Wednesday, December 29, 2010

Pittsburgh's real estate moment?

In order to post something positive and to stick to the knitting, several positive economic notes out there. We'll start with real estate. 

I already mentioned the latest real estate data from realstats.  The PG headline was quite negative: Region home sales drop sharply.  Unless you are in the real estate biz itself, I am not sure sales is a metric that can be universally interpreted as a negative for a region.  That is a topic unto itself.

The bigger issue I also pointed out was that the other numbers mentioned in that story don't quite add up.  It said: "Average home prices rose 3.7 percent, from $138,907 last year to $151,556 last month, according to RealSTATs."  OK. Problem is that by my math a gain from  139 to 145  = +9.1%, not 3.7%.   So over on my echo that I mentioned in the last post, the principal at realstats that came up with the numbers actually commented and confirmed the PG's math was off.  Real estate values by that measure did in fact go up by over 9% year over year, and the headline didn't even notice.

Real estate price appreciation of +9.1% over the year is a huge number by most any benchmark.   For Pittsburgh it is quite unprecedented.  Should note that those numbers are the 'average' prices and it may be more common to compare median prices, but that is interesting in itself.  Note that how low inflation is, that is a real real estate price increase.  Even if 30 years ago there were some nominal increases that were comparable to that, in real terms those gains were minimal in the face of double digit inflation at the time. Latest inflation data is still virtually nonexistant in the US so that rate of appreciation is significant... for Pittsburgh historic.

Then here is the context that makes it an even bigger story.  Not only is Pgh real estate appreciating better than other markets.. almost all other markets are heading downward.   So Pittsburgh is appreciating in the face of strong national downtrend.  If there is an economic story of note around here, in the real estate data is something worth a lot lot more notice than it is getting. 

Trib also covered the data with a headline that also skipped the price story: Region's home sales fall 36 percent over year.  It also noted the other story of note that: "The median price of new homes sold (in the region) rose 13 percent to $275,000".  That's a pretty remarkable factoid for Pittsburgh in itself.  New homes basically appreciated in one year by an amount that far exceeds the median value of homes in many city neighborhoods and more than a few municipalities.   So something is up. 

For a counterfactual angle to it all.  The ongoing, if stealth-like, county real estate mass reassessment is ongoing and starting to make noise.  If we are about to enter a phase of unprecedented real estate appreciation around here, it might be good for homeowners to get new values set sooner rather than later.  Might be painful for some (and only some) folks to see new higher assessments, but like a lot of things... some pain now will avoid bigger pain later.


Anonymous MH said...

Maybe PNC will give me a home equity loan big enough to buy one of the Florida properties that killed National City.

Wednesday, December 29, 2010 7:23:00 PM  
Anonymous The Wiz said...

I imagine that a lot of the reason for the jump in value is that the tax incentives for first time home buyers expired leaving the market to those in the move up market. That would lead to a higher average price as the first timers taking advantage of the incentives would normally buy a cheaper house. Also maybe some of these buyers sold their starter homes to those first timers and re-invested the profit on a bigger home.

It is also a sign of the economy starting to recover. Those with money are now confident enough to purchase a home instead of waiting to see what the economy will do. And time to move now as there was a small jump in mortgage rates. Lock in the loan now before the next jump in rates.

(Just to shock you, I won't even mention any gas money!)

As for why Pittsburgh is bucking the nation wide trend....Pittsburgh didn't fall as far and had a smaller back log to clean up so our rebound should be better than the rest of the country.

Wednesday, December 29, 2010 10:20:00 PM  
Blogger C. Briem said...

I'm shocked, shocked to find that gas has an impact here!

The problem with your main agrument is that the tax incentive applied everywhere in the US. So to say it explains relative Pgh performance is not direct. It's how Pgh is performing relative to other regions that is the really interesting thing.

seriously though.. the argument that we just didn't boom and then bust has been the argument for our (relatively) good economic performance for several years at least at this point. It might be worth asking how long that logic will be valid, or how valid it ever was. At some point it does not explain that much. or put another way, there has already been a lot of reversion to the mean yet the trends continue.

You know.. it might just be possible at this point to actually study the impact of gas money on real estate markets by matching transactions to folks with leases at properties they moved out of. I may think about that some.

Wednesday, December 29, 2010 10:35:00 PM  
Anonymous MH said...

The incentive was fixed in dollars, but in Pittsburgh it was a higher percentage of the price of a non-craptacular house. Plus, the lack of a fall does matter in this case because people weren't trapped in their old house by an underwater mortgage

Wednesday, December 29, 2010 11:42:00 PM  
Anonymous The Wiz said...

My point was to explain why the average price jumped so much when overall sales numbers dropped by more than a third. Thats a contradiction of supply/demand theory.

Even in good times, Pittsburgh didn't experience the huge building booms that other areas did. Many major cities have entire subdivisions of empty and/or half completed homes and condos. Thus we don't have a huge backlog of homes to unload. So when the gov intervenes as it did, the results here are more dramatic.

As for gas money impact, it goes beyond someone selling one home and moving up to another. To minimize taxes and inheritance issues, many farms are family owned, even set up as corporations, LLCs, and FLPs. The monies get divided up among many members, some of which live off farm or even out of state.

Some are owned by elderly parents which then give family members a sizable share of the windfall. (one meeting I attended had 200 people there and I was one of the youngest age 56!)

A single gas lease/well may actually financially benefit several people.

To do an accurate study, one would have to track how the monies were dispersed within families or business partnerships.

MH; Good point. This is a more conservative area and people were less likely to speculate or overpay for a home so far fewer are underwater.

Thursday, December 30, 2010 10:11:00 AM  
Blogger C. Briem said...

I would say that the distribution of windfall profits within families has been studied.

Thursday, December 30, 2010 10:31:00 AM  
Anonymous BrianTH said...

I'd agree that the sheer magnitude of the yoy November numbers likely had a lot to do with the then-expiring credit. On the other hand, I'd also agree with Chris that the divergence of real estate prices in Pittsburgh from much of the rest of the country is still a notable story.

On that--apparently despite the recent appreciation, Pittsburgh still has the lowest price-to-rent ratio among major U.S. metros:

We've been remarkably steady in that area over the years, and in fact our recent home appreciation has been matched by some rent appreciation as well. But the bottom line is that as long as Pittsburgh remains an outlier by this measure, I wouldn't necessarily bet against it remaining an outlier by other measures as well.

Thursday, December 30, 2010 10:44:00 AM  

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