Have House Prices in Reading and Berks Peaked?
House prices in the Reading-Berks area have been on a torrid hot streak that not even a pandemic could cool. The question is whether that streak will continue, or have we reached the top? Let's see what the numbers tell us.
In my 27 years of practicing real estate in the Reading-Berks area, I have never witnessed a more robust seller's market. In May of this year, the median single-family home price climbed 12.8% year over year. The median price jumped 7.1% in the first half of 2020 compared to the same period last year. As you can see, the housing market has proven incredibly resilient to the pandemic's economic fallout to this point.
If you read my articles regularly or listen to me on WEEU Radio, you know I am a numbers guy. Each month I check the numbers for clues relating to our housing market's strength or weakness. More in-depth knowledge of the overall market helps me answer the most asked question in the real estate business "What's that house worth?"
This past June I discovered that the median home sale price was the same as the previous year, $185,000. It has been some time since there has been zero home value growth year-over-year - This is undoubtedly something to keep an eye on.
Going Deeper Into the Numbers
The median price is just a part of the home pricing puzzle and often a result of other underlying factors. One key factor is the absorption ratio, which offers clues about inventory patterns. The low home inventory is a big reason home prices have climbed to the lofty levels we see today.
In the first half of this year, 2,641 homes were listed, of which 1,935 sold. The absorption ratio was 0.73, which means through half the year, 73% of all homes listed have sold. In 2019, 6,445 homes were listed, of which 5,376 sold. The absorption ratio in 2019 was 0.83, or 13.7 percent higher than the 2020 figure thus far. This year the absorption ratio for homes from $350,000 to $500,000 is 0.56, while in 2019, the ratio was 0.69. In the $500,000 and up price range, the absorption rate drops to 0.38. The lower the ratio, the more likely inventory will grow and create price pressure.
The Uncertainty of House Pricing in 2020 & Beyond
In July of 2019, there were 1,781 homes listed for sale at a median price of $184,900. In July of this year, 593 homes are listed for sale, down 66.7% from the same time last year, at a median price of $260,000, a whopping 40% higher!
Inventory may start to accelerate in the higher price points, which can put pressure on overall house pricing. As sellers continue to take advantage of the low inventory environment and list their properties for more money, a bubble can form. Fortunately, pending sales are keeping pace with the new listings hitting the market, especially around the median price range, which continues to keep overall inventory numbers low.
There is much uncertainty out there. Many economists believe we will see a drop in housing prices of almost 7% by May of next year. Let's hope they are wrong. I don't have to remind anyone that this is an election year - Enough said on that! Will the pandemic remain a key factor? Will interest rates fluctuate, or foreclosures start to rise? Will the government continue to pump dollars into the economy? I could go on and on, but I think you get the picture.
The next couple of months may further define the home pricing landscape in the Reading, PA, and Berks County areas. You can bet I will be watching and reporting my findings to you!
If you need a home value analysis, call me, it's free - I know my numbers.
Knowledge is Power!
Jeffrey C. Hogue