Utah’s Business Index Skyrockets
2007-02-02
Deseret News (Salt Lake City)

The economy soared in three Mountain states last month, with Utah leading Colorado and Wyoming in new hiring and manufacturing production, according to a report Thursday from the Creighton Economic Forecasting Group.

The report tracks business conditions based on an index that ranges from zero to 100. Utah’s index reading in January skyrocketed to 86.8 from December’s 53.6, the report said.

“January’s growth was broad-based for industries in Utah,” said Ernie Goss, an economics professor at Creighton University in Omaha, Neb. “Advances were especially significant for trucking firms, and nondurable-goods manufacturers, including food processors. Firms with close ties to the transportation equipment manufacturers detailed pullbacks in January economic activity.”

Demand high for downtown housing

Over the next 20 years, Utah will witness a 140 percent increase in the number of people ages 65 and older, according to a November report by the Brookings Institute. This “age-wave,” according to the report, will have profound effects on America’s cities, shaping how and where baby boomers and seniors live.
Those changes will be felt strongly in Salt Lake City, where a rush of new residential housing is planned.
The city already has roughly 3,400 residential units in the central business district, providing housing to 6,000 people, according to James Wood, director of the University of Utah’s Bureau of Economic and Business Research.
Over the next five years, The Church of Jesus Christ of Latter-day Saints’ estimated $1.5 billion City Creek Center project in downtown Salt Lake City will add five new residential towers to the skyline, with about 430 new residential housing units.
But if market conditions and demand are strong, the number of residential units in the project could be as high as 700, according to Dale Bills, spokesman for City Creek Center.

Renting no longer a bargain in Utah

Average rents rose to $674 – up by $33 a month from 2005. The 5.1 percent increase is still the largest in more than a decade. The days of low rent increases, reduced deposits and freebies to attract renters along the Wasatch Front are only a happy memory.

At the same time, vacancy rates at Salt Lake County apartments declined to 5.1 percent at year’s end, down from 6.5 percent at the end of 2005 and 10.9 percent in 2002.

I started buying SLC at the end of 2004 and I’ve seen a pretty good run. I still have half the homes I bought and I’ll probably hang on to them. Utah seems to have an opposite cycle from California, so if I pick up a few homes locally in San Diego at the bottom of this cycle, I’ll always have something that appreciating.

Todays WSJ had a decent article on housing, ‘Housing Glut Gives Buyers Upper Hand’. Seems like certain parts of the country are in for a bumpy ride. Here are some excerpts.

*A quarterly survey of housing conditions in 28 major metropolitan areas by The Wall Street Journal showed that the inventory of unsold homes at the end of 2006 was up substantially in nearly all of the markets from the already plentiful level of a year earlier. The biggest increases were in the metro areas of Miami-Fort Lauderdale, Orlando, Tampa and Jacksonville, Fla.; Phoenix; and Portland, Ore. (Unlike the other cities, Portland had a lean supply of homes a year before.)

*Some of the biggest gluts of new homes are in Florida, Phoenix and the outer suburbs of Washington, D.C., says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. Many of the gluts are due to frantic building of condominiums over the past few years. The supply of condos listed by real-estate agents is up 86% from a year earlier in the Las Vegas metro area, 43% in Washington, D.C., and 21% in the Northern Virginia suburbs of Washington. In Florida’s Miami-Dade and Broward counties, the listed condo supply has more than doubled from a year earlier.

In Miami-Dade, the number of existing condos on the market is enough to last 27 months at the current sales rate, says Jack McCabe, a real-estate consultant in Deerfield Beach, Fla. The oversupply will grow, he says, as about 8,000 condos are expected to be completed this year and 12,000 in 2008.

“It’s going to get bloody down here,” Mr. McCabe says. He estimates that condo prices in Miami-Dade fell between 8% and 10% last year and will drop 20% in 2007. Eventually, he predicts, hedge funds and other investors will step in to buy surplus condos in bulk at huge discounts.

*In California’s San Diego County, developers have more than 10,000 condos available for sale in new buildings, projects under construction or properties being converted from rentals, says Peter Dennehy, a senior vice president at Sullivan Group Real Estate Advisors, a consulting firm based there. He says that supply is enough to last more than 20 months at the current sales rate. That number excludes several thousand condos being offered for resale by speculators and others.

Mr. Dennehy estimates that condo prices have fallen at least 15% to 20% in the county over the past year, though it’s hard to measure price changes because sellers often give incentives such as free upgrades or help with closing costs that aren’t reflected in the price.

*Some of last year’s strongest housing markets now are showing signs of cooling a bit. In the San Francisco Bay area, the median price paid for new and resale homes in December was $612,000, up just 0.5% from a year earlier, according to DataQuick. But prices fell in parts of the Bay Area; they were down 6.3% from a year earlier in Sonoma County and down 5.1% in Solano County, DataQuick says.

One of California’s weakest markets last year was the Sacramento area. Anthony Graham, an analyst at Trendgraphix Inc., a provider of housing data, says sellers of previously occupied homes there have had trouble competing with the huge discounts and incentives offered by builders.

Mr. Graham expects average home prices in the Sacramento metro area to fall between 6% and 8% this year, but believes the market will begin to recover modestly by the fourth quarter, assuming that home builders continue to cut their production.

*In Atlanta, where the housing market began to soften in August, business started picking up again in December, says Lewis Glenn, president and chief executive of Harry Norman, Realtors. “There’s more negotiation,” and builders are cutting prices and offering concessions, such as buying down the borrower’s mortgage rate, he says.

*In Scottsdale, some sellers are cutting prices by 10% or more, says Dale Pavlicek, sales manager for the Coldwell Banker Residential office there. “There are a lot of vacant homes on the market,” he says. Sellers who bought in the past year or two are barely breaking even or are coming to the closing table with money to pay off their mortgage and other costs, he adds.

*In Manhattan, big bonuses recently doled out by Wall Street firms will help support the market in this year’s first half, says Jonathan Miller, chief executive officer of Miller Samuel Real Estate Appraisers in New York. But a rash of new condo developments will help moderate prices. He expects price increases this year to average 5% to 6% in Manhattan. On Long Island, he believes prices are likely to be flat to slightly higher this year.

*Houston remains one of the nation’s more buoyant housing markets, supported by job growth in the energy industry. Rob Cook, chairman of the Houston Association of Realtors, says the supply of homes on the market is enough to last about six months at the current sales rate — what he calls a “balanced” market. Prices are rising only modestly, though, because Texas has plenty of room for new construction. “We just keep expanding out farther and farther,” Mr. Cook says.

Here’s an excerpt from Ben Stein’s column about why he thinks real estate isn’t such a great investment.

That means the house has kept up with inflation — barely.

In fact, when I do the math, I realize that it hasn’t fully kept up with inflation. Plus, the owner would have had to pay rental fees (it’s on land leased from a Native American tribe), condo fees, taxes, and insurance. Granted, he would also have gotten the great pleasure of living there, but it wouldn’t have been a great investment at all.

On the other hand, if the same person had bought the Dow in 1982, he would’ve made roughly 10 times the money by now, not counting dividends, which would have meant he would’ve made close to 20 times the money.
…
…
Still, my wife and I bought our house in Malibu for $600,000 in 1990. It might have gone up by 150 percent since then, but in that span, the stock market has more than tripled on the Dow, counting dividends. Other indexes such as foreign stock indexes have gone up vastly more than that.

So while at the end he admits that

yes, real estate rules. It’s a good, even great, investment — just not the perfect investment.

I still don’t think he did a proper comparison.

1. Your home is not an investment.
2. If you pay cash for investment real estate, you get rental income. He didn’t consider this.
3. If you got a mortgage your leveraged returns are significantly more than the appreciation you got. For example if you put 10% down, and the property appreciation 10%, you just made 100% return (excluding selling commissions, which is justified since no one considers those when talking about stock performance)

Anway, you can form your own opinions and read the whole article here

Today was Kite Flying Day in Ahmedabad city in Gujarat State. Its an immensely popular festival in only this city in India (and maybe Surat too) and is actually a government and private business holiday as well. People take to their terraces since 5 am and fly paper kites with string coated with shards of glass. They then engage each others kites in a duel and see who can cut the other persons kite.

You can see some kite flying pictures on google images. Its a lot of fun and in the evenings people tie paper lanterns to the kites with candles burning in them. (yes, sometimes mishaps happen and the odd tree gets burnt down!)

This weekend was also the scene for Vibrant Gujarat which was an initiative launched by the Gujarat government to boost global investment in the state through economic reforms and the creation of a Special Economic Zone. According to todays newspaper, the Chief Minister signed some Rs 460 billion ($10 billion USD) worth of agreements with foreign companies for the creation of energy, oil & gas, petro-chemical and other sector factories and infrastructure. According to one calculation that should bring over 1.2 million jobs to the state over the next few years. Since this is India, a lot of these many never actually get built, but even if 50% of them do it’ll still be a huge boost to the state’s economy.

Ahmedabad’s current population is roughly 5 million and land prices here are booming! I expect this trend to continue for a few more years.

I started buying real estate in Salt Lake City in the fall of 2004. So far I’ve done pretty well on those investments. Here’s a link for the appreciation in the last quarter.

http://extras.sltrib.com/homeprices/Index.asp?County=Salt%20Lake

Historically, SLC has done well when CA did poorly and poorly when CA did well. Looks like a similar situation is playing out this time, although this time the housing slump might be different from previous slumps.