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Real estate here defies U.S. trend
America's Most Stable Housing Markets

Real estate here defies U.S. trend
'Pittsburgh doesn't have a hangover because it wasn't at the party'
Thursday, November 29, 2007
By Tim Grant, Pittsburgh Post-Gazette

Pittsburgh's residential real estate values have grown in defiance of the housing downturn that has crippled other metropolitan areas.
Pittsburgh is among several cities, including Rochester, N.Y.; Gary, Ind.; Salt Lake City and Trenton, N.J., that have shown rising or stable home prices over the past year despite a broad decline in existing home sales, according to the National Association of Realtors.
Median sales prices for single-family homes in Pittsburgh increased 6.1 percent from a year ago, while some cities in Florida and California posted double-digit declines in sale prices during the same period, suggesting that home prices have fallen most dramatically in areas where the speculative frenzy was hottest.
"Pittsburgh doesn't have a hangover because it wasn't at the party," said Dr. Marc Louargand, president of the American Real Estate Society and a principal with Saltash Partners LLC in Hartford, Conn.
Several markets that analysts once saw as the hottest actually recorded some of the most sobering results, including Palm Bay/Melbourne, Fla., which saw a 12.4 percent decline; Sacramento, Calif., where prices fell 10.5 percent; and the Sarasota/Bradenton, Fla., area, which experienced a decline of 10.4 percent.
Markets that have taken the hardest hit had a large supply of housing stock and plenty of speculative investments.
"Those all combined to create the current weakness," Dr. Louargand said. "The speculative buyers are out of the market, and there's excess supply."
Real estate values here are performing as prices would in a normal market, according to Walter Molony, a spokesman for NAR in Washington, D.C. Prices usually rise about 1 or 2 points faster than the rate of inflation.
One of the main factors in Pittsburgh's steady growth in home values is that the median price has risen gradually over time, which helps to preserve its affordable home prices.
"Our view is that the Pittsburgh area is underpriced by national standards," Mr. Molony said.
The national median existing single-family home price for the third quarter of 2007 was $220,800.
For Pittsburgh, that figure was $127,700.
Michael J. Sichenzia, chief operating officer of Dynamic Consulting Enterprises in Deerfield Beach, Fla., a firm that specializes in renegotiating mortgage debt for distressed homeowners, said it may not be that Pittsburgh has done so well because people find the city a more desirable place to live or have better job opportunities here.
"It may well be a statistical phenomenon resulting from the fact that there was not a speculative market there like there was everywhere else," Mr. Sichenzia said.
"The bubble effect wasn't as bad because the Pittsburgh market came into the game later and, because of that, the gate didn't swing open as wide."
But does that mean Pittsburgh will fare better than those cities with depressed real estate prices in years to come?
That depends.
The overall tightening of credit will fall disproportionately on the shoulders of
first-time home buyers, making it harder to get mortgages in Pittsburgh and
elsewhere, Mr. Sichenzia said.
But Mr. Molony had a brighter outlook.
He said NAR data show Pittsburgh's continual real estate growth is driven by
respectable job gains. Home prices in Pittsburgh from 1990 to 2006 have grown 62 percent. Average income in Pittsburgh during the same period rose 93 percent, he said, adding that 4,400 jobs were added to Pittsburgh's economy last year.
"You could be seeing stronger-than-average price appreciation in Pittsburgh in
2008," Mr. Molony said.
"It would be due to a healthy local economy, affordable home prices, job growth and historically low interest rates continuing."
Tim Grant can be reached at tgrant@post-gazette.com or 412-263-1591.

First published on November 29, 2007 at 12:00 am

 

America's Most Stable Housing Markets
Matt Woolsey, 10.01.07, 4:00 PM ET

Nationwide, home prices are falling, sales are sluggish and the number of foreclosures is mounting. Ask any economist and you'll hear that things are bad, and likely to get worse.

Unless you live in Seattle, where the market is slowing but fundamentals remain strong.

The Emerald City has experienced strong price appreciation over the last six quarters, and that's expected to continue in the new year, though at a slower pace. In addition to a very low housing inventory and a strong sales rate, there are few non-conforming and high-risk loans on the books than in other cities, which means the area will likely see fewer defaults in the coming months than the rest of the country's markets.

In Pictures: America's Most Stable Real Estate Markets

Also primed for a stable year are Pittsburgh, Columbus, Ohio, and Dallas. They follow Seattle in our ranking of the country's 10 most stable markets. All are projected to have median home sale price increases next year, thanks to a combination of factors including lower-than-average inventory levels, little price volatility and high job growth.

To arrive at our list, we teamed with Moody's Economy.com to develop three prediction models based on a range of factors that affect how prices move. These include, among other things, the state of local economies, new construction contracts, foreclosure rates, local credit markets, sales rates, affordability and inventory. Each of America's 40 biggest cities was ranked on all three models, with price appreciation counting one half and sales rates and credit models accounting for the other half. Data were drawn from the U.S. Census Bureau, National Association of Realtors, Equifax, a credit-market tracking firm and Moody's Economy.com.

Behind The Numbers
The first model looks at projected median existing home price growth from fourth-quarter 2007 to fourth-quarter 2008. Factors influencing this data include the market's inventory of unsold homes and the amount of new construction underway, both of which have obvious effects on supply. Housing affordability and local construction costs also play a role, acting as indicators of the market's ability to accommodate first-time buyers and new construction. Next is job growth, which attracts people to the area and increases their ability to buy a home.

Expensive markets like Seattle and San Francisco, which have low housing inventories and low construction costs, do well by this measure. Most of the top performers, however, are affordable, high-job growth markets like Dallas and San Antonio.

"It largely reflects that these markets never went through the boom and aren't going through the severe bust," says Mark Zandi, chief economist at Moody's Economy.com. "Price growth is not great, but [these markets] are not having house price declines. [All markets] are experiencing pricing problems, but in these markets it's less of a problem."

Moody's second predictive model examined market activity by calculating sales rate, which measures how quickly unsold inventory is expected to sell, and turnover, which measures how much of the overall housing stock those sales represent.

For example, the projected volume of home sales in San Francisco for the coming year represents a low 1.1% of the market's overall housing stock. In a market like Los Angeles, hamstrung by foreclosures and inventory glut, a 1% to 2% sales rate is potentially devastating--but given San Francisco's supply-side fundamentals and low foreclosure rates, prices are expected to modestly climb.

The last measure took into account delinquency and foreclosure predictions. By this model, adjusted-rate mortgage- and subprime mortgage-rich Detroit, Riverside, Calif., and Las Vegas got hammered, while Pittsburgh and Seattle performed well.

Regarding this measure, "it's important to differentiate between [delinquencies]: how many people are late relative to their most recent due date and how many people are in the process of losing their home," says Douglas Duncan, chief economist of the Mortgage Bankers Association. "Ninety percent of all 30-day late pays get fixed. Serious delinquencies are 90 days past current due dates."

When lending problems like this occur, the markets hit hardest are those with a high proportion of non-conforming loans. The most troublesome types are subprime mortgages and jumbo mortgages--those that are above the range of Fannie Mae and Freddie Mac's $417,000 securitization limit. Because few banks eagerly take on mortgages that aren't backed by Freddie and Fannie, the spread on jumbo loan interest rates compared to those of regular loans is at an all time high, according to data from HSH Associates, a credit-market tracking firm.

With fewer lenders wanting to take on jumbos and no banks willing to securitize jumbos, that adds another barrier to sales, especially in an expensive market. In Atlanta, for example, where the median home-sale price is $175,500, it's not an enormous setback, but when securitization stops in Los Angeles--where the median price is $593,000--a greater chunk of market activity halts.

As a result, cheaper markets are more likely to be healthier, as loan activity is less constrained.

Still, no market finds itself in a boom. As Zandi points out, discussing which markets are the healthiest "is a relative term."

"It's not like any of these markets are going gangbusters," he says. "Even Seattle: It's been very strong, but conditions are weakening and this year, at best, will be an OK year."