Residential and commercial construction in Utah set a record of $3.8 billion in 1998, the sixth consecutive year that permit-authorized building projects came in at an all-time high.
That's according to James A. Wood, senior research analyst for the University of Utah Bureau of Economic and Business Research, who said construction values in the state have been climbing since 1989, the longest boom period since the end of World War II.Annual construction has nearly quadrupled since 1989 from $1.0 billion to last year's $3.8 billion.
But this year is not expected to keep the record-breaking string going. Total permit-authorized construction is projected to end 1999 at $3.1 billion, down $700 million from last year.
Residential construction this year is expected to total $1.9 billion, nonresidential $750 million, and additions, alterations and repairs $425 million.
The big drop in nonresidential is due to a smaller number of projects on line this year and not overall weakness in the market or overbuilding in a particular sector, said Wood.
He points to vacancy rates of a relatively low 5 percent to 7 percent in office, industrial and retail space as proof that those sectors are not yet overbuilt.
On the other hand, hotels, motels and retail space, which have seen a big construction surge in recent years, are now experiencing higher vacancy rates. With even more hotel construction on the way -- including two large hotel projects in the downtown area -- Wood expects excess capacity and higher vacancies in that market niche.
Construction of residential real estate, including single-family, twin homes, apartments, condos and manufactured housing, all were higher last year than in 1997, said Wood, noting that the strength of the sector is remarkable considering that both net in-migration and jobs growth were both way down last year from their 1994 highs.
Declining growth in jobs and the number of people coming into the state should weaken housing demand, but so far it hasn't happened. Wood credits lower mortgage interest rates with keeping demand relatively high as renters are able to qualify as buyers.
Interest rates last year hit a 31-year low as the rate for a 30-year fixed rate conventional mortgage fell below 7 percent for the first time since 1967.
That meant someone buying a house priced at $154,200 -- last year's average -- paid about 7 percent less in mortgage interest with a 6.9 percent rate than they would have with a 7.5 percent rate, a figure that allowed thousands more people to qualify for loans.
In addition, Wood credits a slowdown, but not a reversal, of the increase in home prices experienced locally in the '90s. Utah fell to 30th among the states in price increases last year compared to second highest in the fall of 1997.