Another Fine Mess They’ve Gotten Us Into

As you know if you are a reader of this column, I am having a very difficult time understanding what is happening to us here in the metropolitan Pittsburgh area as it relates to our real estate markets. It strikes me that we are a victim of the broad brush approach to real estate employed by the national media. Up until now you have had to endure my ranting, as I’ve tried to make the point that Pittsburgh and its real estate markets are a breed apart from the rest of the nation, yet we struggle with similar concerns, mostly as a result of fear and ignorance. It has become to a large extent a self-fulfilling prophecy.

Recently I had the opportunity to sit down with Tom Hosack, president of Northwood Real Estate Services and discuss matters affecting real estate in our hometown. Northwood is one of Pittsburgh’s largest real estate firms with 35 offices, employing nearly 1,000 real estate agents and brokers in western Pennsylvania and Ohio.

We share many similar concerns when it comes to Pittsburgh real estate and perhaps the largest issue has to do with consumer confidence. Tom mentioned that the national media took a local problem for folks in Florida, Texas and California and made it a national issue. The problem of rapidly escalating values followed by a subsequent collapse was isolated to a few locations around the country, but due to the size and notability of those markets, they became the focus of a national frenzy.

When I consider the problem of consumer confidence, I usually think in terms of buyers being unwilling to take the plunge until they feel more comfortable, but Tom pointed out that sellers’ confidence is as large a matter. “The markets are suffering from a lack of quality listings,” he explained, “as the result of sellers not being confident that they will be able to sell the property for a fair price.” This is absolutely the result of being misinformed by the nightly news. Local multi-list statistics confirm that the majority of our local markets are actually gaining in value.

Emboldened by reports of a buyers’ market, Pittsburgh home buyers use the reports like a club in negotiations. “Buyers are definitely expecting to make a deal when they find a home on which they would like to negotiate,” Hosack said.

“A lot has been made of the foreclosure issue and its downward drag on value,” he added, “but Pittsburgh has been coping with foreclosure for years, so the effect has been pretty much factored into our markets.” That is not to say that foreclosure isn’t a serious concern, it is just not a new and startling turn of events impacting our values in a major new way.

Tom finds himself in agreement with former Senator Phil Gramm when he comments on our ‘mental recession,’ at least as it applies to local real estate. We have talked ourselves into this by listening to the uninformed. There is really no good reason for us to be experiencing anything but another vibrant market—rates are still historically low, local employment is stable, mortgage money is readily available and there could be an adequate supply of homes available, as well as qualified buyers to buy them. It is unfortunate that circumstances have been influenced by factors other than the facts.

As of this writing, the president has signed the new housing bill so a flood of new safety nets are coming our way. Fannie Mae and Freddie Mac have been protected and first-time home buyer tax incentives are being put into place. The elimination of programs like the down payment assistance programs (DPAs), which put a large segment of government-backed mortgages in jeopardy due to the equity void they create, have been instituted – all this and more are being deployed to cure ills and boost confidence.

New FHA mortgage limits are being initiated to allow more buyers to take advantage of the low down payments offered by these programs. At the same time, lenders can have the peace of mind of knowing that their risk is being backed by the government.

The fact is, today one can obtain a $327,500 mortgage on a single family home in southwestern Pennsylvania requiring only a three percent down payment for a 30-year fixed rate of about 6.5 percent, while at the same time securing six percent seller assistance toward the settlement charges. Sweet! So what’s the downside? There isn’t one. If we lived in Florida, we might have to worry about future loss of value, but as long as we all stay here, that won’t happen.

So here’s a thought: turn off your TV, read a good book and go buy a house. It’s the safe thing to do!

Gary Straub is an independent real estate consultant who has been a real estate professional for 36 years.