Summit/Wasatch Economic Outlook

June 6, 2013

So prices are on the rise?

SONNTAG: Over a several-year painful period, prices aren’t back to peak, but we’re at the point where we can compete in the business again. We typically will not sell a lot under $320,000 now. Well, we’re now selling lots in that range, the $400,000 and a few $500,000 lots again. As the market picks up, and if banks will get back in the lending business, there will be more of a market.

BURNS: We launched in 2007, which was really in the downturn, and we fought our way through it. But last year was a record year for us. Our sales were up in volume 38 percent, pricing was up 20 percent, and it was just a great year for us. That was 2012. Just in the first quarter of 2013, my signed contracts and closed deals are up five-fold over the same period last year. It’s like the tidal wave’s coming, and we’re starting to paddle as fast as we can.

We’ve really been reaching out to some different markets that we haven’t seen in Park City. The new brands that are here—like the St. Regis and Montage—are bringing a whole different type of clientele, and that really helps us.

Do you think that we have the right mix of product in Heber, Summit County and Wasatch? Do we have too much out there?

STARK: Heber Valley specifically is going through tremendous growth right now. In the first decade alone it grew by 55 percent or more. Our annual growth is at about 4 percent right now, and for the second year Wasatch County and the Heber Valley were ranked as the fifth fastest-growing town in America with a population of 10,000 to 50,000.

SONNTAG: These are very Californian trends. LA guys would think nothing about working and living in LA and having a mountain place at Arrowhead. Most Utahns would think, “I live in Sandy. Why would I need a cabin in Park City or Heber, 30 minutes away?” But to an LA guy, that’s nothing.

BURNS: We’ve got people now that are commuting down. They’ll take the 30-minute commute through Provo Canyon and compare that to what they were doing, 30 minutes or an hour in LA, and they’re just ecstatic.

Let’s give the bankers a chance to redeem themselves, because they’ve obviously been vilified for the last couple of years. What is happening in the banking industry?

ENGLISH: I can only speak for us. My current bank survived the recession; my previous bank did not. I was at Frontier before.

Just for some interesting numbers, we had a 120 percent loan-to-deposit ratio as we went into 2008, 2009. The bank that I work for now, we’re at 34 percent. Way different. We have no concentrations in anything. You would say that we are ready to lend on absolutely anything. However, it still feels like we spend a lot more time trying to figure out how not to do a loan than to do a loan. We are still kind of looking over our shoulders to the examiners.

GARLAND: The other thing is people have cash, and they’re buying homes for cash. When we talk to real estate agents, they say they’re selling. We ask, “What are you doing with your loans?” The agents say they’re not borrowing. They’re paying cash. People don’t necessarily have all the confidence in the stock market. Is real estate the place to go again? That’s the dynamic and the dilemma that we’re facing.

If somebody comes in and wants to do a building on spec, is that still pretty tough to do? What kind of skin in the game does someone have to put in nowadays?

ENGLISH: It depends on the scenario. And there definitely has to be skin in the game.

One of the dilemmas that we have in the resort market is affordable housing. How do we lend on those pieces, those properties, when people are trying to come in with little-to-no money and buy something? That’s something, as a banking community, that we’re trying to figure out. You definitely have to have skin in the game, but there’s no “everyone has to put in 20 percent” because you might have to put in 25. You might have to put in 15.

BURNS: There are banks out there that will lend to individuals even for a home site sale, or to an individual building their own home, but they won’t ever back a small builder.

At Red Ledges, we’ve seen wealthy individuals come in and take in that financing position where they’ll buy the home site and they’ll fund the construction of a custom home that’s a spec home, and then they will sell it. But what makes it hard is they can only do one or two at a time. And what buyers want today, they want homes. It’s shifting from I want to build my custom dream home to I want something right now.

Tim, what are you seeing in the commercial real estate market?

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