Last year was a good year for residential real estate in the Pittsburgh region as a whole, but two of the hottest areas of the city for price appreciation and sales were Lawrenceville and East Liberty, said Howard “Hoddy” Hanna III, chairman and CEO of Howard Hanna Real Estate Services.
“You’ve got people working Downtown moving to Lawrenceville because Lawrenceville is so convenient,” Hanna said, adding that thriving restaurants, shops and jobs created on the east side of the city have helped drive a shift in home buying patterns and preferences.
“For years, it was hard to get somebody who was working at Pitt or the hospitals to go to Highland Park because they would rather stay on the other side of East Liberty in Point Breeze or Squirrel Hill or Regent Square,” he said. “Now people are flocking there because, compared to going to Squirrel Hill, you’ve got good values in East Liberty and Highland Park.”
Home values in Lawrenceville have nearly tripled since 2000 from an average $46,000 to $130,000 in 2014, according to RealStats, a South Side-based real estate information service. Residential real estate prices in Lawrenceville rose 8 percent annually over the same time period.
Average home prices across the region increased 3.2 percent annually since 2000, according to RealStats.
Hanna, whose Howard Hanna Real Estate Services in O’Hara calculates that its 171 offices in eight states make it the nation’s fourth largest real estate company, is optimistic about real estate both locally and nationally this year, too.
That’s largely because consumer confidence in the country has improved but also because, despite what the Federal Reserve has been hinting, Hanna does not believe long-term interest rates will make any dramatic moves higher this year.
First-time buyers
Still, the industry would like to see a return of the missing first-time home buyers.
The Mortgage Bankers Association in Washington reports mortgage applications across the board were down substantially last year. Lenders approved an estimated $1.12 trillion in mortgages in 2014, but that figure is off 39 percent from a year earlier and the lowest amount since 1997.
The majority of mortgages are going to existing homeowners refinancing to get lower interest rates. Demand from new home buyers has been low compared to historical norms.
It’s a national issue, but also a regional one. Hanna said 28 percent of all home sales at Howard Hanna Real Estate in 2014 were first-time buyers. Traditionally that number is 43 percent to 47 percent of the overall buyer mix.
Hanna blames the decline, in part, on lending policies that have made it more difficult for first-time home buyers to get loan approval, following Dodd-Frank reforms put in place following the mortgage crisis in 2008.
But there are other issues at play, as well, he said.
“I think there are three or four factors for why first-time home buyers are down,” he said. “It’s harder to get a mortgage, especially for that first-time buyer buying with a minimal down payment.
“The second factor is the millennial buyer. The person 22 to 35 is saying to themselves they’re not going to be in the same job like their father was. They’re not going to be in Pittsburgh or Denver the rest of their lives. They want to be flexible.
“The third factor is I think a lot of millennials in the recession saw their parents lose money on their house and they get a little apprehensive wondering should they invest in a home.”
Despite rapidly rising prices in Lawrenceville and other communities on the East End, Hanna does not believe the market is heating up so fast that it is vulnerable for a fall.
“Not if we continue to grow by 3 percent or 4 percent,” he said. “In 2014, our numbers show a 3.5 percent increase in pricing in the Pittsburgh metro area. Lawrenceville is in the 6 percent to 8 percent range.
”If we had 10, 11 or 12 percent increases three or four years in a row, I could see that to be a real problem. But we haven’t seen that in any of the markets that I know of.”
Apartment bubble?
One trend that will affect the region’s real estate market in coming years is the growing number of new apartment houses that come with steadily escalating rents. Hanna said 1,600 apartments were started in the city of Pittsburgh last year and those units are renting for $1,500 to $2,500 a month.
“If I looked and saw where I thought the bubble might be, I think it’s going to be apartment buildings,” he said. “The rents that we are seeing are not Pittsburgh rents.
“When you factor in that you can buy a quarter of a million dollar house with less monthly payment than you could rent an apartment, it just doesn’t make any sense.”
The share of apartment units in the Pittsburgh region has been climbing for the past two years, according to Jeff Burd, president of Tall Timber Group, an information service for the construction industry based in Ross.
In 2014, the number of apartments started in this region totaled 2,138 versus 2,734 single family homes, cluster homes and townhomes. In 2013, there were 2,925 new apartments constructed out of a total 6,002 new homes, or just under half of the total.
Keefe Ellis, a partner and managing director of Langholz Wilson Ellis, a Downtown-based commercial real estate broker, said there doesn’t appear to be any slowing down when it comes to apartment building.
He said Mosites Co. is building 360 new apartment units between Highland Avenue and Penn Avenue in East Liberty. He said another developer has 400 apartment units planned for property owned by the Buncher Co. in the Strip District.
“Some of the magnitude of what some people are doing, I think you’re going to see something in the form of a bubble. That’s what some of the experts are saying,” said Ellis, whose company last month merged with the commercial arm of Howard Hanna. The merged company is known as Hanna Langholz Wilson Ellis.
"Rental rates for new construction [apartments] have hit all-time highs in the greater Pittsburgh area," Ellis said. ”It’s a trend we on the commercial side have seen escalate.”
Builders might want to consider targeting the empty-nesters and right-size buyers. Another trend Hanna noted is the growing number of retirees and senior citizens looking to scale out of their big houses and transition into condominiums or cluster homes.
“Traditionally they like to stay in neighborhoods they come from,” he said. “Usually they want a new condo or townhouse or cluster house. One of the things we’re seeing is there’s such a shortage of new product, they are willing to move outside of where they are living to find the right product.”
That can be an opportunity for condo owners ready to move into something larger, too.
“We’re seeing a lot of times if people have a 10-year-old condominium, if they do it over before they sell it, they can get big dollars for it because there is demand for it. That same buyer doesn’t want to come in and have to remodel. They want it all decorated and done for them.”
©2015 Pittsburgh Post-Gazette. Distributed by Tribune Content Agency
