Pennsylvania Real Estate Market Trends & Analysis

The Pennsylvania real estate market has been impacted by the same issues facing the rest of the country over the last ten years. Most notably, inventory shortages have driven up prices in recent history. Fortunately, improving economic conditions have enabled more buyers to actively participate in the market, but they have been met with an insufficient supply of available homes. As a result, real estate in Pennsylvania has increased in value for approximately eight consecutive years.

The Coronavirus threatened to stall the Pennsylvania real estate market in the first quarter, but the threat subsided once fear and uncertainty ran their course. In a matter of months, the government lowered interest rates to spur buying, and confidence started returning in droves. While there was a brief setback as a result of COVID-19, it was just that: temporary. Today, the Pennsylvania real estate market is firing on nearly every cylinder. Everything is in place for the state to realize its true potential except inventory. Once new listings are introduced to the market, Pennsylvania will be a the forefront of the national market.

The Top Pennsylvania Real Estate Markets

While the best real estate market in Pennsylvania is up for debate, here’s a list of the cities investors may want to pay special considerations to:

• Allentown

• Erie

• Philadelphia

• Pittsburgh

• Reading

Pennsylvania Real Estate Fees & Regulations

Real Estate

Closing Conducted by:	Title Companies, Real Estate Agents, Attorneys
Conveyance:	Special or General Warranty Deed

Foreclosure Procedure

Primary Foreclosure Method:	Judicial
Process Period:	3 - 9 months
Notice of Sale:	Sheriff
Redemption Period:	None

Taxes

Income Tax:	3.07%
Corporate Tax:	9.99%
Sales Tax:	6.00%
Estate Tax:	No
Inheritance Tax:	0-15.00%
Median Property Tax:	1.35%
Property Taxes by County:	http://www.tax-rates.org/pennsylvania/property-tax#Counties

Average Transactional Costs

Closing Cost:	$2,511.00
Transfer Fee:	1%
Origination Fee:	$1,907.00

Overview

• Median Home Value: $211,224

• 1-Year Appreciation Rate: +6.8%

• Median Home Value (1-Year Forecast): +7.9%

• Median Rent Price: $1,399

• Price-To-Rent Ratio: 12.58

• Average Days On Market: 73

• Unemployment Rate: 7.3% (latest estimate by the Bureau Of Labor Statistics)

• Population: 12,807,060 (latest estimate by the U.S. Census Bureau)

• Median Household Income: $56,951 (latest estimate by the U.S. Census Bureau)

• Percentage Of Vacant Homes: 10.78%

• Foreclosure Rate: 1 in every 12,733 (0.7%)

Median Home Prices In Pennsylvania

The median home price in Pennsylvania continues to march higher and now sits around $211,224. After nearly a decade's worth of appreciation, home values are historically high. However, it was only about eight years ago when Pennsylvania bottomed out during the Great Recession. Values bottomed out around $159,000 in the fourth quarter of 2012. Since then, prices across the entire state have proceeded to increase by approximately 32.8%.

Appreciation across the Pennsylvania real estate market was most likely the result of the same factors driving national trends: a strengthening economy, improving confidence in the housing market, and a distinct lack of available inventory. The unique combination of these factors increased home values across the country, too. On a national level, the country’s median home value increased about 40.0% from bottoming out in the Great Recession. To put things into perspective, the median home value in the United States is now $243,225.

While the Coronavirus threatened home values in the first quarter of 2020, it would appear as if the housing market is ready to move on. In fact, the Pennsylvania real estate market is firing on all cylinders, and the proof is in the home prices. Again, appreciation slowed at the beginning of the year, but several factors have come together to increase home values to historic levels. Increasing confidence in the housing sector, historically low interest rates, hopes of an impending vaccine, and a lack of available inventory have all created an impressive catalyst for buyers.

With more active buyers competing over less inventory, however, prices are expected to keep rising. Over the next 12 months, the median home value in Pennsylvania may increase by as much as 7.9% (that's right in line with national trends). Not until more inventory is brought to the market can buyers expect price increases to temper. Until then, the Pennsylvania real estate investing community should enjoy a lucrative marketplace.

Pennsylvania Foreclosure Trends & Statistics

As recently as September, Attom Data Solutions reported that "there were a total of 9,889 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — in August 2020, up 11 percent from a month ago but down 81 percent from a year ago."

Nationwide, year-over-year news is encouraging, but the latest month-over-month increase is a little worrisome. “While foreclosure activity remains over 80% below 2019 totals, there was a significant increase in foreclosure starts in August compared to July,” said Rick Sharga, Executive Vice President at RealtyTrac. It is worth noting, however, that increases in foreclosure filings were expected this far into the pandemic.

Pennsylvania, as it turns out, may have contributed more than its fair share of foreclosures. According to Attom Data Solutions, "States that posted the greatest number of completed foreclosures (REOs) in August 2020, included California (183 REOs filed); Illinois (165 REOs filed); Pennsylvania (157 REOs filed); Tennessee (144 REOs filed); and Texas (141 REOs filed)."

While Pennsylvania may have had a lot of completed foreclosures, the state maintains a relatively low distribution. With one in every 12,733 homes in some form of default, Pennsylvania's foreclosure rate of 0.7% narrowly beats the national average (0.8%).

Of the state's foreclosures, 44.8% are either up for auction or will be at some point shortly. As the overwhelming majority of distressed homes, investors will increase their odds of landing a deal below market value in Pennsylvania if they target local auctions. After auctions, investors will want to pay close attention to bank-owned homes, which make up 32.7% of Pennsylvania's distressed inventory. Again, targeting the types of distressed properties with the highest distributions across the state will increase investors' odds of landing a deal at a good value.

It should be noted that the latest month-over-month increase was expected. As we get further and further into the pandemic, the financial strain is expected to displace more homeowners. Investors should expect an influx of foreclosure filings in the coming months. While it's too soon to tell just how many homeowners will file, it's not a bad idea for investors to be prepared to step in and help. Unemployment is improving, but there's a good chance things will get worse before they get better for distressed homeowners.

Tax Lien Investing

• Tax Lien or Deed: Tax Deed state
• Redemption Period: No right of redemption after sale, except for Philadelphia on SFR if occupied 90 days before sale

Real Estate Investing In Pennsylvania

The recent history of appreciation has served investors well. Equity from homes purchased just a few short years ago has most likely made the majority of investments worthwhile. That said, homes are becoming too expensive for investors, and Pennsylvania is no exception. The latest price gains have made it more difficult to find attractive profit margins on real estate deals.

Outside of browsing the auction market in Pennsylvania, there are very few places investors may find discounted properties. That's not to say Pennsylvania real estate investors can't continue to flip homes (the absolutely can), but rather that the new housing market created by the pandemic is more suited for long-term investors. In particular, today's most prominent indicators appear to lean heavily in favor of rental property owners.

For starters, banks have never made it more attractive for borrowers to take out a mortgage. In an attempt to stimulate the national housing market, the Fed announced it would keep interest rates low to make buying a home more attractive. As recently as October, the monthly average commitment rate on a 30-year fixed-rate mortgage was 2.83%, according to Freddie Mac. At that rate, it's never been cheaper to borrow money. The lower interest rates associated with today's purchases will decrease monthly mortgage obligations. Investors who use today's rates may, therefore, increase monthly cash flow, and increase profit margins on long-term rental properties.

Investors who own rental properties will also find their assets receiving a lot of attention. With a price-to-rent ratio of 12.58, affordability buyers. However, the city's distinct lack of inventory means more people will be forced to rent (even those intent on buying). Demand for rental properties will most likely increase for the foreseeable future. At the same time, landlords will be able to fill vacancies and probably even charge more for rent in conjunction with the added competition.

Investors are lucky to have several viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor in Pennsylvania to ignore.

Pennsylvania Housing Market Predictions

The Pennsylvania housing market has done very well for itself in the last eight years. For the better part of a decade, in fact, real estate in Pennsylvania has exhibited many of the same characteristics as its national counterparts. Price increases, confidence in the market, and several other indicators are in line with national trends, but what does that mean moving forward? What can the Pennsylvania real estate investing community expect moving forward?

• Prices will increase until inventory is brought to market: Home values have increased in Pennsylvania for several reasons, but non may be more prevalent than a distinct lack of inventory. As the economy has distanced itself from the Great Recession, buyers have gained more confidence and proceeded to buy at a faster pace. However, inventory hasn't been able to keep up with demand. The resulting competition has enabled owners to increase prices for nearly a decade, and the trend will look to continue. The pandemic actually set homebuilders back, which will stall new listings from hitting the market and alleviating constraints. Therefore, it's reasonable to expect to see prices increase for the foreseeable future, at least until homebuilders can get back to where they were before COVID-19.

• Prices may increase more in suburban neighborhoods: The pandemic has lessened the need for more people to live in cities. Without the need to live within proximity to an office, in fact, more people are trading the small confines of city apartments for large homes in suburban neighborhoods. The move simultaneously gives people more room for less money. That said, the potential influx of people moving to the suburbs will increase demand, and perhaps start to raise home values.

• Scranton could receive more attention: Home values in Scranton, PA aren't as high as Pittsburgh and Philadelphia, which may entice more people to visit the city. As more millennials start buying homes, they will prioritize affordability, and those in Pennsylvania may choose to go to Scranton. As a result, Scranton could become the center of a lot of attention sooner rather than later.

Pennsylvania Real Estate Market Summary

The Pennsylvania real estate market has enjoyed an impressive ride over the last decade. Home prices, in particular, have increased for eight consecutive years. At the beginning of 2020, the Coronavirus threatened to put an end to the state's momentum, but the threat was short-lived. While the pandemic did cause a fear-induced setback, fundamentals remained strong, and the market came roaring back. Today, real estate in Pennsylvania has a lot going for it, but its true potential won't be realized until new listings are brought to the market. When that happens, everyone will become the beneficiaries of strong tailwinds.

Sources:

https://www.zillow.com/pa/home-values/
https://www.zillow.com/home-values/
https://www.bls.gov/eag/eag.pa.htm
https://www.realtytrac.com/statsandtrends/foreclosuretrends/pa/
https://www.realtytrac.com/statsandtrends/pa/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/
https://www.attomdata.com/news/market-trends/foreclosures/attom-data-solutions-august-2020-u-s-foreclosure-market-report/#:~:text=%E2%80%93%20September%2010%2C%202020%20%E2%80%94ATTOM,of%209%2C889%20U.S.%20properties%20with
http://www.freddiemac.com/pmms/pmms30.html