Craig Frazer

Many of us here in Farmington know of and have seen the activities taking place with the Station Park development across from the commuter rail station. Many are also aware that the project has slowed somewhat due to the national and local economic slowdown.

I had an opportunity to visit briefly by phone with Mayor Harbertson and in person with Craig Trottier, Center Cal VP of Development to discuss the current status of the Station Park project. The current recession has caused many of the retailers to delay their expansion plans around the country (including Station Park). It is important to note that these are "delays" and not "cancellations." The project is still moving forward but the projected opening of 2010 has been pushed to 2011. All of the projected anchor tenants continue to remain positive about their involvement in the project.

The mixed-use project continues to envision a sustainable mix of retail, entertainment, commercial office, and lodging facilities. The concept behind the development is broadly known as "Transit Oriented Development" or TOD.

The basic components behind TOD include:

• Train station as a prominent feature of town Center
• A mixture of uses in close proximity including office, residential, retail, and civic uses
• High density, high-quality development within 10-minute walk circle surrounding train station
• Designed to include the easy use of bicycles, scooters, and rollerblades as daily support transportation systems
• Walkable design with pedestrians as the highest priority

There are several benefits to properly implemented TODs:

• Reducing sprawl and protecting existing neighborhoods
• Reducing commute times and traffic congestion
• Improving environmental quality and open space preservation
• Encouraging pedestrian activity and discouraging automobile dependency

Of the benefits, listed above the first and third seem to have the most relevance and impact to the citizens of Farmington (as well as Kaysville and Fruit Heights). One of the characteristics of our community that most residents enjoy is the fact that we haven’t experienced the urban sprawl many of our neighboring communities are dealing with today and we still have vast open areas that add to the "rural yet urban" lifestyle our community maintains.

By focusing future development into a TOD model, and concentrating the development within specific geographic areas supported by transit, we can in many ways, maintain the residential lifestyle we all enjoy today while retaining the convenience of access to services and commerce. Also, by concentrating the development activity, we reduce the amount of ancillary traffic that can overflow into our residential areas.

Since moving to Farmington from Salt Lake, it has bothered me that over 90% of my consumer spending occurs outside of Farmington. Beyond the inconvenience of having to drive any number of distances to purchase products, it is the fact that my spending is not helping Farmington based business and the tax dollars are flowing to other communities. If I have to pay a local sales tax, I’d much rather that tax stay in my community to support our local services (e.g. police, fire, parks & rec, etc).

Given the long-term impact the Station Park development can have on Farmington and our surrounding communities of Kaysville and Fruit Heights, I will do follow up posts on other TOD related content in the near future. I welcome your feedback and thoughts on this topic as well.

When you do something for a living on a day-to-day basis is easy to become somewhat myopic in terms of what you see going on around you. It really doesn't matter if you're a surgeon, a plumber, an accountant, an attorney, a mechanic, or a real estate agent . In my line of work there's been a lot of time and focus both within our industry and by me personally as to the effects of the recent stimulus bill and housing recovery proposal. Don't worry I won't be spending any time on those items in this blog post.

I received a small but effective little push outside of my small worldview by recent correspondence I received from my brother who is currently serving in Iraq. He is the second of my siblings to serve in Iraq: my youngest brother served during the push into Falluja and Ramadi a few years ago. My other brother is currently serving in the Kirkuk area. Fortunately, he has the opportunity from time to time to send e-mails to keep the rest of the family up-to-date on what he is doing.

Much of his correspondence, as you would expect, focuses on his day-to-day activities and checking in to see what's happening back here at home. Without getting into much detail his job involves perimeter security for the base. He works predominantly the night shift and has not had many opportunities to actually see out into the city of Kirkuk. With spring approaching and the day’s getting longer, he is beginning to get glimpses of his broader surroundings. It was the following several sentence section out of his recent correspondence, that helped to reduce my myopia:

“As light increases earlier in the morning I see what I have been missing at night. I am hoping that the little of Kirkuk I see is not what the rest of the city looks like. The area outside the fence is littered with trash and [the] ruins of bombed out buildings are everywhere. Buildings that you would think would be uninhabitable are housing families. My co-workers that work the day shift see the kids playing, attending to their family chores, and when time permits, they come up to the fence in an attempt to talk [to the soldiers]. The kids know that we will throw candy and hygiene items over the fence. We are prohibited from doing this because the insurgents may then use the children to get close to us or to distract us by looking one way as they do something the other, but when you see the little that they have, you can’t help yourself as you want to help.”

Of course, we've all heard stories like this during the six-year course of this war, but unfortunately as with most things, we become calloused to the daily, weekly, monthly reports coming from this war. We reach a point where, in many respects, we just don't hear them anymore… were on to the next big thing. Having a personal connection through my brother to this ongoing conflict, once again reminded me that there really are more important things to consider than whether or not a tax credit for home purchase is $8,000 or $15,000. It also reminded me that there are 150,000 other American men and women separated from their families as they do their jobs in places like Iraq and Afghanistan.

So, if only for a moment, my brother, from 10,000 miles away from my enclave in Farmington, gave me a well needed slap upside the head. Thanks bro’… I needed that.

So in the current real estate market place with unemployment increasing, interest rates fluctuating, stimulus packages being debated (and apparently passed in the Senate today), the banking system collapsing, and an overall the "sky is falling" mentality, do simple economic principles still help explain what's going on? In a word: yes.

We've all heard and used the expression supply versus demand. It's interesting in our industry as we embrace the Internet, statistical metrics, buyer & seller behavior patterns, home staging expertise, and any number of other factors to explain what's occurring in our markets when the simplest answer may be the most accurate (Occam's razor anyone?) In our quasi- free market economy, pricing should be a reflection of the relative supply and demand of a particular product. In our case housing inventory and purchaser demand.

One of the reports I run on a regular basis to get a sense of what the market is doing is a very simple supply and demand analysis based on certain price points. Supply is measured by the number of new listings occurring during a specific time period. Demand is measured by the number of properties which go under contract (not necessarily sold) during that same time period. I use under contract to measure demand as other metrics involve any number of subjective assessments to be done. At least with under contract activity I know a qualified buyer made a legitimate offer which was accepted by the seller (after their negotiations were completed). Understanding an under contract may fail at some point during the due diligence process, but at least we knew we had a real buyer who wanted to buy something.

For this illustration, I used calendar year 2006 data (which represented our peak year for sales activity and price point appreciation) compared to the most recent: 2008. This illustration, albeit simple, is quite profound in demonstrating the impact of supply and demand on our market.

In terms of listing activity every price range but to the lowest experienced increases in inventory levels between 2008 and 2006. Obviously part of the drop in the lowest price range is that appreciation levels over the time period moved a good portion of that inventory into the next price bracket. Even with that, the county as a whole experienced a slight but measurable increase in overall listing activity. The demand side however, dropped significantly in 2008.

The reasons for this precipitous drop is fodder for another blog post and discussion (e.g. increasing unemployment, stagnant income growth, the seizing of the credit markets this fall, etc). For purposes of this discussion, suffice it to say that demand dropped while supply increased. Everyone who's even dabbled in economics 101 understands that is a recipe for downward price pressure.

This then begs the question, "when will we hit the bottom?" My response to clients has been and will continue to be when we begin to see supply and demand moving toward one another. More specifically, when demand (as represented by purchasing activity) begins to move back up. So far through the first half of the first quarter we have yet to see any change in the demand side of this equation, however, this is the metric I will be watching closely going forward.

By now everyone knows that the retailer Circuit City filed for bankruptcy protection in 2008 and was hoping it could make it through the Christmas shopping season with sufficient strength to allow it to reorganize. As it turns out they didn't and are now going through the slow process of liquidation.

What the linked article (and many others like it throughout the country) illustrate, is the long tail that occurs when major employers ceased to exist. What many people (including many in the real estate industry) don't realize is the long-term impacts these types of closures have on real estate and the broader economy.

Let's start at the commercial side, all of that Circuit City retail space which is estimated to be just under 19 million square feet, is now hitting the market. And what a great market to have an additional 19 million square feet of retail space become available. In many markets where Circuit City was operating (including three Salt Lake City area stores, Ogden, and Orem) are not having the best of times relative to their current retail vacancy rates. This additional space will have to be absorbed. That's just the buildings.

Let’s turn to the hundreds of employees and their families who are now or soon to be unemployed. We now have a much broader economic impact especially as relates to real estate. If these employees own homes, making the mortgage payment in this environment with becomes even more difficult. Attempting to sell before they get too far behind in their mortgage payments (and the looming issue of foreclosure) becomes problematic due to the current issues facing residential real estate inventories. The same families are also cutting back on all sorts of other expenditures thus impacting other local area retailers and extending the cycle.

Now compound this issue with 5, 10, 20 other mid to large-sized employers in a given market, and you have a recipe for a long-term impact on residential real estate. For those too young to remember Presidents Carter & Reagan, simply refer to the recent histories of places like Houston and Denver in the early 1980s.

What those experiences should teach us is that economic recessions such as this can be deep and long but ultimately can also lead to a recovery. It is likely the "tail" on this economic recession could be long but that doesn't mean we will head into a period of continually declining prices.

More likely we will see a long period of stabilized prices as the market and the economy sorts itself out. In the interim, if you really want to know what housing prices are going to do in your neighborhood watch the job growth numbers and the income growth numbers…they are your best predictor of future housing prices.

As part of the ongoing discussions in the U.S. Senate relative to the economic stimulus package under consideration, it appears there has been some interesting developments related to the housing market.

Yesterday the Lieberman Isaacson Amendment was passed by a unanimous voice vote yesterday in the Senate. This amendment provides a tax credit to all home buyers at the rate of 10% of the sales price of a home up to a maximum credit of $15,000. The credit in the amendment would be available for one year period to all purchasers of primary residences (sorry investors).

There is an additional Amendment (353) proposed by Sen. Ensign (R-NV) that would also provide for 30 year fixed rate financing at a rate of approximately 4% for anyone purchasing a primary residence. At the time of my writing of this blog entry action had not been taken on amendment 353, however, it had been brought to the floor.

I am still searching the U.S. House and U.S. Senate to find the full narrative of the amendments as clearly the devil will be in the details (for an idea of how complex this legislation is, check out the actual “printer friendly” version) . However on their surface, these two proposals, if retained in the final version of the stimulus package, could provide a much-needed jumpstart to the housing market.

Now this does not mean we should expect to see a return to 20 to 50% annual appreciation rates throughout the country. In fact over the next 12 to 36 months having housing appreciation rates simply matching the underlying core inflation rate will be appreciated (no pun intended). By creating an environment in which appropriate credit liquidity returns and allowing excess inventory to be absorbed, we may find many markets throughout the country returning to a more balanced state.

However, making home purchases less costly in and of itself will not turn around the economy (or the real estate market for that matter) as it is job growth and its corollary income growth that are the key drivers to a healthy real estate market. Interest rates can be 0% but still not affordable to an unemployed family. Job creation coupled with income stabilization will provide the basis for an ongoing and sustainable economic recovery.