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No Comments [ Add Comment ]A rocky economic road for Utah
By ANTONE CLARKThat's the prognosis of Wells Fargo expert
SALT LAKE CITY -- A prominent Utah economist calls addressing the current Wall Street bailout proposal an absolute necessity, but suggests the road for the United States economy will still be difficult until at least 2010, even if Congress reaches an agreement soon.
Speaking to a group of businessmen on Friday, Kelly Matthews, executive vice president and Utah economist for Wells Fargo Bank, said unraveling the current financial crisis in the U.S. is not easy.
He suggested the issue could begin to affect Main Street America in a hurry if government officials don't come to an agreement on how to deal with the issue of mortgage-backed securities. The House rejected a bailout plan on Monday but will take up the issue again this week.
Even with a bailout plan in place, he said, it would take at least a year to stabilize the markets so local banks can begin lending capital freely again.
Matthews said Utah has been insulated from some of the national problems because of job growth and a solid economy in the past few years, but added that a significant downturn in housing starts may be an overreaction to the situation.
He said that, traditionally, the best way the market adjusts to a housing problem is a reduction in price, not a reduction in home building. He thinks the local market is responding in the wrong way to the crisis.
He said the average price for a home has fallen between 6 percent and 7 percent along the Wasatch Front, whereas an appropriate decline in price would be more like 25 percent.
"The average sales price of a home has not gone down as aggressively as it should," Matthews said. He suggested home affordability is a bigger issue than availability.
Matthews noted that, in California, many new homes have been marked down as much as 35 percent in some neighborhoods, and priced at that level, the homes have been sold.
"Until they hit a bottom, people are very reluctant to step in and buy real estate," Matthews said.
Because of the decline in single-home housing permits in Utah, Matthews fears the state has lost as many as 13,000 to 15,000 construction jobs.
He said a recession could be followed by a sharp increase in costs -- particularly in energy -- until the market can potentially stabilize, perhaps as soon as 2010.
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