Pittsburgh Housing: Cheaper to Own than Rent (Washington, Butler: jumbo loan, homes)

[BrianTH]

I'm not sure it is true that the median house in Pittsburgh has a market value below its original construction cost, even adjusted for inflation. And I certainly don't think you could take such a fact as trumping actual direct observations of home price trends in recent years.

However, some interesting things can happen when existing residential units are currently priced below their duplication costs (meaning what it would cost today to create a new comparable unit). In cases like that, small shifts in potential demand can lead to rapid appreciation, up to the point that market prices start exceeding duplication costs. That is basically because those conditions act as a type of supply constraint (rising demand typically won't lead to abnormally high appreciation without some sort of supply constraint).

That dynamic is pretty common in "gentrification" scenarios--existing units appreciate rapidly from a very low level in an initial phase, but that appreciation may slow down once it becomes viable to add new units (assuming some other constraint on new units doesn't come into play). And in fact we've seen that in some gentrifying neighborhoods here:

[user_id]

Originally Posted by TechCom

The old adage: location, location, location is very much the factor in Pittsburgh. Look how fast real estate values drop once you move away from Whole Foods in east liberty. In Northern East Liberty you can get a house for less than 10k, but I wouldn't recommend it!

Yes, but this is largely due to racial segregation and the fairly rigid lines Pittsburgh has between its communities.

Anyhow, yes, Pittsburgh has (or at least had) too many homes and that is why its real estate is, on average, so cheap.

[user_id]

Originally Posted by BrianTH

Nice post from Chris Briem on the subject we have recently been discussing:

There is nothing nice about it, it suffers from a major problem, namely that the index being used doesn't work well in Pittsburgh. Since its only looking at conforming loans issued by GSE its primarily looking at Pittsburgh's most desirable neighborhoods. Hence its not a story of Pittsburgh real estate, its a story about Shadyside, Squirrel Hill and other select neighborhoods.

You can't use mortgage data to determine price movements in an area that has declined in population for decades. Pittsburgh has seen many homes depreciate to zero, these homes are sitting empty, have been razed over the years, etc. Any index that misses this isn't telling the real story about Pittsburgh real estate... On the other hand mortgage data can be fairly reliable in areas that are growing.

Also, its not surprising that some neighborhood have appreciated rapidly over the last decade....firstly they were undervalued in 2000 and there was a huge national housing bubble. I'd suspect some of the appreciation is sustainable, but most will get cooked off slowly in the next 1-2 decades.

[user_id]

Originally Posted by GeneW

I don't know the exact cost of my home's construction but I do know that it was sold to the second owners in 1869 for $9000. Plugging that number into an inflation calculator gives me a price of $145,588 in modern dollars. That's at least a $100K less than the house is worth right now so it wouldn't have been a terrible investment over the years.

This sort of comparison would make sense if the home from the mid 1800's was as it was in the mid 1800's....but its undoubtedly not. Today it would be electrified, it would have modern plumbing, modern heating, etc and all of these things would add to the construction costs.

Also, I'm by no means suggesting that every home in Pittsburgh has appreciated below inflation, just that as a whole that is what has happened in Pittsburgh. The homes that are still livable today are the survivors from many homes that have been razed, are sitting empty, etc....so one cannot use them to get a picture of what has happen in Pittsburgh over the years.

Pittsburgh's population is still declining so what happens in the future really depends on Pittsburgh's economy..... It does seem like the great values from the early 2000's attracted some people to the area which has likely helped the real estate market...though the effects on the economy are likely fairly minor.

[BrianTH]

A large share of the mortgage market is either bought or securitized by the GSEs, making this a relatively broad index. Although I don't have figures for Pittsburgh, I suspect if anything their share is relatively high here. In any event, it is an apples to apples comparison using real data.

The Pittsburgh MSA doesn't have an unusually high home vacancy rate:

Housing Vacancies and Homeownership - Quarterly Rates by State and MSA (http://www.census.gov/hhes/www/housing/hvs/rates/index.html - broken link)

The MSA hasn't been losing population at a very high rate, declining people per household has further limited the household losses, and of course builders haven't been adding unnecessary units.

Of course some people in the MSA have experienced declining home values. But that is not the average or median experience.

[TechCom]

Originally Posted by onwardandupward

Sorry, but that ship has sailed. Larimer, maybe, but not East Liberty.

I only said that because I was recently looking at houses on pittsburghmoves.

Keep in mind, this house is bad and needs gutted, but it is cheap!
615 Lenora Street, East Liberty, PA 15206
$11,900

I see three Lincoln-Larimer ones listed for 15k and under.

[BrianTH]

Another good post from Briem:

Nullspace: More Pittsburgh real estate trends

He did the same sort of chart above for just the last five years:



He also notes that people are starting to cram new units on odd lots in Lawrenceville. That's consistent with gentrification story in those neighborhoods, and what happens next depends on some complex supply issues--appreciation may normalize if new gentrification neighborhoods open up fast enough, but often they don't.

[onwardandupward]

Originally Posted by TechCom

I only said that because I was recently looking at houses on pittsburghmoves.

Keep in mind, this house is bad and needs gutted, but it is cheap!
615 Lenora Street, East Liberty, PA 15206
$11,900

I see three Lincoln-Larimer ones listed for 15k and under.

That house is in Larimer. Real estate agents often list a property with a more desirable location - if it's really in Larimer, they'll list it as East Liberty; if it's really in East Liberty, they'll list it as Highland Park; etc, you get the idea. What makes it difficult as well is that parts of all three areas; Larimer, East Liberty and Highland Park, all share the same zip code of 15206.

Bottom line is that you can't really trust what is listed on the real estate websites.

[user_id]

Originally Posted by BrianTH

A large share of the mortgage market is either bought or securitized by the GSEs, making this a relatively broad index.

Yes on the national level its a "large share", but areas like Pittsburgh have a lesser share. When you're buying a house for $30,000 you're typically not looking at a conforming loan.... Regardless, all indexes have limitations and this is a terrible index to use for Pittsburgh real estate...

Originally Posted by BrianTH

The Pittsburgh MSA doesn't have an unusually high home vacancy rate

Oh yeah? Not only am I talking about Pittsburgh, and not the Pittsburgh MSA, but I never suggested that the vacancy rate was particularly high. Though its not difficult to find empty homes in Pittsburgh...they usually get razed at some point so that prevents vacancies from piling up.

[PreservationPioneer]

Houses in Larimer are worth $15k after they are rehabbed, not before. But if you look at real estate listings, you will see houses that need complete rehab listed as in "East Liberty," when they are actually in Larimer or Lincoln-Lemington, and they will be asking prices like 10-15k. Basically, they are tear-downs located in the ghetto, listed at East Liberty prices, and are probably worth no more than $3,000. There is a row-house in Homewood that is a completely hollow shell (no floors) that is listed for $10k, and it's in a block of abandoned homes. Give me a break. That house wouldn't be worth 10k if it was done.