Region’s real estate market shows no sign of slowing down
February 1, 2016 12:00 AM
Howard “Hoddy” Hanna III of Howard Hanna Real Estate
By Tim Grant / Pittsburgh Post-Gazette
The Pittsburgh region’s residential real estate market hit its best year ever in 2015, with a record number of homes sold and dramatic increases in the prices that buyers were willing to pay — good news for real estate brokers and sellers alike.
Momentum in both the city and the suburbs should continue into 2016, even if the pace slows as interest rates rise on mortgages and a lack of inventory limits buyers’ choices, noted Howard “Hoddy” Hanna III, chairman and CEO of Howard Hanna Real Estate Services. The O’Hara-based company with 205 offices in eight states and more than $12 billion in sales volumes last year is estimated to be the nation’s fourth largest real estate company.
Pittsburgh real estate gained an impressive 6 percent in value in 2015 and Mr. Hanna expects another strong year in 2016, although his guess is that prices will increase closer to 4 percent or 5 percent.
He and other industry experts predict the new year will see interest in hot city communities fuel demand for communities nearby; continued population growth as more students decide to live in the region after graduation; and more first-time home buyers entering the market as rising rents show no sign of slowing.
Interest rates, which have been at record lows for several years, could go up another 50 to 75 basis points, but Mr. Hanna doesn’t expect rising rates to dampen housing prices here unless there is a marked change in unemployment or other dramatic events come into play.
Everybody’s moving there
Pittsburgh-area neighborhoods that have been hot in recent years continued that pace last year and, in some cases, warmed up others nearby. Lawrenceville continued to hold the top spot; followed by the Highland Park/East Liberty community; and then Downtown, which Mr. Hanna said has seen the highest percentage of growth.
As popular communities become overpriced and over populated, buyers create new markets nearby, he said.
“Five years ago, we probably really wouldn’t be talking about East Liberty,” he said, adding, “As demand got so great in the Shadyside area and then retail came back in East Liberty, buyers said, ‘Well, it will cost me $500,000 to buy in Shadyside or $300,000 in East Liberty.’”
Those pressures have seen old homes in Friendship that may have been converted into multi-family or boarding houses being turned back into single-family homes again. And Greenfield is becoming a budget-friendlier alternative to Squirrel Hill.
The leading communities for home sales and price appreciation outside the city of Pittsburgh were: Mt. Lebanon, which had a record year of 515 homes sold and sales volume of $136 million; Cranberry, which had the second highest sales and volume; Peters, which had 357 homes sold and sales volume of $143 million; and Adams, where 266 homes sold for $106 million in sales volume.
Limited inventory might put a damper on the number of units sold in some of those communities in future years.
“As good as home sales are in Adams, Cranberry, North Strabane and Peters, the percentage of sales in those areas is not what it used to be because there just aren’t that many new developments and new plans coming on board,” said Mr. Hanna.
“It’s a national problem that it’s very difficult to get financing to develop raw land,” he said.
Tight inventories have led to rising prices nationwide, according the S&P/Case-Shiller Home Price Indices. Home prices in the 20 cities it tracks rose an average 5.8 percent since November 2014.
“While continued price increases will begin to impact affordability, they are necessary to encourage sellers to list their homes for sale,” said Kristin Reynolds, an economist for IHS Global Insights, a Lexington, Mass.-based company that tracks national housing prices and sales.
For the moment, Gregory Hammill, president of the Pennsylvania region for Howard Hanna Real Estate, said, the increase in the rate of sales in the region has accelerated faster than the rate of new listings.
“We still need more inventory,” Mr. Hammill said. “Buyers in the market want to find a house they like. They don’t want to pick one for the heck of it.”
Looking for the impact of energy slump
So far Mr. Hanna said the real estate market hasn’t seen a ripple effect from the energy industry downturn in Western Pennsylvania, something that could impact places like Washington and Greene counties. “A lot of housing was based on part-time workers coming in. A year and a half ago, you couldn’t rent a hotel room in rural or south suburban Pennsylvania because all the hotels were taken up by the workers they were bringing in from Colorado, Texas and Oklahoma.”
As the industry has been pulling back, jobs have been cut. Mr. Hanna said real estate brokers will be watching to see if that shows up in home sales and prices.
But other economic indicators in the region are strong. More first-time home buyers bought homes last year than had done so since 2010. The percentage of first-time buyers who bought homes through Howard Hanna Real Estate jumped from 28 percent in 2014 to 37 percent last year.
Enough apartments? Too many?
According to Jeff Burd, president of Tall Timber Group based in Ross, this year will be the fourth consecutive year that developers have built more than 2,000 apartment units in this region. There were 2,347 units built in 2015. In 2016, he said, 4,548 apartment units are on the drawing board.
“We were normally around 1,000 to 1,200 new apartment units a year in the mid-1990s,” Mr. Burd said. Many of those units will rent for between $2,000 to more than $3,000 a month.
Mr. Hanna said the explosion in apartment building has a lot to do with developers earning more profits.
“Some of the new places Downtown are renting for close to $3 per square foot, and you can rent almost any of the good Downtown office buildings for that with brand new space remodeled,” he said. “It costs more to build an office building than it does to build an apartment building. You are getting the same or more per square foot.”
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