Another list: Pittsburgh among 10 Cities Primed for a Real Estate Recovery (Lebanon: sale, foreclosure)

[BrianTH]

Originally Posted by user_id

Its not "compared to where", but "compared to what". The homes are overvalued in historic and fundamental terms. I'm talking about the nicer neighborhoods, like Shadyside, Mt Lebanon, etc. In many cases these homes have gone up a lot in value this decade, yet the homes on the market sell like molasses.

The whole country has experienced a dramatic slowdown in the mid-high end, and this article was about cities it thought would start recovering faster. Pointing out Pittsburgh has also experienced something of such a slowdown doesn't refute that point. By the way, given rents and incomes in these areas, I actually don't think their home prices are out of line with fundamentals.

But even in terms of "compared to where" I don't Pittsburgh is any cheaper than other areas that are actually comparable. Why would it be? Do the free markets not operate in Pittsburgh?

They sure do, and the most fundamental rule is that price is set at the intersection of supply and demand. In Pittsburgh's case, it has an unusually large supply of good housing stock relative to its current population, so prices are low. This also helped Pittsburgh escape most of the speculative mania, which occurred mostly in places where supply was low relative to current populations. Again, the Texas cities are also a good illustration of this basic dynamic: in the 1970s and 1980s, Texas went through its own housing boom and bust, so it entered the 2000s with a similar oversupply, and also maintained relatively low prices and experienced a lot less speculation.

Of course, I have a feeling you are comparing "central upscale neighborhoods" in places like DC, NYC, LA, SF, etc to ones in Pittsburgh, which if true is rather silly.

I assume your point is that those are larger cities. But this holds true if you look at similar-sized cities like Denver or Portland.

What is the "urbanized area"? Between the 1990 and 2000 census Pittsburgh declined in population so I'm not sure what you mean.

Urbanized Areas are a Census-defined term. The basic definition is:

[D]ensely settled territory, which consists of core census block groups or blocks that have a population density of at least 1,000 people per square mile and surrounding census blocks that have an overall density of at least 500 people per square mile.

What it excludes within a metro area are rural areas and urban clusters too far from the central city to be included in the central urbanized area.

Anyway, here is a map of the Pittsburgh Urbanized Area:

http://ftp2.census.gov/geo/maps/urba...ua69697_00.pdf

It is basically the City and major suburbs. The population of the Pittsburgh Urbanized Area went from 1,678,745 in 1990 to 1,753,136 in 2000.

This means little...in terms of business and population growth. You can have a real increase in GDP with no additionally businesses or population.

You can certainly have real GDP growth without population growth if you have increasing real per capita GDP, which in fact is part of what happened in Pittsburgh. I'm not sure how else you would measure overall business activity, however.

[M]y point that is that Pittsburgh built infrastructure for the "service economy" many pieces which I consider a bubble. In Pittsburgh desire to "join the party" seen in other cities, it ignored the future.

As noted Pittsburgh also has high-tech manufacturing, but it is certainly true that Pittsburgh has become mostly a service center city. I'm not sure why you think that is bad for the future, however: production of goods is inevitably moving toward a less labor-intensive model over time as labor productivity increases with technology. So while it is good to hold onto some high-paying goods-producing jobs, future job growth is mostly going to come from services.

Growth, I believe is going to come from businesses that actually produce something.

Again, due to technology-enhanced labor productivity, goods-producing businesses are not going to contribute much to job growth in the future, even as they make money and (sometimes) pay good wages.

[user_id]

Originally Posted by BrianTH

The whole country has experienced a dramatic slowdown in the mid-high end, and this article was about cities it thought would start recovering faster.

Sure and I don't think Pittsburgh is going to "recover" anytime soon, rather its going to see a lot of stagnation in nominal terms and declines in real terms.

Real estate in Pittsburgh moves like molasses and the inventory in the mid/high end is huge. So what happens with supply is high and demand is slow? Oh yeah...prices go down. Real estate is sticky though and for whatever reason it seems unusually sticky in Pittsburgh (perhaps, most sellers do not have an immediate need to sell).

Originally Posted by BrianTH

T In Pittsburgh's case, it has an unusually large supply of good housing stock relative to its current population, so prices are low.

To say it again, when I say they are overvalued I'm talking about select good neighborhoods not Pittsburgh in general. Many of areas in Pittsburgh after all are essentially worthless and would sell for next to nothing. But seriously, so the supply is huge and demand is low and Pittsburgh is rip for a "recovery" in its Real estate market? hmmm.......

Originally Posted by BrianTH

I assume your point is that those are larger cities. But this holds true if you look at similar-sized cities like Denver or Portland.

Portland and Denver are both twice the size of Pittsburgh and they are rather different cities. They don't have all the urban decay that Pittsburgh has. I also don't think they are too much more than Pittsburgh either if you compare apples to apples once you consider differences in property taxes.

Originally Posted by BrianTH

It is basically the City and major suburbs. The population of the Pittsburgh Urbanized Area went from 1,678,745 in 1990 to 1,753,136 in 2000.

Smoke and mirrors, I'm talking about Pittsburgh (you know the city) and you're talking about an area that is dramatically bigger. The question is not how much the "urbanized area" has grow or whatever else, the question is how much has the city grown!! I fail to see how growth in the suburbs is going to do anything for Pittsburgh real estate.

The city and the metro area declined in the same period. The "urbanized area" could have grown simply by people from from the the metro area - urbanized area, into the urbanized area. I have no idea, but its not relevant regardless.

Originally Posted by BrianTH

I'm not sure how else you would measure overall business activity, however.

I said nothing about "business activity", I said business growth. As in growth in the number of businesses in the area. Business activity can increase with no increase in utilization of commercial property, that is especially the case with a service economy. Remember, we are talking about real estate here. If there is no major growth in population or businesses then its unclear what is going to fuel a real estate "recovery". As far as I know many of the new developments remain under-utilized.

Originally Posted by BrianTH

.... So while it is good to hold onto some high-paying goods-producing jobs, future job growth is mostly going to come from services.

And who exactly is going to purchase the goods the US uses? Are you under the impression that the Chinese are particularly interested in funding US consumption of their goods or that the Chinese are going to start consuming US services? The US has no real choice but to start producing more real goods in the coming years.

Whether the plants are automated or not is not particularly relevant. I'm not talking about the labor market, rather the economy shifting away from an over reliance on services. Pittsburgh has next to no infrastructure to support these sorts of businesses both big or small, but especially small.

Originally Posted by BrianTH

goods-producing businesses are not going to contribute much to job growth in the future.

You have an amazing ability to change the topic...when the real topic does not suit you.

[BrianTH]

Originally Posted by user_id

Sure and I don't think Pittsburgh is going to "recover" anytime soon, rather its going to see a lot of stagnation in nominal terms and declines in real terms.

We shall see.

Real estate is sticky though and for whatever reason it seems unusually sticky in Pittsburgh (perhaps, most sellers do not have an immediate need to sell).

Pittsburgh prices also never got very out of line with things like rents. So, as potential buyers have converted to wait-and-see renters, potential sellers have converted to wait-and-see landlords.

Portland and Denver are both twice the size of Pittsburgh . . .

Not in any meaningful sense: all three cities have roughly equivalent Metro Area and Urbanized Area populations. The central city populations are determined by lines on the map that have little economic significance.

. . . and they are rather different cities. They don't have all the urban decay that Pittsburgh has.

But "urban decay" also translates into cheap housing stock, which lowers housing prices even in thriving neighborhoods.

I also don't think they are too much more than Pittsburgh either if you compare apples to apples once you consider differences in property taxes.

I've got relatives in both cities and looked fairly extensively at housing prices. Roughly speaking, I'd say Denver housing costs twice as much as Pittsburgh housing in the mid-high range, and in Portland it is about 2.5 times as much. Given property tax rates in those areas, that means you will probably pay about the same in property taxes in Portland, and in Denver they will be around 2/3ds as much. But even in Denver's case, the additional costs in terms of mortgages, opportunity cost of capital, and insurance will swamp the tax savings.

Smoke and mirrors, I'm talking about Pittsburgh (you know the city) and you're talking about an area that is dramatically bigger. The question is not how much the "urbanized area" has grow or whatever else, the question is how much has the city grown!! I fail to see how growth in the suburbs is going to do anything for Pittsburgh real estate.

Because the local real estate market isn't constrained to the boundaries of the City, meaning people can and do cross-shop neighborhoods inside and outside the City. What you will see a lot less of is people cross-shopping the urbanized area with the rural parts of the metro area.

The city and the metro area declined in the same period. The "urbanized area" could have grown simply by people from from the the metro area - urbanized area, into the urbanized area. I have no idea, but its not relevant regardless.

Again, I would suggest the urbanized area is a much more economically relevant unit than the City. As for the rest of the metro area, it has some economic significance, but less so when you are talking about things like housing prices, transportation issues, and so on (anything where people-proximity matters).

I said nothing about "business activity", I said business growth. As in growth in the number of businesses in the area.

I'm not sure why counting the number of businesses in the area matters, and I wouldn't know where to look for such statistics. The things that actually matters to people are going to be things like jobs, income, and so on, which are ultimately tied to production. A head count of businesses isn't going to tell you much about those things.

Business activity can increase with no increase in utilization of commercial property, that is especially the case with a service economy.

Actually, it is goods-producing firms which are most reducing their geographic footprints thanks to technology (including with respect to production and inventory). Service firms really can't squeeze too much in this area because their fundamental "technology", people, take up a certain amount of space.

Remember, we are talking about real estate here.

Yes, and counting the number of firms is particularly irrelevant to that (except for minor headquarters issues). Total production or total jobs is going to be a much better proxy for real estate utilization.

As far as I know many of the new developments remain under-utilized.

That isn't my impression, although admittedly I am most familiar with projects in or around the City.

And who exactly is going to purchase the goods the US uses?

U.S. consumers, by definition.

Are you under the impression that the Chinese are particularly interested in funding US consumption of their goods or that the Chinese are going to start consuming US services?

Yes on both counts, but trade issues are a secondary concern: most U.S. production is for U.S. consumption.

The US has no real choice but to start producing more real goods in the coming years.

The U.S. has been producing more goods all along (at least prior to the recession). Again, we're just gradually specializing in non-labor-intensive production, which in turn just puts us a bit ahead of the curve--the same thing will happen in China, India, etc. eventually.

I'm not talking about the labor market, rather the economy shifting away from an over reliance on services.

You can't stop the tide. There are only so many goods people really get much benefit from, and it is getting increasingly cheap to make that basket of goods. So if there is going to be an economy at all in the future, it will necessarily be focused on services.

You have an amazing ability to change the topic...when the real topic does not suit you.

I don't see why that was off topic. Residential real estate is driven by people with incomes looking for places to live. Hence, job issues are relevant to contemplating real estate markets.

[user_id]

Originally Posted by BrianTH

So, as potential buyers have converted to wait-and-see renters, potential sellers have converted to wait-and-see landlords.

Which is to say the prices are sticky, these issues will not hold up prices long term though.

Originally Posted by BrianTH

Not in any meaningful sense: all three cities have roughly equivalent Metro Area and Urbanized Area populations.

Its funny, because you are pointing out just who they are pretty different! Portland and Denver have more people in the actual cities than in the outer suburbs. Again, I'm talking about cities not metro areas.

Originally Posted by BrianTH

But "urban decay" also translates into cheap housing stock,

It also translates into empty boarded up buildings and homes and other undesirable things. Pittsburgh is a bit cheaper than Portland, Denver, etc because its a less desirable place to live (in the aggregate), its really as simple as that. I don't know why some people in Pittsburgh pretend as if its some hidden gem....its not hidden. People know about it, but prefer to live else where.

Originally Posted by BrianTH

I've got relatives in both cities and looked fairly extensively at housing prices. Roughly speaking, I'd say Denver housing costs twice as much as Pittsburgh housing in the mid-high range, and in Portland it is about 2.5 times as much.

I hope you've done this in the last few months otherwise its irrelevant. The prices in Denver and Portland have changed a lot in the last 2-3 years. I don't even think this was true 2-3 years ago though, if you actually compared apples-to-apples. I've been to all these cities and even 2-3 years ago I did not find the prices in Denver/Portland to be double that of Pittsburgh. But then again, I have no delusions about the quality of neighborhoods and don't confuse an established upper middle class neighborhood with a supposedly "up and coming" neighborhood.

Lastly, house prices in Portland still rather inflated (and to a lesser degree Denver). You are comparing an area that had a noticeable bubble with an area that did not, if you look at the historic norms the prices are not that much higher.

Originally Posted by BrianTH

Because the local real estate market isn't constrained to the boundaries of the City,

If the population of the city is declining then the supply of homes in the city will increase and the prices will further weaken. What happens in the metro area, or whatever area out side of the city is irrelevant here.

Originally Posted by BrianTH

Again, I would suggest the urbanized area is a much more economically relevant unit than the City.

It depends what you are talking about, in terms of real estate development in the city what is going on in the city matters the most. Certainly a growing urbanized can fuel some growth within the city, but often it does not. People want things local.

Originally Posted by BrianTH

I'm not sure why counting the number of businesses in the area matters, and I wouldn't know where to look for such statistics. The things that actually matters to people are going to be things like jobs, income, and so on, which are ultimately tied to production. A head count of businesses isn't going to tell you much about those things.

Oh yeah? Good thing I'm not talking about what "matters to people", the thread is about real estate. Growth in the number of businesses in the city is certainly relevant to growth in commercial real estate in the city! Of course growth (in terms of space utilized, employees, etc) of business currently in the city would also be relevant.

Originally Posted by BrianTH

Actually, it is goods-producing firms which are most reducing their geographic footprints thanks to technology (including with respect to production and inventory).

It is? Really? What technology is that, shrinking rays? Most of the space is used by equipment and other infrastructure, if anything increased technology has increased the space requirements of manufactures. Industrial robots are after all not particularly small.

I'm thinking you've never stepped into a factory.

Originally Posted by BrianTH

Service firms really can't squeeze too much in this area because their fundamental "technology", people, take up a certain amount of space.

Of course they can, meet:

Telecommunication - Wikipedia, the free encyclopedia

Originally Posted by BrianTH

Yes, and counting the number of firms is particularly irrelevant to that (except for minor headquarters issues).

I was talking about growth in the number of businesses in the area, should be obvious that that is relevant in terms of commercial real estate. There are other relevant issues too, but "business activity" does not tell you much.

Originally Posted by BrianTH

U.S. consumers, by definition.

I meant "produce" not "purchase".

Originally Posted by BrianTH

Yes on both counts,

Really? You think the Chinese want to purchase our services instead of...ahem producing the services themselves and out selling us? Perhaps you did not get the notice, but the Chinese desire badly to turn the US into something that resembles say Italy. In terms of funding US consumption, its rather clear that that is coming to an end. They have made a number of shifts in policies and the public is growing increasingly angry about it.

Anyhow, the US has to start producing more of what it consumes. The only way around that is other countries giving us free things, which I guess is what you think is going to occur.

Originally Posted by BrianTH

The U.S. has been producing more goods all along (at least prior to the recession).

Huh?!?! Its been producing more goods all along? I really have no idea what this means. My claim was that the US needs to start producing more goods, that is its current level of manufacturing is too low and unstable.

Originally Posted by BrianTH

You can't stop the tide. There are only so many goods people really get much benefit from, and it is getting increasingly cheap to make that basket of goods.

Yes, because the basket of goods never changes?! I'm not talking about decades in the future, I don't have a time machine. I'm talking about the current economy, and it as over allocated its resources in the service economy. The biggest misallocations being in things like finances, real estate, law.

Originally Posted by BrianTH

I don't see why that was off topic.

It was irrelevant to what you were quoting. If there was job growth in the city you'd expect to see population growth, people will fellow the jobs.

Unless you are servicing the people in the city it makes little sense to start a business in Pittsburgh. You're just giving money away....

[PeterRabbit]

How irrevelent is this? Crap lady in Bloomfield stops Don Allen corner development because it would be too dangerous for her daughter to play in the alley due to all the anticipated traffic, plus it blocks her view to Mars, Saturn and Shadyside? City council agrees and chases another developer away.

I'm not providing a link because this is common knowledge - look it up.

[BrianTH]

Originally Posted by user_id

Which is to say the prices are sticky, these issues will not hold up prices long term though.

Again, though, I don't think prices are out of line with rents and incomes, so this situation could be resolved without a significant price decline. But we shall see.

Again, I'm talking about cities not metro areas.

But also again, municipal boundaries are mostly just lines on a map. The City of Denver is also an entire county, and is 154.9 square miles in size. The City of Portland is 145.4 square miles. The City of Pittsburgh, in contrast, is only 58.3 square miles. If you redrew a hypothetical City of Pittsburgh that was roughly the same size as Denver or Portland, you would get roughly the same number of people.

This is why it makes sense to look at something like Census-defined urbanized areas. That definition ignores municipal boundaries and just looks at dense central areas, and that gives you a better sense of relative size.

It also translates into empty boarded up buildings and homes and other undesirable things.

Not necessarily in your local neighborhood.

Pittsburgh is a bit cheaper than Portland, Denver, etc because its a less desirable place to live (in the aggregate), its really as simple as that.

You just switched from the supply side to the demand side. But that actually doesn't make much sense: if there is more demand, you would expect supply to increase to meet that demand, and you would end up with the Portland and Denver urbanized areas being bigger. So if you see a long term difference in prices in areas of comparable size, it has to be a supply-side, not a demand-side, effect.

I hope you've done this in the last few months otherwise its irrelevant. The prices in Denver and Portland have changed a lot in the last 2-3 years.

True, although actually they have held up better in Portland and Denver than in a lot of bubble cities, at least according to Case-Shiller. Anyway, I adjusted those numbers down somewhat from what I would have said at peak.

I have no delusions about the quality of neighborhoods and don't confuse an established upper middle class neighborhood with a supposedly "up and coming" neighborhood.

Nor was I confused. I was using Pittsburgh neighborhoods like Shadyside and Squirrel Hill.

Lastly, house prices in Portland still rather inflated (and to a lesser degree Denver). You are comparing an area that had a noticeable bubble with an area that did not, if you look at the historic norms the prices are not that much higher.

As I noted above, Denver and Portland have seen some of the lower declines from peak in Case-Shiller. Anyway, we shall see what happens: you can't buy a home back in history, and I think we are entering a period in which there will be a structural increase in prices in central locations (driven by demographics, energy prices, preference trends, and so on). If true, one would expect Pittsburgh to remain relatively cheap for some time thanks to its relatively abundant capacity and housing stock in central locations.

If the population of the city is declining then the supply of homes in the city will increase and the prices will further weaken. What happens in the metro area, or whatever area out side of the city is irrelevant here.

Again, people cross-shop the City and the inner suburbs, so you simply cannot draw a wall around the City and pretend it is an isolated real estate market. Moreover, I strongly suspect the City population is no longer declining.

It depends what you are talking about, in terms of real estate development in the city what is going on in the city matters the most. Certainly a growing urbanized can fuel some growth within the city, but often it does not. People want things local.

But the City is in fact "local" to many people in the urbanized area. Again, you are just talking about lines on a map, and it is not like there is a border which requires a passport to cross those lines.

Oh yeah? Good thing I'm not talking about what "matters to people", the thread is about real estate.

Real estate is bought and sold by people.

Growth in the number of businesses in the city is certainly relevant to growth in commercial real estate in the city!

How so? You've got one business that operates two factories, or two businesses that each operate one factory. I say that makes no difference from a real estate perspective, but you say that makes a big difference. I don't get why you think that.

Of course growth (in terms of space utilized, employees, etc) of business currently in the city would also be relevant.

It seems to me the growth in terms of space utilized is the ONLY thing that matters from a real estate perspective.

[i]f anything increased technology has increased the space requirements of manufactures. Industrial robots are after all not particularly small.

Robots take up less space than the assembly line of people you would need to do the same job. Moreover, since they are much faster, you can meet the same inventory flow with fewer assembly lines.

I'm thinking you've never stepped into a factory.

You have no reason to know this, but my dad worked for GM and I have been pretty familiar with their manufacturing operations over time.

Of course they can [Telecommunications]

That just shifts where the person is located. They still take up space wherever they are.

I was talking about growth in the number of businesses in the area, should be obvious that that is relevant in terms of commercial real estate. There are other relevant issues too, but "business activity" does not tell you much.

To continue my example above, measuring total business activity will capture the difference between one business operating one factory, and one or two business operating two factories. Your measure will miss the difference between one business operating one factory and one business operating two factories, while claiming there is a difference between one business operating two factories and two business each operating one factory.

Seriously, counting the number of businesses is a much worse proxy for land-utilization than measuring business activity.

I meant "produce" not "purchase".

OK. Most U.S. goods produced will likely be consumed by U.S. consumers, as is the case now.

Really? You think the Chinese want to purchase our services instead of...ahem producing the services themselves and out selling us?

The Chinese will prefer to consume locally-produced goods and services where that makes economic sense, and trade for goods and services when that makes sense. There is no fundamental difference between goods and services when it comes to this logic.

Perhaps you did not get the notice, but the Chinese desire badly to turn the US into something that resembles say Italy.

I think the Chinese care what China looks like, not what the U.S. looks like.

In terms of funding US consumption, its rather clear that that is coming to an end. They have made a number of shifts in policies and the public is growing increasingly angry about it.

This is a tangent, but the Chinese have been complaining about U.S. fiscal policy as far back as the Reagan Administration. We'll see if they really make a lot of changes, but in any event it would be a good thing overall if the Chinese stopped saving as much.

Anyhow, the US has to start producing more of what it consumes. The only way around that is other countries giving us free things, which I guess is what you think is going to occur.

The U.S. already produces most of what it consumes. As for trade, again, it should trade where trade makes economic sense. None of this creates a difference between goods and services.

Huh?!?! Its been producing more goods all along? I really have no idea what this means.

Just what it says: despite all the talk of a crisis, U.S. production of goods actually has been more or less steadily increasing (except during times of recession). We've been losing manufacturing jobs, but that is because U.S. manufacturing has become much more labor-productive.

Yes, because the basket of goods never changes?!

That is why production of goods won't entirely disappear. But it will remain a shrinking sector of the economy for the conceivable future.

I'm not talking about decades in the future, I don't have a time machine.

I'm not either. These trends have been going on for decades now.

If there was job growth in the city you'd expect to see population growth, people will fellow the jobs.

Correct, with again the caveat that the City is not an economically relevant unit in this context. Indeed, there was a measured growth in jobs located in the City as population in the City was declining, which just meant there were more commuters from elsewhere in the metro area. But in any event, I also think the declines in City population are now likely behind us.

Unless you are servicing the people in the city it makes little sense to start a business in Pittsburgh. You're just giving money away....

There is a reason why some firms cluster in cities. This must be true, because this has always had costs, and yet firms keep doing it. The basic explanation appears to be that close proximity to workers in other firms increases productivity of workers in your firm. Of course that just raises more questions about how that works, but there is a whole literature devoted to trying to figure that out.

[BrianTH]

Originally Posted by PeterRabbit

How irrevelent is this? Crap lady in Bloomfield stops Don Allen corner development because it would be too dangerous for her daughter to play in the alley due to all the anticipated traffic, plus it blocks her view to Mars, Saturn and Shadyside? City council agrees and chases another developer away.

That was indeed a frustrating little episode, but my sense is that the project will probably be restarted once the economy picks up.

[Drover]

Originally Posted by BrianTH

That was indeed a frustrating little episode, but my sense is that the project will probably be restarted once the economy picks up.

If there isn't enough momentum for this development when it's most needed, what would create that momentum when it's not "needed"?

[Katarina Witt]

But also again, municipal boundaries are mostly just lines on a map. The City of Denver is also an entire county, and is 154.9 square miles in size. The City of Portland is 145.4 square miles. The City of Pittsburgh, in contrast, is only 58.3 square miles. If you redrew a hypothetical City of Pittsburgh that was roughly the same size as Denver or Portland, you would get roughly the same number of people.

1/3 of Denver City/County is the airport. If you redraw Pittsburgh's boundaries, be sure to include the airport, which is not included now in the city limits. These comparisons can get kind of complicated.

[BrianTH]

Originally Posted by Drover

If there isn't enough momentum for this development when it's most needed, what would create that momentum when it's not "needed"?

My sense is the developers took this episode as an excuse to pause the process. Of course if the local community is hell-bent on stopping it, it will probably be stopped. I guess I am crediting them with more sense than that.