Here's some good news to brighten your Sunday: The local housing market is showing some encouraging signs of life.
Houses that come on the market are selling much faster than they were two or three years ago. The tremendous glut of homes that were up for sale has been worked off, bringing supply and demand into better balance. Homes are selling at a brisk pace. Prices even have started to show signs that they might be edging up a bit, although it's still too early to say a trend is taking hold.
All that has local real estate executives, an optimistic lot by nature, feeling pretty upbeat. "The state of the local housing market is the best I've seen since 1992," says Peter Hunt, the president of Hunt Real Estate Corp.
But before you get too excited, here's the bad news: The residential real estate market in the Buffalo Niagara region has been so sickly for the last decade that it's recent signs of recovery are something akin to the patient whose heart has to be shocked to get it to start beating again.
The reality is that the Buffalo-Niagara Falls area has had one of the nation's weakest housing markets over the last decade. While sales have been brisk over the last couple of years as mortgage rates dropped and the region offers more jobs than ever before, that activity hasn't produced a corresponding jump in prices -- a critical component in judging the health of a housing market.
In fact, the news on the price front has been downright dismal. The median price of the nearly 9,800 homes that sold last year in the Buffalo Niagara region actually fell by 2 percent to $79,800, according to statistics compiled by the National Association of Realtors. That left the median sale price at roughly the same level that it was in 1991, meaning home prices here have been flat at a time when the real estate market nationally was booming, pushing prices across the country up by 38.6 percent. And if you factor in inflation, local housing prices actually fell by 18 percent.
Only Ocala, Fla., and Youngstown-Warren, Ohio, had a lower median sale price last year among the 122 metropolitan areas surveyed by the real estate group. In a similar survey based on median prices from the first quarter of this year, Buffalo-Niagara Falls, after a 2.7 percent jump in sale price, was sixth from the bottom.
The weak prices are troubling news because, for many of us, our homes are our single biggest investment. But, for the better part of a decade, a house in the Buffalo Niagara region has been just a place to live.
A. Bruce Wilson, the executive director of the Buffalo Niagara Association of Realtors, says the low median price is partly due to a jump in sales at the low end of the market. Homes selling for less than $40,000 have accounted for about 14.5 percent of all sales so far this year and during 2000, up from 10.1 percent in 1998.
Yet Hunt and Wilson both say they're beginning to see signs that the worst might be over, although they also see the weak Western New York economy and the steady exodus of people from the region continues to keep a lid on housing prices.
One of the brightest spots in the local housing market is the big drop in the number of homes that are up for sale, which started rising in 1993 and peaked in 1997 and 1998 before finally falling back to more normal levels this year.
A total of 5,800 homes were on the market last month, which is right in line with the number of listings back in May 1991 and 1992. But at the market's most glutted point back in May 1997, there were 47 percent more homes up for sale than there are today.
That's a tremendous oversupply -- one that is especially hard to work off when the local economy is struggling and people are moving away. It also put a big damper on prices because home buyers, knowing that there were plenty of homes to choose from, could keep their offers low.
"For some time, we weren't keeping up with the loss of population, which left us with an excess of homes," Wilson says.
But ever so slowly, the number of homes for sale has come down, thanks in part to a resilient national economy that kept inflation in check and long-term interest rates low. With mortgage rates hovering between 7 percent and 8 percent for much of the last few years, buying a house has been more affordable.
"Interest rates have been a big factor," Hunt says.
Add in a local economy that has been enjoying some of the lowest unemployment rates in its history and now provides more jobs than ever before, and there have been a growing number of buyers with the income they need to make the jump into the housing market.
That's helped push up the number of sales, which have topped 1,000 during each of the last three months and are running 1.4 percent ahead of last year's pace through May.
What's more, houses are selling faster these days -- another sign that the market is heating up. While just 30 percent of the homes sold within the first month they came on the market in May 1998 and May 1999, 44 percent sold within 30 days last month.
Still, the region's shrinking population is one of the big factors that has helped keep home prices low here. It's really quite simple: When people move away, they put their house up for sale, which adds to a supply that, until recently, has been way too big. And with people leaving, that leaves potential buyers for that house, which further weakens the seller's pricing power because demand is limited.
"Growth in population drives real estate," Wilson says. "It's been a negative driver in our market," which lost 1.6 percent of its population in the 1990s.
Another thing working against the housing market is the local economy. While it's producing a record number of jobs, they generally have been low-paying service industry or call center jobs.
Consequently, Canisius College professors George Palumbo and Mark P. Zaporowski estimate that personal income locally has grown by just 9 percent since 1990, which is less than a third of the 28 percent increase nationally. In short, we don't have nearly as much money to spend as people in the rest of the country and that makes it harder to come up with more money to buy a house.
Hunt also says the region's taxes are a big drag on housing prices because a home with a $5,000 annual tax bill adds an extra $416 to the buyer's monthly payment. That cuts into how much a buyer can afford to pay for that house.
The deep cuts in Erie County's property taxes have helped, but Hunt says local governments and school districts need to follow suit. "We haven't seen enough movement on taxes to have much of an impact on real estate values," he says.