Editor’s Note: The Selective Echo is featuring key excerpts from a Q&A that Mark Knold, senior economist for the Utah Department of Workforce Services, conducted with Jim Wood, director of the Bureau of Economic and Business Research at the University of Utah. The full report is part of the state government’s online periodical economic insights and is available here.

MK: What is your summary of the current state of the Utah housing market?

JW: On the residential side, sales of new homes have nearly ground to a halt. … New home, single-family permitting is down significantly, possibly by as much as 30 percent for this year. However, multi-family permitting is strong, as is the condominium market. But I do have some concerns about the condo market and its potential to overbuild going forward.

MK: Why is this residential slowdown happening?

JW: Homebuilding seems to be in line with the formation of new households in Utah—they seem to be in balance. Instead, this is a credit market situation. The sub-prime meltdown is all over the news and a pessimistic psychology has now entered the market. … But the psychology itself tends to have a powerful influence on the market, even if that psychology might be distorted. People hear the bad national news and translate it into Utah news. People start to think Utah home prices will now come down, and therefore they settle into a wait mode, expecting cheaper deals in the future. … [H]ome price depreciation in Utah is very, very rare. … Prices do appear to no longer be rising, but Utah’s demographic pressures and robust economy suggest that price declines as experienced nationally are not a foregone conclusion here.

MK: Do you feel there was much speculative building as is the bane of some of our western neighbors?

The permitting peak was in 2005. … The Governor’s Office of Planning and Budget estimates that there were 24,000 new Utah households formed in that year. The number of permits issued for dwelling units was just over 28,000. Factor in pent-up demand from previous years and the overall housebuilding/household-formation picture does not seem out of line. … Homebuilding in relation to the population doesn’t seem out of line.

MK: What about Utah home prices? Are they overvalued?

JW: The housing price index from the Office of Federal Housing Enterprise Oversight would suggest not. Utah’s current housing price index is right around the national average, which is a position we have been at many times before and our income levels seem comfortable with. … In relation to other western states, only Colorado’s housing price appreciation has been lower than Utah’s over that time. All we have done over the past five years is have our housing prices catch up with the national average. The high-profile part is that we did it within a two-year window.

MK: Can the nonresidential market make up for the housing slowdown?

JW: Nonresidential activity in Utah is certainly booming, and it probably won’t see its permitting peak until late 2008 or even 2009. There is nonresidential activity all over Utah, and its boom certainly helps to cushion any drop-offs that may occur in the residential market.