Pennsylvania Real Estate

What do these housing statistics really mean?

The media reports on the current state of the real estate market can be confusing especially for new investors or first time home buyers searching for Pennsylvania new homes. Use these pointers on how to interpret housing statistics.

New Homes versus Pre-existing Sales. New home sales are measured independent from pre-existing home sales so listen carefully to the media reports citing the median or average cost of homes. If you are a first time home buyer searching for affordable Pennsylvania real estate then the "resale" or existing home market may be a better alternative compared to higher priced Pennsylvania new homes.

Seasonal Adjustments. Some states are impacted more by weather than others. For example, Florida, Nevada and California often have warm winters and suffer less from cyclic weather variations in sales data. Pennsylvania real estate is heavily influenced by seasonal variations so plan accordingly when buying or listing property for sale in Pennsylvania. Few people want to move in the middle of winter so prices may be lower than during the spring and summer months. To compare seasonal trends it is necessary to use year over year data rather than monthly sales numbers.

Monthly Adjustments. Many housing reports provide statistics on the cost and number of houses sold from month to month and from year to year. Always compare both in order to fully understand the economic and specific data under consideration.

State and Local Areas. Recent media reports cite large downturns in new housing as well as falling prices and sales but a closer look reveals the changes are not uniform. States like Florida, California and Nevada that experienced excessive building and rapid price increases are now falling faster in price and number of homes sold while other parts of the country hold steady or continue to experience small gains. Real estate is local so the most important consideration when considering Pennsylvania homes for sale is to work with someone who knows and understand the local market.

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What does an 'average' mean?

Reading real estate related data can be informative but it requires careful consideration to what is actually being said. One of the most frequently used measures in real estate related data is the "average". For example, the "average" number of Pennsylvania new homes sold or the "average" cost of houses for sale in Pennsylvania but what does this really mean? Here to help is a quick tutorial on how to properly interpret real estate averages.

Mean. The "mean" is what many people think of when using the term "average". For example, if we were using the mean to determine the average price of a home we would add up the selling price of each home and then divide by the total number of homes sold over a given period of time. Let's assume we had three houses; one sold for $120,000, another for $140,000 and a third for $225,000. In this case the mean selling price would be $161,660.

Median. Another type of "average" used in real estate data is the "median" or middle number. Using the same example from above, our three homes would be listed in order from lowest to highest with house number one selling for $120,000, house number two selling for $140,000 and house number three selling for $225,000. Using the median price the average selling price would be $140,000...over $21,000 less than the "mean" average!

Mode. The final type of "average" used in real estate related statistics is the mode. The mode is simply the number repeated the most often so for example, if there were ten houses that sold for $140,000 and one that sold for a million then the mean and median would be skewed higher due to the one very expensive home. By taking the "mode" we would then learn that most homes were sold for much less.

When reviewing real estate related information, always look at the exact type of "average" being used or obtain raw examples to run your own calculations. It is especially helpful when obtaining appraisals and negotiating property!

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What is leverage and how does it work?

From Philadelphia condos to pre-existing Pennsylvania real estate the magic of leverage still makes real estate a solid long term investment. Leverage is the ability to make a relatively small amount of money turn into a much larger amount of money or equity through the use of responsible borrowing.

For example, let's assume you had $20,000 to put into the stock market or real estate. If you put the $20,000 in the stock market and it made a 5% gain then your return on investment or ROI would be $1,000.

If you put the same $20,000 toward the purchase price of a $200,000 home which appreciated at 3 percent then the house would be worth $206,000 - a gain of $6,000 on your initial $20,000 investment or 33% versus only 5% in stocks or bonds. In addition, depending upon the type of property and your individual tax situation there may be substantial tax incentives available to owning real estate.

The proper use of leverage is one of the most well known ways to build wealth when used responsibly. Always calculate the anticipated ROI when evaluating any potential investment including the purchase of Pennsylvania real estate.

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What should I look for in a pre-settlement walk through?

Before closing on new homes in Pennsylvania it is customary for the builder and buyer to do a final inspection or "walk through" before the property is transferred. As a buyer this is a very important time to bring up any concerns or have adjustments, repairs or other issues addressed.

A properly performed pre-settlement walk through should inform you about:

1. Proper operation of built-in systems or other components of the home.

2. Maintenance and warranty information on appliances, products and services that come with the home.

3. Community associations, expectations and other pertinent information.

In addition, take time to carefully inspect the quality of the workmanship as well as confirm that work has been completed. The following are some of the more common areas of concern:

1. Lawn, grass and shrubs are completed and healthy. Grounds are clean and free of debris.

2. Gutters, flashing and other trim is fully installed.

3. Drainage inside and outside of the home is fully operational with no signs of erosion or leaks.

4. All appliances, drains, faucets and fixtures have been tested to be in full operational order.

5. All doors and windows are securely installed and functional.

6. The interior and exterior of the home is fully painted including trim.

7. There are no scratches on flooring, appliances, walls or other areas.

8. There are no visible cracks, seams or indications of problems.

9. The certificate of occupancy has been granted.

10. All warranty information is complete in the owner’s name.

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What are some common housing indices and/or real estate related index?

Investors and other residential Pennsylvania real estate buyers are probably familiar with financial indices since they are reported on the nightly news, business magazines and newspapers. Relatively few people are aware of housing indices used to measure the real estate market. Below are some of the more popular real estate related indices compiled by the National Association of Home Builders with the type of information to be obtained.

MCMI and/or MRMI. The Multifamily Condo Market Index and the Multifamily Rental Market Index track the relative strength of the current and future progress in the multi-family market.

NAHB - HMI. The National Association of Home Builders Housing Market Index tracks single family residential housing on a monthly basis throughout the nation.

RMI. The Remodeling Market Index is the place to search for information on the do-it-yourself and rehabilitation market.

HOI. The Housing Opportunity Index compiles reports on metropolitan areas related to affordable housing as compared to employment, earnings and other economic trends and data.

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What is affordable housing and how do I qualify?

First time home buyers searching Pennsylvania real estate listings would do well to look into affordable housing programs designed to make buying your first home a reality.

Affordable housing is a term used by HUD (Housing and Urban Development) to indicate programs designed to help households with incomes below 80 percent of the Area Median Income (AMI). Many families who work full-time but in lower wage occupations or with only one wage earner in the home may find they qualify for special programs designed to assist first-time home buyers with a down payment, special interest rate financing or other programs.

To determine if you might be eligible for assistance, contact your local real estate agent or Department of Housing and Urban Development.

To see a list of income limits for each state including Pennsylvania visit: http://www.huduser.org/datasets/il.html

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What local trends impact the purchase of real estate?

Understanding the big picture in real estate is a good idea but it doesn't help the average home buyer interested in investing or purchasing Pennsylvania real estate. Since all real estate is local, the conditions between Philly real estate versus other areas can change dramatically. Understanding what to look for can help you spot a bargain when evaluating Pennsylvania property listings.

1. Growing or declining population. Ask your real estate agent or obtain information from the government for the state, city and individual zip code for the area of interest. A growing or stable population is desirable.

2. Owner versus Rental. Find out how many homes are owner occupied versus rental homes in the area. Rental home areas tend to be more affordable.

3. Vacancy rates. Areas with low vacancy rates tend to be highly desirable due to convenience and other factors.

4. Size. Typically the three bedroom, two bathroom home remains the most desired size for most Pennsylvania real estate listings but in some areas, condos or other small apartments might be preferred especially for older retirees. Likewise, areas with families may find a four bedroom in high demand.

5. Housing Supply. Every area of the country has data on the number of houses versus the population of the area so just ask your real estate agent for information on the zip code in question. Remember, the law of supply and demand says that those areas with the highest demand will retain their value the best.

6. Demolition & Renovation. The number of homes undergoing renovation can be strong predictor of future growth including those under demolition. When the land or property underneath a home becomes more valuable than the house itself, it is often more cost effective to demolish the house and rebuild. Be careful of areas with demolition isolated from renovation as it may indicate a depressed local market rather than one of potential. Work closely with a real estate agent who knows the local market well.

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