Housing Continues to Rebound

Three metrics that reflect the health of the housing market continue to be increasingly positive in metropolitan Pittsburgh over the past six months.  The volume and average price of home sales, as well as the amount of new construction are all trending towards a robust recovery in home construction through July.

Both RealStats and West Penn Multi-List reported another month of double digit increases in home sales, the six month of double digit growth, which pretty well confirms a trend of accelerated home sales. Prices for homes also jumped by a double digit rate again. This data supports the anecdotal evidence of growing multiple-offer sales on existing homes. Because of lingering mortgage qualification problems, however, the shortage of homes to sell (which is what is driving the pricing action) isn’t triggering a new construction boom. Even though new construction could be a relief valve for the supply, the financing conditions aren’t allowing demand to surge like it should after being pent up for so long. Lenders are indicating that conditions are starting to change but they also warn that some of their discretion has been blunted by the federal regulations that followed the mortgage crisis.

Even with a tougher borrowing climate dampening demand, new construction is still up.  New construction in July was up 27%, with new single-family detached units up 70.4% over July 2011. For the first half of 2012, the housing market in metro Pittsburgh was up 12% year-over-year, so July’s results are indicating an acceleration of the trend. More than any year since 2007, the fall selling season will be an important indicator of the 2013 market.

Aside from the short term trends, there are a few factors that should be followed to understand how a housing recovery will unfold. One significant limiting factor will continue to be financing. As banks have firmed up balance sheets and become more competitive in lending, the Fed and Congress have added or strengthened regulation. This will dampen demand to some degree for several years. Also hindering a recovery is a shortage of lots. Several thousand buildable lots exist in the metropolitan area but the inventory could be wiped out with one ‘normal’ year of 5,000 new construction units. The dynamics of residential development aren’t making that shortage go away any time soon either.

On the plus side is the natural gas industry’s coming demand. In 2012 it’s impossible to judge how many permanent jobs and homes will result from the maturation of the industry and its downstream industries, but there are indications that the heavy hitters in the business are afraid of a housing shortage as early as 2015. As part of their due diligence for a decision to build an ethane cracker, Shell is studying the housing options in and around Monaca. There are reports that Shell is investigating the availability of rental housing and viability of new rental construction so that they can budget the housing of construction workers into their plans. At least one option being pursued is the offer of a flat – but generous – rental rate per person for an extended lease. If that option is indeed true and viable it could spur thousands of units in new construction. Remember that Shell estimates it will take 10,000 workers to build the plant and its related facilities.

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