The news from the financial and housing industries since last summer has been pretty gloomy. If all this ado about sub-prime mortgages and housing price declines has you a little anxious about buying a new house right now, you’re not alone. Much of the falloff in housing starts nationally is due to the understandable caution of most buyers in reaction to the bad news. But if you think about the market in the right way, all that bad news should make your mouth water.

In fact, right now is one of the best times to buy a new house in metropolitan Pittsburgh in recent years. If that sounds crazy, take a closer look at what’s really going on in the market.

Be a contrarian
Whether it’s the housing market or the stock market, most traders or buyers don’t want to be leaders, out of fear of failure. That’s why your broker usually recommends stocks that have already appreciated somewhat, and encourages buying in a market that is going up. Likewise, most potential homebuyers feel more comfortable looking for houses in a good market, when appreciation is obvious, and the chances of a rising tide raising all boats is great. This kind of market condition feels safe because everyone else seems to be buying too, and the market feels like it is validating your wisdom.

But the biggest winners in any trading market (including real estate) are the ones who buy rather than sell on a decline. The fictional Henry Potter had enough patience and capital to wait out the temporary bad news, and he was buying cheap ahead of the turnaround. That kind of behavior wasn’t fictional, of course, and many shrewd buyers took advantage of the fire sale conditions of the Great Depression (and any other recessions for that matter) to get positioned for the appreciation that eventually, and inevitably, followed.

Today’s housing market is a long way from the disastrous conditions of the Depression, but there is enough softness in the market to create opportunities for those willing to swim upstream a bit.

Another very good reason to look at the current conditions as appealing is that the investment in a new single-family house has a longer term horizon than most other investments, and buyers can afford to ignore or downplay any downturns in the short term. Even if you intend to move after a few years, market conditions will be very different from when you bought. As a buyer, that sort of understanding can be very liberating. With an objective of buying a house that will appreciate over the long haul, your goal as a buyer can become identifying an opportunity to purchase a new home when conditions yield the best price. Cyclical downturns, like we’re experiencing now, represent the best time to buy.

Builders and realtors in Western PA realize that the housing cycle is approaching the optimum time to buy as 2008 begins, even as they seem to recognize why buyers may not feel
the same.

“If the wife wants to trade up to a bigger house but the husband keeps seeing bad news on TV and in the papers, it’s natural that they might get scared off,” reflects Michael Kamon, partner in North Hills based Signature Homes. Kamon says he encourages people thinking about buying new construction to realize how good the market is for buyers, with low rates and motivated builders. “If someone wants to bargain a little he’ll find the builder is willing to make a deal to reduce inventory, maybe a better price or more options.”

Time is of the essence for those seeking to take advantage of the softer conditions to get a little more house for their money. Homebuilders in metropolitan Pittsburgh have been slowing their new construction for the past year to keep inventories under control. In a market like Pittsburgh’s, where the housing market is beginning to recover and economic fundamentals are strong, bargains may not last long. “The first buyers will get better deals and more options than the ones who come by later in the year,” said Kamon.

The feeling that buyers should get out and start shopping seems to echo throughout the market as the winter stretches on. And some of the region’s biggest players are being proactive in spreading the message of buying while the market is slow. Howard Hanna Realty Services, the region’s largest agency, provided a kick-start to the home buying season with its “Priced to Sell” campaign in late January and early February. The program was aimed to market exclusively those homes that have had a price reduction of 10%, with special financing offered at 5.75%.

“It’s a very opportunistic time to be looking in the market,” says CEO Howard “Hoddy” Hanna. “This is a value program focusing on houses that have been reduced. We’re looking at what the market wants, at a time of year that is traditionally slow, coupled with a great interest rate. I think it’s a great help to first-time buyers.”

It’s the first-time buyer who fits the contrary approach the best. In the ebb and flow of the residential building cycle, construction of multi-family or rental units usually goes up when single-family housing declines, especially if the decline is credit driven. Housing slumps that stem from slower demand mean increased demand for rentals, and higher rents. In a market like today’s, where one of the remedies to a slowing economy is interest rate reduction, renters again find that they can buy as cheaply as renting, with the added benefits of home ownership. It may seem ironic that the demographic group that was the primary target of the over aggressive lending, which got us into this mess, will be the group that benefits from the slowdown, but that’s the reality of the market.

The New York Times real estate section, in its annual real estate review in mid-January, declared 2008 to be the year for the renter to buy a house. Michael Kamon agrees. “I think we’ll see a wake up from first time buyers because of affordability,” he says. “If someone is finding a one-bedroom apartment too small, they’ll see that they can afford a house for the price of a two-bedroom apartment.”

Building or buying a house is mainly driven by lifestyle needs rather than an urge to invest. As such, most buyers are forced to work within the market conditions that exist when the lifestyle dictates the investment. Every decade or so, however, the housing market provides an opportunity to get a great value. To take advantage of the opportunity you have to be willing to go against the tide of gloomy news and invest when others aren’t.

Housing Fundamentals are Improving Here
One of the advantages of being in Pittsburgh, however, is that the tide’s not as strong as in other markets. New construction of homes peaked in 2004 in Western PA, and starts declined (mostly gently) until the cyclical trend changed in mid-2007. Demand for new housing has remained relatively steady over the past decade or so, and so the decline has been less devastating in this region. And while the prices of new and existing homes have declined of late, appreciation has remained steady. Even in 2007, when the national market began to experience price depreciation and many markets saw double-digit declines, the metropolitan Pittsburgh market experienced just under 3% appreciation.

During the latter part of 2007, permits for construction of new houses in the region began to increase again. During five of the eight months from May through December, activity was up over 2006. And while the national volume of new housing construction was down about 28%, the market in metropolitan Pittsburgh stabilized, declining 6.5% from 2006. Pittsburgh just isn’t a market that’s subject to excessive overbuilding, so normal corrections to an imbalance in supply and demand require shorter, and less severe, slowdowns in new construction.

Because the region’s housing construction is driven by just a few national builders and mostly by custom builders doing ten or less houses per year, the effects of a national recession or lending crisis tend to be somewhat muted. More to the point, the level of new construction here follows demand for new housing closely, with the lion’s share of new homes not built on speculation. The lack of spec housing helps keep runaway appreciation and depreciation from happening, and helps explain why housing prices keep plodding higher year after year.

Median sale prices for single-family homes in Pittsburgh increased 6.1 percent during 2007, while some cities in Florida and California posted double-digit declines in sale prices during the same period, suggesting that home prices have fallen most dramatically in areas where the speculative frenzy was hottest.

While many analysts point to the lack of speculation as the reason for the region’s steadiness, Walter Molony, a spokesman for the National Association of Realtors (NAR) in Washington, DC, believes real estate values here in Pittsburgh are performing as prices would in a normal market. Usually real estate rises about one or two points faster than the rate of inflation. One of the main factors in Pittsburgh's steady growth in home values is that the median price has risen gradually over time, which helps to preserve its affordable home prices. "Our view is that the Pittsburgh area is underpriced by national standards," Mr. Molony said.

The national median existing single-family home price for the third quarter of 2007 was $220,800, for Pittsburgh, that figure was $127,700.

"You could be seeing stronger-than-average price appreciation in Pittsburgh in 2008," Mr. Molony said. "It would be due to a healthy local economy, affordable home prices, job growth and historically low interest rates continuing."

Heartland Homes, the region’s second largest single family builder, is another builder cautiously optimistic about 2008. Heartland sold more than 425 homes in 2007, up 30% from 2006, and more than four times what it was selling six years ago. Kevin Oakley, Heartland’s Marketing Director, says that his company’s management has been working to be more and more efficient, because they view the market offers growth opportunities, even if it doesn’t offer runaway regional growth. “We’ve negotiated new deals with vendors so we can offer more to buyers, and be more competitive,” notes Oakley.

Heartland is preparing for more opportunities, and is encouraged by early results. “Traffic was higher than expected in January,” reported Oakley. “We experienced more people looking and shopping, 10-15% more than last year.”

Heartland isn’t the only builder seeing an uptick in activity. Jeff Martin of Rossman Hensley, a custom builder in Richland Township, says their projects have been jumping since December. “We have a couple of developments in Richland Township, one we’re building in and one has other builders too, and the traffic doubled in December and has stayed there in January,” Martin says. “I can be skeptical of the realtors’ numbers sometimes, but we have the Internet results to back it up.” Martin also noted that Rossman Hensley’s inquiries for additions and renovations are up sharply as well.

While the national headlines may not show it, buyers seem to have become quietly curious at the end of 2007. “We saw traffic pick up in November,” noted Chris Kaclik of Kaclik Builders. “I even had calls on Christmas Eve.” Kaclik reported that 2007 was his best year ever, and expects the momentum to carry into 2008. “We have good locations and a diversity of products for the market to choose from,” he explains. Kaclik Builders has developments across southern Butler County, and also acquired Century 21 Real Estate in January 2005 to help control the process from the ground through the closing.

Chris Kaclik also thinks the increased traffic is a regional issue, believing that the calmer Pittsburgh market doesn’t give buyers reason to give in to the fear rampant in other regions. “We don’t have the big run ups like other markets. Pittsburgh just chugs along with steady 3% to 5% gains year after year.”

The conservative nature of the market also greatly reduces the amount of risk in building new here in Western PA. Even before the lending crisis hit the papers in mid-2007, Pittsburgh’s steady housing market was being recognized as the least risky of any major city. The PMI Mortgage Group, based in Walnut Creek, CA, insures mortgages and other residential financing, and has produced a study of the risk of price declines in the top 50 markets. Started in response to the growing fears of a housing bubble in 2005, the list has ranked Pittsburgh as least risky in all three years of the study.

Pittsburgh Is Getting a New Economy
While it’s not in the mainstream press as often as bad news, there is much good news about the regional economy in Pittsburgh, particularly in light of national and global events. Once a leader in manufacturing what the world wanted, the Pittsburgh region now leads in several key service industries with high global demand.

The region’s healthcare and high tech advances have been trumpeted for a decade or more, but the research and business advancement in energy and ‘green’ lifestyles are creating more and more jobs each year. In fact, the rate of job growth in healthcare and science-related careers, which pay roughly 50% more than the median, is nearly twice as high in Western PA as the national average. Those kinds of jobs grew here by more than 13% annually through the first five years of this decade, as opposed to the 7% pace nationally.

NAR’s Walter Molony said their data show Pittsburgh's continual real estate growth is driven by respectable job gains. Home prices in Pittsburgh from 1990 to 2006 have grown 62 percent. Average income in Pittsburgh during the same period rose 93 percent, he said, adding that 4,400 jobs were added to Pittsburgh's economy last year alone.

Pittsburgh’s infrastructure is also improving, and is helping to add definition to some areas of the region that are already growing. The I-79 corridor has become even more attractive as heavily traveled portions are now operating as six-lane highways, and the I-79/Parkway West interchange work wraps up in 2008. With the continued expansion and success of Southpointe in northern Washington County and the high demand for space in southern Butler County following the Westinghouse Nuclear announcement, the I-79 corridor will continue to attract a higher volume of new housing.

The region’s major east-west corridor, the Parkways East and West, are in the final stages of federal highway department approval for re-designation as Interstate 376. This change is much more than semantic, as it means that the continuous, limited access, four-lane highway that runs from the Turnpike in Monroeville to the Turnpike in Beaver, will appear on national maps as one stretch of high speed road. As Allegheny County Director of Economic Development Dennis Davin points out, “A real estate site locator in Indianapolis can’t look at a map and tell that you can go from Monroeville to the airport on one highway. The map shows three different roads, one of which, Route 60, is designated as a state road.”

The combination of great jobs, affordable housing and access to emerging technology makes Pittsburgh a great place to do business and work, a fact which is getting more notice. The Financial Times fDi Magazine April/May 2007 issue ranking of the top major cities of the future ranked Pittsburgh third overall. The Financial Times fDi, a magazine about foreign direct investment, asked a panel of judges drawn from international location consultants, corporate executives and other experts, to ranks cities in North America based on seven economic categories. Pittsburgh ranked in the Top 10 of all seven of the selection categories listed below:

Best Economic Potential
Best Infrastructure
Best Development &  Investment Promotion
Most Cost Effective
Best Human Resources
Best Quality of Life
Most Business Friendly

2008: The Year of the Rebound?
With so many positive factors working to the advantage of the buyer, the coming year will present tremendous opportunity to find a great housing deal. This year’s buyers will look back in a few years and realize they caught a great short-term window of opportunity. Getting the buyers out and looking is the biggest source of anxiety for realtors and builders as the buying season warms up.

Hoddy Hanna believes that’s all that is missing from the start of a housing recovery. “The variety of housing is great, and there are a lot of great deals out there, but we need to get people off the couch and out there looking at houses,” urged Hanna.

A look at the recent advertising by the bigger builders shows a similar attitude to Hanna’s. The region’s dominant builder, Ryan Homes, has switched its message from the ‘it’s a tough market and we can help’ to one that is focused on their continued high volume. Heartland Homes is letting the market know that it sold more homes than ever in 2007. Even newcomers to the market, like State College builder S & A Homes, are touting the positives of the Pittsburgh region.

“In the past year or so, our advertising has been focusing the potential buyer on how much we’re selling locally,” says Chris Cinker, S & A’s Regional Manager in Western PA. “We want to get the message across that we’re selling houses, and that you should come in to see why we’ve sold so many.”

Local housing market research firm, Tall Timber Group, has forecasted an increase in new housing construction of 2-5% in 2008. Such an increase implies that the fundamentals of the Pittsburgh market- availability, demand, affordability and financing- are solid, based on a strong underlying economy and job growth. That means you may not want to wait until the national economy catches up before you move on up.NH