The Year in Review: Harrisburg Housing Remains in Doldrums

The Central PA Multi-List (CPML) recently published year-end statistics for residential sales. As is often the case the statistics are somewhat contradictory. On the one hand there is good news: based on average sale price, housing appreciated 1.85% in 2010. The previous year it had depreciated 3.75%. On the other hand sales volume decreased about $132,000,000 (or 10%) and average days-on-market drifted steadily upwards to 102 days in the 4th quarter, the highest number since I started selling real estate in 1995.

From the 2nd quarter to the 3rd quarter the number of homes sold dropped 732 units. This represents a 30% change. Normally about the same number of units sell in the 2nd as the 3rd quarter. With a high degree of confidence we can attribute this abrupt slowdown to the end of the federal government’s homebuyer tax credit program on June 30th. This took away a big incentive for 1st-time buyers; much of the subsequent drop in housing sales occurred in the under-$200,000 market.

Based on the last half of the year about 485 homes are sold each month in the Harrisburg metro area. At year’s end there were 4,502 homes on the market, representing a 9-month supply of homes. A 6-month supply is generally considered a neutral market, i.e., not favoring buyers or sellers.

Already low at the start of 2010, mortgage rates trended lower throughout the year, bottoming out at 4.25% in November. Low rates help all homebuyers: arguably they provide a bigger incentive for high-end buyers than low-end buyers. This is borne out by the numbers. For the year the number of units sold above $300,000 increased 8.4%, while the number of units sold below $300,000 dropped 14%.

The 1.85% increase in the average sale price is somewhat illusory as all the other sales statistics suggest a weak, possibly declining, housing market. According to the Wall Street Journal (“Home Prices Sink Further,” January 31, 2011), citing market research by Zillow.com, declining markets are the norm in cities across the country. Home prices in Philadelphia reportedly fell 8.8% this past year.

In a declining market buyers and sellers often fail to come to terms. Homes just sit on the market or discouraged sellers pull them off the market. So rather than focus on average sale price in central PA, a better gauge is probably home inventory and days-on-market. When these numbers start to drop it likely signals a true change in market direction.

Bottom line: the Harrisburg housing market is still in the doldrums, where it has been since housing prices peaked in 2007.