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The Mysteries of Pittsburgh Real Estate

Disaster fails to strike local housing markets; experts surprised

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Unless you've been living under a rock -- or in a nice rental property -- you probably know that the housing market is in a tailspin everywhere.

Everywhere, it seems, except Pittsburgh.

"U.S. home prices continued to plunge in April," screeched a recent business-news headline. According to one well-regarded index, in 20 cities around the nation, prices dropped that month by more than 15 percent from the previous April.

In Pittsburgh, though, prices held steady. RealSTATS, a firm that tracks property sales in southwestern Pennsylvania, reports that in the Pittsburgh region, housing prices dipped only slightly from April 2007. With a median price of $112,000, homes were selling for more than they had two years before.

"We heard that there was a recession, but we decided not to participate," one industry professional joked in the report.

"I think a lot of times people hear the national headlines, and they don't realize it's a different story here," agrees Chris Briem, an economist and numbers guru at the University of Pittsburgh. "Right now, our real-estate market doesn't look like elsewhere."

For one thing, foreclosure rates are far lower: In early 2008, for example, the number of foreclosures nationwide more than doubled over the year before; in the Pittsburgh region, the number of foreclosures dropped slightly.

The question is, why? Why has Pittsburgh, which has been a poster-child for post-industrial decline, avoided the collapse that has stricken so many other areas?

After all, Pittsburgh's Rust Belt sister-city, Cleveland, has some of the highest foreclosure rates in the country -- and the communities affected include prosperous suburbs. And Briem says "there's something very strange about why western Pennsylvania -- it's not just Pittsburgh -- looks so different from Ohio. Their foreclosure rates are near the top, and we're near the bottom. I don't think it's fully explained."

Among the potential explanations: differing amounts of regulatory oversight on shady "subprime" mortgage lenders, or cultural differences that make Pittsburghers more conservative than, say, people willing to gamble on a new home in Vegas. And as is often the case around here, some of Pittsburgh's advantages are actually the flip side of disasters that took place a quarter-century ago, during the collapse of the steel industry.

Pittsburgh has some of the oldest housing stock in the country -- some 60 percent of homes in the city and 31 percent of homes in the county were built before 1940, according to the 2000 Census. Some of that housing stock has been abandoned as the population has shrunk. So in the region's depressed areas, you can buy whole homes for less than the cost of the average down payment. "Some property values are so low that the banks don't even bother to foreclose on them," Briem says. "We have whole neighborhoods that are vacant and abandoned."

More broadly, one reason housing prices haven't collapsed is because they never really rose that much to begin with.

"Housing markets in Pennsylvania typically lag behind national markets," explained a Pennsylvania Association of Realtors report early this year. "[P]rices in Pennsylvania never increased as much as they had in neighboring states ... or in the ‘hot' markets of Florida, California, Nevada and Arizona." And so, the Realtors assert, there's no reason to think they'll decrease that much either.

To be sure, real-estate agents have a vested interest in having a sunny outlook, and Briem warns that if the economy worsens, local homeowners will be hurt too. Pittsburgh isn't immune from some of the broader problems in housing: According to the Keystone Research Center, in struggling parts of Allegheny County, upwards of 60, 70 or 80 percent of the mortgages issued in recent years have been of the dreaded "subprime" variety.

In more prosperous communities, meanwhile, suburban sprawl has been a problem; new housing has sprung up even as population has declined. According to RealSTATs, the Allegheny County communities with the most new housing construction in recent years have been the far-flung suburbs of Pine, South Fayette and North Fayette. And as gas prices have increased, developers have been scaling back their plans to build more housing in the hinterlands.

And sales activity is slowing. RealSTATS reported that in May of this year, the number of home sales dropped by more than one-fifth from the year before -- the 15th month in a row to witness such a decline.

Yet weirdly enough, the price of those homes increased, by 4.7 percent, in the same period of time. Ordinarily you'd expect prices to drop alongside sales volume. RealSTATS calls this "Pittsburgh's paradox," and seems so befuddled by it that it began a recent report on home sales by invoking Led Zeppelin lyrics. "California sunlight, sweet Calcutta rain, Honolulu star bright -- the song remains the same," the report began, quoting the band's 1973 song. "We might as well add the words ‘Pittsburgh real estate.'"

Still, RealSTATs Vice President Daniel Murrer accentuated the positive. While longer turnaround times offered more choices for buyers, he noted in the report, "[P]atience is paying off in the form of higher prices" for sellers.

Or, as noted real-estate expert Robert Plant would put it, if you've got money to invest, Pittsburgh might be the place to bring it on home.

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