks on supporting the ordinance
1:47:13 - Chris Monson, NAI Commericial, opposes the ordinance and explains why
1:52:00 - My thoughts on why the Council should support the ordinance
1:58:40 - Sue Wilkerson speaks on supporting the ordinance
2:03:43 - Dave Spatefore attempts to rebut and assuage the community's sentiments

2:08:20 - Dave Willis rebukes the developers

2:09:20 - Brent Dopp rebuts Dave Willis comments

Here is a copy of my comments to the council sent via email prior to the meeting:

Hello Members of the City Council,

As a resident of downtown Ogden, and someone who cares very deeply about our urban community, I wanted to take a couple moments and share some thoughts regarding the proposed variance requested by the Lesaspi Company for its property located at 24th and Monroe.

First, let me say that I believe Ogden has an underappreciated asset in downtown. That asset is the East Central Bench Historic District. This historic district is by far the largest in the United States. It encompasses an amazing 3000 structures and covers over one square mile.

The questions facing our community, and currently being addressed by the East Central Community Plan Steering Committees, is what direction do we want this neighborhood asset to go? Do we want to tear down and start over? Or should we preserve and upgrade what we have? In essence, what do we want our urban community to be?

The answers to these questions have been answered in an almost unanimous chorus by the Steering Committees: Preserve our historic heritage; build with our historic heritage in mind; redevelop where this heritage has been ignored; and make the community a cohesive and vibrant place.

History shows that the city has not always been a good steward of the historical character of its urban neighborhoods. The effects of R-5 zoning and commercial development along 24th Street are a testament to errors in neighborhood planning. These misjudgments from the past have haunted the city landscape to this very day.

When buildings are erected, they are built to stand for generations. When built wrong, they can take a generation or more to correct. This is the case with the IGA building. It was built incorrectly for the market in which it resides. Its state of abandonment for the last decade is a testament to that fact. We now have the rare opportunity, with the input from many involved and educated citizens, to have the IGA center redeveloped to a viable and sustainable commercial center. However, this sustainability depends upon heeding the NC zoning guidelines that are in line with the suggestions from the ECCP Steering Committees. Downtown Ogden has twice as much retail space as the market will support. Let’s take the time and care to make the IGA center of such good quality that it will work within the community and be successful for years to come and not a reckless gamble on short term tax revenue.

In summary, to provide a variance for redevelopment at 24th and Monroe would bring the following impacts :

1. It would disenfranchise the ECCP Steering Committees and the entire community planning process
2. It would allow for larger parking spaces and less walkability in the neighborhood as the center would be designed not to integrate into the community plan.
3. The redevelopment would follow architecturally themed design that, not only would be inconsistent with its surrounding neighborhood, but would make the building unsuitable for other new businesses in the event the current business failed. The building would return to being an abandoned eyesore for the community except with a new architecturally themed fa├žade.

For these reasons, I encourage each of you to ponder the tremendous impact your decision will have Tuesday evening on our neighborhood and to support the new NC zoning without a variance. I would be more than glad share my thoughts and insights with you. Feel free to contact me anytime.

Fortunately for our neighborhoods, the city council approved the zoning and also voted in the affirmative on all four auxilliary issues listed above. Our input, I believe, helped the City Council understand how important these issues are to building a neighborhood with continuity.

Tuesday, January 13, 2009

Picture of the Day: Eclectic Electric

I found this interesting upgrade while showing homes to a client this week.

Perhaps the homeowner that installed this outlet was unfamiliar with our Utah construction code. I hear that it saves lives.

Saturday, January 10, 2009

Prices Continue Plateau

Many people have been concerned about where prices are headed. I have told my clients that prices will likely flatten out for a period of several years before springboarding back up with appreciation. This has tended to be Utah's real estate cycle for at least two generations now. I have attached a chart showing what $1 invested in real estate in 1985 would yield you today. The line shows you what the value of that dollar would be today when adjusted for appreciation. The appreciation data used comes from the Office of Federal Housing Enterprise Oversight.

As you can see, there have been some periods of price depreciation, however, they have been very shallow and for relatively short duration.

You will hear stories of hugely discounted homes. These homes will be distressed property. These are REO, bank owned, short sale, and highly motivated sellers. Keep in mind these homes also make up a very small percentage of the total market. Retail homes will still sell for full price, it will just take longer to sell them. Distressed property will sell more quickly at a discount.

This is a great marketplace for buyers. Sellers must be patient. However, that patience can be rewarded handsomely when purchasing another home.

Friday, January 9, 2009

Days-On-Market Update

To those of us in the business, this chart isn't really news. However, its nice to quantify what is going on out there in the marketplace.

Note: Black line is moving average.

What is interesting to me in this chart is the lack of seasonal variability that you see after July '07. Prior to then you had big and consistent swings between summer and winter months. That isn't a part of the current trend right now. Just one more thing for us to watch and see what happens.

Wednesday, January 7, 2009

December Surprise! Sales Volume up 14%

It looks like Santa delivered a gift to the marketplace this December. Sales in November for Weber County stand at 181 while December saw 207. That is a 14% increase month over month. Wow!

It is highly unusual to see such a bump in December. Hopefully this is the start of the end of sales volume contraction. It is certainly an encouraging sign. Our 12-month trendline is even starting to show signs of a softening decline in sales as well. Lets keep our fingers crossed.

Tuesday, January 6, 2009

Downtown Ogden Relieved of Deseret Industries

Downtown Ogden will be taking another step in the right direction toward gentrification this summer. Deseret Industries, the thrift store and vocational rehabilitation facility operated by the Church of Jesus Christ of Latter Day Saints, will be closing at its location at 20th St and Washington Blvd. and moving to Harrisville. The new site and improved facility will open at North St. and Wall Ave.

This will place another low-income services provider closer to suburban resources (human and financial) where the local community will be better equipped to assist those who are part of the D.I. program.

Hopefully, this is the beginning of a trend to move more institutions that service low-income and under privileged citizens closer to communities that are better equipped to assist those in need. The disproportionate concentration of these institutions in the urban core of Ogden has created a situation where people in need of assistance significantly out numbers those can provide that assistance. By spreading the institutions around, charitable work can be shared by our entire county and not just the few charitable (and often burned out) folks in downtown Ogden.

Saturday, January 3, 2009

New Year's Labor of Love

My wife will tell you I am a workaholic. It's very difficult for me to sit still for more than 10 minutes. New Year's Day was particularly difficult. I have been obsessing about finishing our cedar fence and wanted to do some work on that. My wife thought that was insane so she put me to work scraping wallpaper....lots of it.



Kim has been complaining about the circus tent colors she painted in there for the last several years. I am glad to see them go. This job would have been alot easier had she not painted it in the first place though. Its taking us about 4 times as long as we would like to get it done. It took me a 6 hours just to finish up that wall.

From a historical perspective its cool to see how nice and white the walls are under the paper. The plaster is in great shape. The paper itself was interesting too. The most recent variety was from the 50's. Then there are a couple layers of paper with plant motifs. The original layer (ca. 1910 - Arts & Crafts Era design) was made to look like cloth. I thought that was interesting.

The man who built our home had two children. His son served in World War One (The Great War for those of you old enough to remember). I imagine this was his bedroom. I believe this because the wallpaper I scraped in the other bedroom two years ago was much more feminine.

We have stripped every room in our home of wallpaper except for two. I must like scraping wallpaper way too much.

I will post a picture of the finished product when we are done.