Good news, bad news: Housing boom, high energy prices are among Utah

The year 2005 began with Utah home prices in the dumps, but the end of the year told a far different story.

While one-fifth of the nation's housing markets were considered overvalued, according to a February report by National City Corp., Salt Lake City was named the most undervalued housing market of 99 cities examined across the nation.

However, word of Utah's bargain home prices soon spread, leading to a real estate comeback that ranks as one of the state's top business stories in 2005.

It did not take long for home prices to rise, fueled by job growth, in-migration and low mortgage rates.

By September, Utah's housing market was on fire, with home prices climbing at their fastest pace in 10 years. As out-of-state investors and homebuyers pushed demand higher, multiple offers on single properties became a common occurrence.

According to a report by the U.S. Office of Federal Housing Enterprise Oversight, for the 12 months ended Sept. 30, Utah's home prices increased an average 11.37 percent, propelling Utah to a No. 22 ranking among all states and the District of Columbia in house- price appreciation, a sizable comeback from the second quarter of 2004, when Utah ranked dead last.

Along with Utah's run-up in housing prices, the state witnessed a record number of housing permits issued during the first nine months of 2005, according to the University of Utah's Bureau of Economic and Business Research. Residential valuation for the year was projected to break $4 billion this year, according to James Wood, director of the U. bureau, an all-time record for the state even after adjusting for inflation.

"Our local economy has actually done extraordinarily well this year," said Kelly K. Matthews, executive vice president and economist at Wells Fargo Bank. "Part of what makes that an interesting story is that at the same time that we had these very high energy prices, we continued to have very low, long-term interest rates. Therefore we have been able to have this housing boom in most all aspects of the market."

A leading contributor to the state's real estate boom was a surge in new jobs. For the 12 months ended Nov. 30, Utah added 41,200 new jobs, a growth rate of 3.6 percent, according to the Utah Department of Workforce Services. The construction industry was responsible for adding nearly one in four of those new jobs, with 9,700 new positions created for a 12.8 percent growth rate.

Rich Thorn, president of the Utah chapter of the Associated General Contractors of America, said all sectors of Utah's construction industry are in high demand, including carpenters, cement finishers, heavy equipment operators, electricians and truck drivers.

"The construction industry is a major driver of Utah's economy," Thorn said. "These are, relatively speaking, high-paying jobs. Whether it's residential, the heavy highway industry, underground utilities or commercial building, they're all pretty strong right now."

Yet while Utah's economy raced ahead, skyrocketing energy prices raised worries. On Sept. 10, Utah gasoline prices reached an all- time high, with a gallon of regular unleaded gasoline averaging $2.91, according to AAA's Daily Fuel Gauge report.

Adding to the worries caused by transportation costs were home heating costs. In Utah, a series of rate increases by Questar Gas raised home heating costs nearly 38 percent compared to 2004.

Another major Utah story with a less-than-positive tint hit in September, when Delta Air Lines filed for Chapter 11 bankruptcy protection. The Atlanta-based carrier employs about 3,900 workers in Utah.

At the time of the bankruptcy filing, the airline said few changes were expected at its Salt Lake hub. In fact, Delta spokesman Anthony Black said the Salt Lake hub remained a valuable east-west connector for Delta's customers. And with hub operations discontinued at Dallas, more jobs and flights shifted to Salt Lake City.

But with ongoing debates over pilot pay and other bankruptcy issues, the airline still faces an uncertain future.

While Delta Air Lines was downsizing, billionaire Warren Buffett, the world's second-richest man, was adding to his utility empire.

In May, Scottish Power announced that Buffett's MidAmerican Energy Holdings Co., with headquarters in Iowa, would pay $5.1 billion in cash and assume roughly $4.3 billion in net debt and preferred stock to buy Portland-based PacifiCorp, which operates in Utah as Utah Power.

In Utah, few objections were raised over the sale, which is still awaiting final approval by the Utah Public Service Commission.

Utah's Committee of Consumer Services had pushed to make Salt Lake City PacifiCorp's new corporate headquarters. However, Buffett, who has an 83 percent ownership stake in MidAmerican through his company, Berkshire Hathaway, told the Deseret Morning News in June that there would be no consideration of moving PacifiCorp's "headquarters or anything else" to Salt Lake City.

Still, as part of MidAmerican's merger settlement agreement with Utah, a number of senior level executive positions were promised to be transferred from Portland to Salt Lake City, a move that could include general counsel, chief financial officer or senior vice president of operations.