Optimists to the Rescue

Despite turbulence in the real estate market, Bucks and Montgomery counties navigate through the storm.
By Angelina Sciolla

“Real estate agents are the most optimistic people in the world,” says Nancy Bousum, a 30 year veteran of the industry. “They have to be. If you have any other kind of attitude you’re not going to do well in this business.”

Bousum, an agent with Kurfiss/Sothebys, sells properties in the New Hope-Solebury area, where the price of a home can range from $1.5 up to $7 million. That will get you at least 1800 square feet of a–very likely–picturesque historical
Bucks County abode with all the modern updates and an acre of land.

One might say in this current market, Bousum has every reason to be a pessimist. The affluent Upper Bucks County region that also includes Tinicum, Springfield and Durham townships, experienced a significant drop in sales since 2007 (although that is slowly changing). Often sellers have had to reduce their asking prices several hundred thousand dollars and the average days on the market for houses in this area have increased from 96 days in 2006 to 172 in 2008.

And yet there may be a touch of hope amid the crush of statistics that support a stagnate environment for sellers and agents. Higher income homeowners in New Hope have been affected by the Wall Street downturn just as their mid-income neighbors in Levittown or Warminster, often due to shrinking 401k funds and layoffs at big investment houses. Some may argue that wealth doesn’t always trickle down, but economic hardships often do trickle up.

In the first quarter of 2009 Bousum reports a tiny but noticeable increase in the number of New Hope homes under contract. And more potential buyers are following.

“I am seeing listings get shown a lot, this past month,” she says. “Things are starting to go under contract more than they have been, in dribs and drabs, in the upper price ranges.”

While this doesn’t necessarily suggest a quick turnaround in the market, it does help sustain the real estate agent’s reason to believe. Buyers are driving the market right now and with credit beginning to flow a little easier, they are taking advantage of lower prices and unprecedented low interest rates. As buyers ever-so-slowly absorb housing inventory, demand will creep up as well. And, hopefully for sellers, the prices too.

The rise and fall of the real estate market in the U.S. has been headlining news for over a year now and the “how-we-got-here” conversation is akin to falling down the rabbit hole. There were many factors leading to the real estate bust. We’ve all heard or read about them by now. And as you dig deeper (or fall deeper) into the causes and culprits, there is plenty of blame to go around.

Now the focus seems to be shifting to how to get out of the hole.

In the Philadelphia region, that may not be too hard a climb. Although by no means untouched by the real estate downturn, Philadelphia and its suburbs remain–relative to more depressed areas such as Miami, Las Vegas and Southern California–stable. While Philadelphians often express insecurity about their town being characterized as second-tier, it may pay to be in the shadows. New construction, carefully zoned in Philadelphia suburbs, never reached excessive volume. A densely populated downtown meant that the city itself did not fall prey to overbuilding and a perilous number of property vacancies. In fact Philadelphia has the nation’s third lowest vacancy volatility. Moreover, only 7% of area homeowners sold for a loss in 2008, according to real estate tracking source Zillow. The national average was 24%.

Philadelphia also outshines its more glamorous counterparts for another reason. While this region has been hit with a slight increase foreclosures, the national figure for homes with negative equity has been 14.3%. In the Philadelphia area it’s been 9.3%.

The other stabilizer for the region is the job market. Many foreclosure-hit communities are also burdened by high unemployment rates. In our region, the unemployment rate has not inched much higher than 7%, below the national average. The availability of work in healthcare, pharmaceuticals, and education certainly attracts potential homebuyers, including first-timers with families as well as sizable pool of single professionals. With dozens of hospitals, universities and the well-traveled “Pharma Corridor” along Route 1 in central New Jersey, the Philadelphia suburbs offer opportunities and relative job stability.

The question “have we hit bottom yet?” is asked ad nauseum. And no matter how many times you ask, no one, not even a seasoned real estate pro, can say for sure. Yet, in November, 2008, the Philadelphia Inquirer shared a promising statistic for Bucks County homeowners. The paper reported that, according to Trend Multiple Listing Service, the average price of home sold in the county rose from $340,800 in the second quarter of 2008 to $359,000 in the third quarter. Offsetting that good news, however, is the number of homes sold, which dropped from 1,652 to 1,300 between the two quarters.

That may also be because buyers, who can pick and choose from an increase in housing inventory, are taking more time to make their decisions. The days of immediate offers, fueled by low interest rates, inflated prices and a highly competitive market are over–for now at least.

“The faster this glut of inventory is bought up, the faster prices will stabilize,” according to Paul Augustine of REMAX in Jamison, PA. He works mainly in the Warminster/Hatboro/Horsham area and, though he acknowledges a bit of a slide in the market, things don’t look too bad from his perspective. Augustine is a superior example of real estate agent optimism, and shares that frequently at his first time homebuyer seminars. He said that this region is one of the strongest in the country.

“That,” he says “happens historically.”

There are a number of reasons why, according to Augustine. Again, it’s the job base. “The foreclosure marketplace was also connected to the loss of jobs. We didn’t see our unemployment rate go up significantly.”

Location plays a role as well.

“It helps that we are situated between big cities like Philly, D.C and New York,” he says.

Furthermore the median home sale price in his area of operation never reached nearly irrational levels of inflation, therefore remaining affordable.

The aftermath of the bursting bubble can be seen in Warminster, even though he notes the distressed property inventory (foreclosures) is low in this area. Augustine shared one very important statistic that shows the decline in the market and the resulting advantage to buyers.

In 2006, the average home sale price in the Warminster/Hatboro area was $313,620, with the average days on the market at 42. Three years later, as we head towards the end of the second quarter of 2009, the average sale price has been $270,368 with houses staying on the market an average of 85 days.

But optimism, particularly in such distressed times, is often measured in small achievements or “baby steps” as one might say. Augustine even ventured to say that the market is near the bottom. But Augustine sees this as a cycle, like any other.

“If you look back,” he says, “you have a period of appreciation followed by period of depreciation and then we move back to appreciation. It’s usually not as extreme as during the bubble, but that’s how it goes.”

Augustine also noted that there is six months of inventory now in his area, versus 8 month’s worth in 2008. Low prices and seller incentives including assistance on closing costs and more willingness to negotiate make this a pioneering time for the brave investor looking for a first home, next-phase-of-life home, or even income properties. Not unlike a department store overburdened by stock and slow sales, the real estate market begins its revival at the discount rack. A modest first purchase can lead to more, particularly if the initial transaction is a satisfactory one. Confidence in the product, the brand or the vendor builds and ultimately brings the market to a sustainable, equitable, and profitable place.

Keith Reilly of Prudential Fox Roach notes that the market is most favorable to the first-time homebuyer. Inventory, price, low interest rates and the availability of FHA loans, which are more easy to qualify for than conventional loans, may allow the first-timers to help reinvigorate the real estate market.

Reilly’s region of interest includes areas Levittown and Northampton Township (Newtown). Like Augustine, he notes a similar price decline from 2006 to 2009, but remains bullish about the two areas mentioned above.

“These neighborhoods are first-time homebuyer friendly,” he says. “In the fourth quarter of 2008 Levittown saw a 7% rise in home sales. Northampton Township was up 8%, largely because of the inventory of condos and townhouses.”
Nationally, new construction has taken a hit and that is no different in Bucks County. Reilly adds that the rise in sales is mostly in existing homes–with price tags amenable to families looking for that first house.

“Most in the Levittown area are single family homes,” he notes. “In Levittown a four bedroom, two bath house goes for an average of about $195,000. In Northampton Township the price is about $210,000 for a two bedroom condo.

Both areas also have the advantage of being within two highly-regarded school districts, Pennsbury and Council Rock, respectively.

Reilly says that first-time homebuyers are the “target,” particularly with low interest rates and the $8,000 tax credit incentive. New home buyers also can apply for FHA mortgage loans that require minimal (3%) down payments.

Since this is clearly a buyer’s market, sellers have to be good marketers, willing to negotiate and get their homes appraised. Reilly notes that some sellers, trapped by low equity in their homes, are reluctant to budge from asking prices, but with such a competitive market, many sellers have adapted and become more educated. Reilly has seen houses in his area go on and off the market more quickly and adds that anything under $300,000 is selling fairly well.

“We’re not going to see prices like this again,” Paul Augustine affirms. “The opportunity is out there and the people who buy now will be thanking themselves in year or so.”

As for the more affluent and seasoned buyer, Nancy Bousum offered a promising statistic for sellers hoping to unload their million dollar Bucks County maisons. In 2007 there were five sales at 1.4 million in the Solebury area and in 2008 there were six with an average price of 1.9 million. Small achievements build into significant ones and every sale, no matter how big or small, is a step in the right direction and a reason for optimism among everyone involved.
Paul Augustine will be conducting a first-time home buyer seminar on May 30th at 10 AM at his office in Jamison, PA. Seating is limited and can be reserved by calling (215) 565-5335 or emailing Paul at paugustine@comcast.net.
Keith Reilly can be contacted at www.KeithReillyRealEstate.com.
To contact Nancy Bousum, visit www.sothebysrealty.com.

Angelina Sciolla lives in Philadelphia, PA.